ADS

ADS

Transforming a Microfinance System : The BRI Experience

"The Bank Rakyat Indonesia (BRI) Unit system, which is fully
self-financing and computerized, has become one of the world's
greatest success stories in microfinance."

The above statement, written in a report by the Harvard
Institute for International Development (HIID), accurately
describes the achievements of Indonesia's oldest bank: BRI. Such
achievements were unimaginable when the bank was established more
than a century ago, on Dec. 16, 1895, by Raden Bei Aria
Wiriaatmadja, the vice regent of Purwokerto in Central Java.

Having started out with only dozens of clients, today BRI
serves more than 30 million customers throughout the nation. As
the bank with the largest network in Indonesia, it has 13
regional offices, 325 branches, 3,954 banking units, 147
subbranches and 199 rural offices. BRI New York Agency is its
office in New York. The bank has another office in the Cayman
Islands. Currently, the bank employs 37,000 people. By this very
fact, BRI goes to the record of Museum Rekor Indonesia (MURI)

One unique characteristic marks BRI's long journey: its deep
concern for small and medium-size businesses. This remains part
of its future plans, with the bank allocating 80 percent of its
portfolio to this sector. One of the reasons for this is that
small and medium-sized businesses have proven their capability to
survive, even during the country's recent economic crisis.

The performance of the revamped BRI Unit system improved
significantly. In just two years a financial breakeven was
achieved. These achievements show that BRI Unit system is among
the best examples in building a sustainable financing system for
the poor. It also proves that contrary to popular opinion, the
poor are able to interact with and thrive within a market
mechanism. This has changed the way in which poverty alleviation
is viewed.

From an international perspective, the BRI Unit system is a
model of sustainable development and as such performs the role of
microfinance best practice. This has been well documented in a
variety of articles and international journals. Various
international organizations that have acknowledged the success of
this system include the World Bank, Asian Development Bank,
United States Agency for International Development (USAID),
Women's World Banking Organization, Islamic Development Bank and
Asia Pacific Economic Cooperation. Several studies have shown
that the BRI Unit system has positively impacted rural area
economic and social development. For example the Kupedes system
had been shown to improve the length of children's schooling,
household nutrition levels and the empowerment of women.

International Visitor Program (BRI-IVP) Microfinance has
recently gained recognition as an effective tool to improve the
quality of life and living standards of the poor. This is because
microfinance can help the poor in putting their productive assets
to use and at the same time help foster the development of micro-
sized enterprises. Therefore, many governments and international
organizations are now enthusiastic to develop microfinance
systems. In this regard BRI, as a leading institution in
microfinance, commits to share its wealth of experience. In 1996
BRI established an International Visitor Program (BRI-IVP) in
partnership with USAID. BRI has also established a partnership
with the Consultative Group to Assist the Poorest (CGAP), a World
Bank affiliate organization, for the purpose of BRI-IVP capacity
building programs such as the Study Visit Program and the
Training Program, which includes on-the-job training in a BRI
Unit.

Almost 1,730 participants from 45 countries have learned about
the BRI Unit system and adopted it as best practice in their
respective countries. This underscores the fact that the BRI Unit
model, besides being tried and tested, is also adaptable. One
chief reason participants are attracted to the BRI-IVP programs
lies in its approach and methodology, which are practically
oriented.

Technology of BRI

Although the bank serves a huge number of customers in rural
areas, including the most remote villages, this does not mean the
bank is lagging behind in technology. In fact, technology-wise,
BRI is now one of the country's most advanced banks.

MS 100, a survey conducted in 2002 of companies using
computers in the ASEAN region and Hong Kong, cited BRI as the
largest computer user in Indonesia and number three among ASEAN
member countries and Hong Kong. To date, the bank uses 25,583
computers. For its information technology, the state bank has
developed the BRI IT Plan, which incorporates the Core Banking
System, Banking Delivery System and Management Support System.

To provide the bank's customers around the nation with
convenient services, BRI serves them through two types of banking
delivery systems. The first is the conventional outlet, meaning
the bank's premises where tellers and customer service staff
serve clients. The second type is e-outlets, which comprise
Automated Teller Machines (ATMs) and phone banking. Currently,
the bank has 582 ATMs all over the country, as well as 4,999 more
jointly operated with other banks.

As of September 2003, 587 offices had been connected in a
real-time, online integrated network system using a centralized
database in IBM AS/400, Broadband VSAT (Very Small Aperture
Terminal), frame relay, as well as its website. In the very near
future, the bank, which earned the 2001 E-Company Award from
Warta Ekonomi business news magazine, is planning to use VOIP
(Voice Over Internet Protocol). With 140 foreign exchange and
money changer offices connected online, BRI is also spreading its
wings globally.

BRI Performance

Over the last few years of economic turmoil in the country,
The bank, which earned the Best Brand Award 2003 from SWA
magazine and Best Recapitalized Bank of 2003 from Investor
magazine, has not only managed to stand solid, but has made
enormous progress. The relatively high business profit as per 30
June 2003, which reached Rp 1.545 billion, shows an increase of
49.71 percent during semester I of 2002 at Rp 1.032 billion. The
profit gain was almost 50 percent higher during semester I of
2003 due to an increase in interest revenue to Rp 7.408 billion,
in comparison to the same period in year 2002 at Rp 6.543
billion.

The relatively high profit is also due to Bank BRI managing to
maintain the quality of productive assets up to semester I of
2003. The quality of this productive assets is reflected in the
low level of nonperforming loan (NPL), at 3.41 percent. This
figure is still within a limitation set by BI of 5 percent.

BRI president director Rudjito said the growth was mostly due
to the increase in loans given to customers. This shows that BRI
has also succeeded as a banking intermediary, as reflected in its
loan-to-deposit ratio (LDR) of 58.16 percent, which was above the
national banking LDR. Loan distributed as of June 2003 was
recorded at Rp 43.620 billion, or an increase of 21.68 percent
compared with the loan distributed during the same period of last
year, at Rp 35.848 billion. With the outstanding credit, the LDR
of Bank BRI reached 58.16 percent. Growth of credit during
semester I of 2003 is dominated by micro, small and medium-scale
businesses (usaha mikro kecil menengah, or UMKM).

The focus of UMKM business is reflected in the composition of
loan recorded in the Bank BRI portfolio, which was 91.62
percent. The loan distributed to microbusinesses amounted to
30.20 percent of all Bank BRI total loan portfolio. The loan
distributed to small/retail-scale businesses reached 51.92
percent and that distributed to medium-size businesses was 9.50
percent.

Awards

Due to the bank's strength and commitment to microbanking --
serving small and medium enterprises (SMEs) -- it has been
appointed by the government to conduct a related model project,
the SME Center, in Indonesia. This project was part of an
agreement reached during a meeting in May 2001 between the
private sector, the Federation of Chamber of Commerce, Industry
and Service (FCCIS) and heads of governments within the G-15
group. The SME Center is meant to guide and develop small and
medium businesses in facing global economic challenges.

For its efforts in guiding and developing small and medium
businesses, BRI has received an award from the Indonesian Chamber
of Commerce (KADIN), especially for its achievements with the SME
Center. The BRI internal audit received further international
recognition on Nov. 19, 2002: the ISO 9001 Certificate in the
risk-based audit category from three institutions -- the
Registered American Bureau, United Kingdom Accredited System and
Joint Accreditation System (based in Australia and New Zealand).
Besides, BRI was the Best State-Owned Company in Customer
Satisfaction Strategy in 2003. The latest award received by BRI
is Best Financial Sector Organization of the Year 2003 and its
CEO, Rudjito, has earned Best State-Owned Company CEO 2003, in
the Gold Category. Both of awards were made by the Office of the
State Minister of State Enterprises.

However, the awards have not lulled the bank's management into
complacency; on the contrary, they have increased their
alertness.

Next to its various achievements that are recognized worldwide
and its state-of-the-art technology, most important is the public
trust of more than a century. All these form BRI's formidable
strength for a more promising future in serving its clients with
the highest level of satisfaction. For more detail about BRI,
please visit its website: www.bri.co.id.