The trickle-up effect: How micro-finance helps people change their own lives

The trickle-up effect: How micro-finance helps people change their own lives

Harriet Richards, Contributor, Jakarta

Ibu Ngarofah seems an unlikely entrepreneur. Her shanty-house
leans precariously and her front door opens to a railway line.
When Indonesia's economic crisis hit, she could not feed her
family. Yet this 39-year-old has just sold a flourishing
business. She wants to concentrate on her fourth child, plan a
new business empire, and manage a group of fellow-entrepreneurs.

Ibu Ngarofah knew how to beat the crisis: "I had to sell more
cakes -- to develop my business." But she needed funds for raw
materials. Banks, "we don't serve your kind", and loan sharks
with 30 percent to 50 percent monthly interest rates were not
realistic options. Then, people came to her house offering
business loans with just 2.5 percent interest monthly. "I needed
capital, and they came to me. I will never forget that." Ibu
Ngarofah was able to make her business grow and changed her
community. She eventually employed six push-cart sellers in the
food trade. Another 36 push-cart businesses sprang up as
neighbors realized the extent of demand on their doorstep --
industrial Tangerang.

The eye avoidance of poor people is long gone in this area. I
am dressed to the max in city-slicker clothes but Ibu Ngarofah
faces me woman-to-woman as she discusses distribution channels,
sourcing of raw materials and employment generation. I feel we
should do a clothes-swap.

Throughout the kampong the story is the same. Ibu Mispani, a
widow with seven children, used to make tofu in her garden but
now owns a small factory and employs three people. Ibu Darsini
owns a small goods store which she runs with her husband. Ibu
Sutrisna, who sold cassava chips from home, now owns a warehouse
and employs seven workers. Ibu Supri employs six workers in the
production of tofu-based oncom. Ibu Endang supplies handcrafted
soap to the duty-free shops at Soekarno-Hatta International
Airport.

These women have bank accounts, make deposits, repay their
loans, and hold management meetings to practice good corporate
governance. Lessons in abundance for the nation's elite. What
explains this hive of entrepreneurial Ibu-power?

The answer is micro-finance. In rural and urban areas across
Indonesia, and in communities across the world, micro-finance is
helping people break the poverty cycle and change their own
lives.

Two of micro-finance's pioneers, an Australian and an
American, founded Opportunity International in the 70s after a
first loan to an Indonesian farmer. It now operates in 26
countries through a multitude of local partner organizations.
These it mentors through micro-finance training, corporate team-
building with OI partners, and in some cases funding. The OI
partner for Ibu Ngarofah's kampong is Dian Mandiri, or DIMAN.

Tucked away in one of those giant, under-occupied monuments to
krismon (financial crisis), the DIMAN office in Tangerang is a
cell of energy. Buzzwords like self-reliance and empowerment crop
up frequently in conversation. In four years DIMAN has developed
a 79-strong army of field-workers who have brought micro-finance
to 4,797 recipients.

This NGO takes its professionalism seriously. It comes
complete with a board of business professionals, strategic plans,
and international auditing. Chairman and Founder Frank Hadi is
determined to hold DIMAN to its values of transparency,
accountability, sustainability, and integrity. "This is not
negotiable. We must set an example for organizations all over
Indonesia."

The mission is bold: To enable the transformation of
individuals, their families, and communities. DIMAN wants to
bring micro-finance to 120,000 Indonesians by 2007.

A micro-finance branch is born when a field worker enters a
neighborhood to gauge possibilities for credit provision. Locals
who want credit must present a business plan. Typically two
months' work with a neighborhood precedes a first loan to a
"client". Minimum loans of Rp 500,000 can be repaid weekly
(principal plus interest) in just over six months. Creditworthy
clients can receive further loans up to a maximum of Rp
2,000,000.

Micro-finance depends for its success on traditional community
dynamics. Up to 25 clients form a group which meets weekly to
share experiences, receive training, and source new business. At
this time they make loan repayments and pool savings into a joint
bank account. Failure to repay loans, a major loss of face, means
the default rate, late payments, not no payments, is just 2.19
percent.

DIMAN's prime target group -- women -- forms 82.3 percent of
its clientele. This acknowledges women's development needs but
also makes sound commercial sense. "Just look at their economic
profile", explains project development director Frans Purnama,
"they are savers in the household".

Micro-finance programs reflect highly localized community
needs. The products of Ibu Ngarofah's kampong transcend the
urban-rural dichotomy: fish-farming, tempeh, cassava chips,
chicken-rice porridge, fried rice, small shops, key-ring chains,
silverware, handcrafted soap, packaging baskets. For this reason,
micro-finance is mushrooming across rural as well as urban areas.

This in turn triggers corporate interest. DIMAN has business
and government partners. OI works with major Australian
corporations. But such forging of capabilities lags behind global
needs. OI members argue the time is overdue to harness the power
of strategic partnership between business, government, and NGOs
to overcome inequality between nations.

The capital of the wealthy is a powerful match with micro-
finance. After initial seed money, the rolling fund grows with
its clients and beyond the need for external assistance. DIMAN is
now 81 percent sustainable, meaning loan repayments cover
operational cost. Thus, a drop of wealth creates a powerful
ripple effect.

While local pressures can force companies into a community
development paradigm which often implies "we" develop "you",
micro-finance lets people manage their own destinies. It hereby
builds optimism in the neighborhood.

This new outlook results from the change in economic fortunes.
Ibu Ngarofah's monthly income grew a typical 20 percent to 30
percent, to Rp 250,000 during her first loan. Meanwhile, the
World Bank estimates that for every person assisted with micro-
finance another six directly benefit. Ibu Ngarofah's kampong fits
this pattern.

Other results are thought provoking. If DIMAN can secure
120,000 clients, then by World Bank estimates nearly a million
people will benefit. DIMAN's 312 Trust Banks deposit about Rp
48.6 million (US$5,400) in the bank monthly, or $65,000 yearly
into the formal economy. Given Indonesia's trickle-down effect of
mixed success and a trickle-out effect of vast excess, surely the
trickle-up effect warrants attention.

Ibu Ngarofah once watched her hope -- to see her children in
good schools -- seemingly evaporate. As she fights poverty, her
resort to micro-finance obeys the entrepreneur's ultimate mantra,
"grow or die". Ibu Ngarofah has kept her children in private
schools. The oldest has just graduated and -- the smile of a
mother's pride -- "is a computer expert". A younger son takes off
to school on a shiny new bike. The latest family addition, a
girl, sits on mother's hip and looks me square in the eye. (The
writer has worked for several years in Indonesian resource sector
including in community development. She now works as a freelance
corporate relation consultant.)