Understanding the success factors of micro‐finance institution in a developing country

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -To provide a deep understanding of success factors contributing to a micro-finance institution (MFI) in a developing country, e.g. Bank Rakyat Indonesia (BRI) and how MFI in developing country might learn from this success. Design/methodology/approach -This is a case study research which took place at BRI branches as well as its village units (unit desa). Data were gathered from both sides, e.g. from BRI and borrowers. The interviews, raging from in depth interviews to semi-structured interviews, were conducted in Jakarta and some rural cities mainly in Java and South Sulawesi between August and September 2003. Findings -Factor contributing to the success of BRI lay on the decision to keep adapting its practice with environmental changing. Also BRI is very innovative in choosing collaterals so in one hand, the credit is still interesting for lower class community, but at the same time they work as compensation in case the clients fail to repay their credit and thus ensuring the sustainability of the MFI. Well-trained and dedicated staffs operating a simple, transparent system, clear incentives to staffs and clients, tight internal supervision and audit capacities and financial procedures and sound financial risk management contributes to its success as well.Research limitations/implications -The case study took place in a developing country, in Indonesia. Given that any developing country has unique environment and circumstances, this success model will not automatically transferable to any MFI in other developing countries. Any further research is needed to transfer BRI success elsewhere. Practical implications -A useful lesson learnt for national/international development agent which wants to set up a sustainable MFI to assist the poor and alleviating poverty. Originality/value -This is the first time that the investigation also took place on BRI village units in South Sulawesi, one of the most successful operational area of BRI village units. Thus, the implication of this research is true reflection of the success of BRI village units.

Economic Empowerment of Rural Women: Case Study of Microfinance Institution (MFIs) in Tangerang, Indonesia

“…One method that MFIs do to gain that advantage is by utilizing social capital based on social groups approach as a replacement for collaterals (Mosley and Rock 2004;Chowdhury, studies agree that MFIs are sources of financing that can be acquired easily. BRI-Unit Desa has given us valuable lessons in the study of MFIs, as Hartungi (2007) said in his study. As an MFI, BRI-Unit Desa has been providing financial services to remote areas with market rate interest, and no subsidy is required.…”

Governance of microfinance institutions (MFIs) in Cameroon: what lessons can we learn?

“…On the contrary, the existing regulations in place should be regulations that take into consideration the interest of all stakeholders involved in the microfinance industry with the common objective of poverty alleviation and not just that of shareholders (Jawahar and McLaughlin, 2001). Since MFIs have lost that foresight to develop innovative contracts Hartungi (2007) argues that MFI managers in Cameroon have little or no time to adapt their management practices to their environments and are pushed to take decisions "focusing instead on larger loans to better established, wealthier clients" (Armendariz and Morduch, 2004, p. 135). As an MFI Accountant argued, "During Board meetings, most shareholders are not interested in whatever story you tell them.…”

The make-buy decision in marketing financial services for poverty alleviation

“…The success of an Indonesian microfi nance organization, Bank Rakyat Indonesia has been attributed in part to the training provided to its own staff to evaluate, monitor and screen the small projects of clients. 26 Organizations that specialize in amelioration of consumption needs of the poor may also provide referrals to fi nancial service organizations, and could play a role in helping the poor develop strategies for their output market. Organizations that provide these services are engaged in social entrepreneurship defi ned as ' activities and processes undertaken to discover, defi ne, and exploit opportunities in order to enhance social wealth by creating new ventures or managing existing organizations in an innovative manner ' , 27 because they develop new and innovative solutions to serve the poor who have been neglected by mainstream organizations.…”