Background and Objectives

Challenges of Low Income in Indonesia

Even by conservative official estimates, there are 10 million poor households in Indonesia. There are a further 10 million vulnerable households whose income hovers just above the poverty line. According to the World Bank, around 43 percent of the total Indonesian population of 240 million fell below the $2 dollar (purchasing power parity) poverty line, and 16 percent were below the $1.25 dollar (purchasing power parity) poverty line in 2011.

Along with other microfinance institutions around the world, MBK believes that the availability of working capital is one of the most effective and direct weapons to fight poverty and unequal income distribution. The central assumption is that the poor have developed survival skills and are prepared to work hard. However, they have more skills and time than they can use. Also, poor people do not receive the full value of their work, because moneylenders, who often charge 20 percent interest per month, take away a significant portion of their income. One of their major constraints for low-income households is the lack of working capital to combine with their labour to produce higher incomes.

MBK uses the Grameen Bank approach to extend working capital of US$ 100-300 to low-income women. This approach is particularly suited to Indonesian conditions. With a total population estimated at 241 million in 2011, the work force consisted of 110 million persons. Of these, only 38 million persons (34 percent) had regular jobs (formal employment). The remaining 72 million persons (66 percent or two thirds) were either self-employed (39 percent), or working as casual and seasonal labourers in construction and agriculture (10 percent). The remaining 16 percent were unpaid family workers, usually women mostly in agriculture. Poverty in Indonesia is therefore not primarily a problem of low wages for regular employees; it is lower income for the majority of earners who find themselves in the informal sector (self-employed, casual workers and unpaid family workers).

The availability of working capital can also attract women who are housewives at present (and therefore outside the labour force), and who can productively employ a few hours every day to earn additional income for their families. Working capital is provided to individual women through groups without guarantee. Many of the clients are landless labourers, and are involved in petty trade, preparing and selling food, livestock rearing and vegetable growing.

Vision, Mission and Goals

MBK’s vision is to improve the lives of significant numbers of households who find themselves at the bottom 25% of the population by income in Indonesia. MBK wants to reduce the vulnerability of low-income households, enhance their dignity and confidence, and empower women. In doing so, MBK hopes to contribute to the government’s goals of meeting the Millennium Development Goals, particularly in fighting poverty and empowering women

MBK’s mission is to provide access to formal and cost-effective working capital to significant numbers of low-income women who are un-banked at the moment, particularly in rural areas and small towns, in an honest, fair, timely and efficient manner. In addition, by also providing financing to women who are currently unemployed, MBK aims to create significant self-employment opportunities.

MBK’s goal in the medium term is to serve one million clients by 2017.

MBK’s additional objective is to learn best practices from leading MFIs around Asia, adapt them to Indonesia, and actively disseminate these best practices to Indonesian-based MFIs through information sharing, network conferences and study tours.