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In 1989 the LPPI made cooperation with several domestic and foreign institutions in applied research on sustainable financing model development for poor households in rural areas of Indonesia. The research result was then realized by establishment of a micro finance institution especially supporting provision of funds for poor people on the basis of business and not on charity basis. This institution was called Karya Usaha Mandiri or abbreviated to KUM which was officially established in Curugbitung Village, Nanggung District, Bogor Regency.

The KUM institution has developed, from only one business unit at its establishment in 1989 to one head office with four branch offices and 13.629 debtors in November 2010.

Total accumulated loan reached Rp39.9 billion with a delinquency rate of less than 1% or exactly 0.7%. Furthermore, based on research by Christina (1992), Syukur (1993), IBI (1998), and Murtadho (2007), KUM debtors have increased as statistically demonstrated by the level of trust at a minimum of 95%. Some of the progresses achieved by KUM debtors are as follows.

  1. Improvement in food consumption, clothing, and education (Christina)
  2. Addition of household assets, house renovation, and improvement of income (Syukur)
  3. Increase of assets before and after becoming KUM debtors (IBI)
  4. Positive relations between status of KUM debtor and family woman productive economic self-reliance


Based on track record either from micro aspect, as institutional sustainability, or macro aspect, namely poor debtors’ life improvement quality (poverty alleviation program), the LPPI wished to distribute this formula or model to related parties, particularly from micro finance activators by establishing Micro Finance Study and Development Center (PKPKM). The basic objectives were extended with latest micro finance industry developments. The scope of additional business conducted by this institution include, among other things, study on financial inclusion, poverty alleviation program, segmentation together with micro finance success model, and direction development of increasing commercial banks’ involvement in serving micro businessman finance.

Poverty Alleviation Program

One of development objectives is to reduce poverty. In early 2011, for instance, the Coordinating Minister of Economy announced that the government would allocate budget for reducing the number of poor people from 32.5 million persons to 31 million persons, or there will still be approximately 13% of population by the end of 2011. The funds will be used for three main programs in the forms of social guarantee protection, self-reliance community empowerment national program, and micro business access improvement into productive sectors; all of them were macro policy.

On the micro side, poverty may be understood as a household’s income per capita which is still under poverty line. Poverty alleviation efforts are made by improving family income in order to be higher than the poverty line. A research concludes that capital provision for poor households brings about improvements on households’ income. Therefore, it is necessary to make efforts to establish a financial institution that may provide access into capital or credit for poor households.

In this context, micro finance institution may play a role in providing capital access for poor people. Therefore, it is necessary that micro finance institution network as the Karya Usaha Mandiri is distributed as a part of poverty alleviation program.

Financial Inclusion

Financial Inclusion may be defined as a provision of financial services such as savings, credit, payment, and insurance for all segments of the population. Financial inclusion policy is expected to be able to bring “un-bankable” people into the financial network in oreder that they may enjoy financial services as the group of “bankable” people. Data of Bank Indonesia shows that at the end of 2010 there were still 76 million people or 32% of Indonesian population who had not been touched by financial services at all (financially excluded).

Based on the facts, at the end of 2010, Bank Indonesia introduced a program known as the National Strategy Financial Inclusion. This policy was aimed at abolishing community access barrier in utilizing either price or non-price finance services. Bank Indonesia expected that in the coming 5 years this policy will become one of the main ways to reduce poverty rate through improvement of individual ability in financial management. In accordance with its vision and mission, the PKPKM actively contributes to the success of the national financial inclusion program targets.

Micro Finance Segmentation

Micro finance experts frequently call Indonesia as a micro finance living laboratory because the large number of micro finance institutions, use of business model variation, and different groups of micro segments. In fact, there are so many micro businesses making up the largest portion in the number of existing business but its contribution to the Gross Domestic Products (GDP) is still the smallest.

According to Bank Indonesia, micro business grouping is based on the criteria that the business held net assets less than Rp500 million or sales proceeds is less than Rp300 million per year. By the end of 2010 the number of micro business groups was 52.2 million or 98.88% of total number of businesspersons and only contributed 33.08% to the GDP.

The needs of financial services of those millions of micro businesses are served by thousands of Micro Finance Institution (LKM) in the form of cooperative business entity, bank, and/or other local institutions. With regard to business size and served customer group, the LKM may be mapped in several segmentations and with different business models. As other businesses, there are success and failure stories in LKM businesses.

It is necessary to study the LKM success experiences and formulate its business model in order to be disseminated to the general public. The PKPKM has planned to study the LKM success stories and write them to be disseminated and/or exchanged with LKM industry stakeholders’ experiences.

Micro Finance Development Model

With tens of years of experiences in banking research, training, and consultation, particularly in the micro finance segment, the LPPI has been convinced with the micro finance development model that has proved successful. This model explains that the achievement of sustainable LKM needs a consistent work chain to support. This work chain then was realized by the PKPKM in integral services, with which the PKPKM might participate to support the achievement of a sound and sustainable LKM.

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