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

Document Information:
Title: Understanding the success factors of micro-finance institution in a
developing country
Author(s): Rusdy Hartungi, (Atma Jaya University, Makassar, Indonesia)
Citation: Rusdy Hartungi, (2007) "Understanding the success factors of micro-
finance institution in a developing country", International Journal of
Social Economics, Vol. 34 Iss: 6, pp.388 - 401
Keywords: Developing countries, Finance companies, Indonesia
Article type: Research paper
DOI: 10.1108/03068290710751803 (Permanent URL)
Publisher: Emerald Group Publishing Limited
Abstract: Purpose 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.