Aloysius Unditu and Anil Penna Bloomberg News TUESDAY,
APRIL 25, 2006
JAKARTA The president of Bank
Danamon, Sebastian Paredes, is counting on Indonesia's 42 million
self-employed workers, including the country's poorest people, to fuel
Loans averaging $2,200 now account for
10 percent of Bank Danamon's $3 billion in advances. The nation's
fifth- largest bank aims to double its percentage of lending to the
poor, known as microcredit, in three years, Paredes said. "I have seen
private banks being pressured by the World Bank and governments to give
credit to the poor," said Paredes, 44, a former Citigroup head of South
and sub-Saharan Africa. "We, on our own, are building a business out of
Bank Danamon is taking the lead from Bank
Rakyat, the nation's oldest bank, which pioneered loans to Indonesia's
poor in the 1960s. While administrative expenses may account for 19
percent of microcredit portfolios in Asia, lenders get an average
return of 32 percent a year, according to the World Bank. "There's huge
potential," said Hari Purnomo, a Jakarta-based financial services
project officer at the Asian Development Bank. "The poor may be
unbankable because they don't have collateral or a tax file number, but
they have the capacity to repay because their business is run in a
In India, Kenya and the Philippines,
the average annual return on investments by microbusinesses ranges from
117 percent to 847 percent, the World Bank estimates. In
addition, the poor tend to borrow within their means and service loans
promptly because they have few credit options, Purnomo said. "In the
top league of microfinance institutions, the default rates are much,
much better than commercial banks' default rates," Martin Holtmann, a
microcredit specialist at the World Bank's Consultative Group to Assist
the Poor, said in a telephone interview from Washington.
Danamon began offering microcredit in March 2004. It now has about
250,000 customers, mostly small traders, corner-store owners, cab
drivers, craftsmen, fishermen and farmers, Paredes said. Loans range
from $222 to $56,000. The bank, 70 percent-owned by Deutsche
Bank and Temasek Holdings, charges as much as 31.3 percent annual
interest on a three-year loan of about $11,000. That compares with the
8.5 percent Danamon pays on a one-year deposit. The loan margin of 22.8
percentage points is more than double the 8.9 points Danamon earns from
its overall banking business.
By contrast, Bolivia's
Banco Solidario charges 22 percent interest, down from 65 percent when
it started operations in 1992, according to the World Bank. In
Bangladesh, microcredit interest rates average 30 percent.
lenders charge high rates to offset the cost of loan processing, said
Purnomo, of the Manila- based Asian Development Bank. Lending to
thousands of poor customers may total less than one corporate loan.
runs 700 offices around Indonesia and employs 7,500 people at its
microcredit unit. Loans typically are delivered to borrowers personally
and fingerprint scans are used to establish identities. Bankers must
track borrowers' incomes and expenses for the life of the loan. "It
demands very strong commitment in terms of management, in terms of
resources, in terms of allocation of capital," said Paredes. "It's
Banks also must cover the risk of
lending to customers who do not have collateral or credit histories.
"Accessing the loan is more important to the customer than the cost of
the interest rate," said Holtmann, of the World Bank.
who trades passion fruit in the markets of Jakarta and West Java
province, said he had doubled his business since taking a three-year,
$8,775 loan from Danamon in 2005. That has made it easy to pay 3.4
million rupiah, or $381, a month in principal and interest, he said. "I
used the loan to increase my sales," said Sarmada, 42, who uses only
one name. "I want to expand my business to trading other fruit as well."
to the poor among Indonesia's 238 million people will increase by 20
percent a year for the foreseeable future, according to Bank Rakyat,
Indonesia's fourth-largest lender.
accounts for about 31 percent of $8.4 billion in loans at Jakarta-based
Rakyat, said Wayan Alit Antara, the chief financial officer. Borrowers
have defaulted on 1.7 percent of small loans, compared with 16 percent
of loans to larger companies, he said. "Given Indonesia's population,
it's a potentially huge market for any lender entering a specific niche
like microfinance," said Eko Pratomo, president of Fortis Group's
investment unit in Jakarta.
Danamon shares have
risen 11.6 percent to 5,300 rupiah this year, lagging behind the 23.1
percent gain in Jakarta's benchmark index.