ISMANTO BANK RAKYAT INDONESIA Micro Credit Financing and Poverty Alleviation in OIC Member States Istanbul, July 9-11, 2007

BUSINESS LANDSCAPE (2006)

Number of Business Units (57.7mio)

Medium + Big Corporates 15%

(7.9 mio)

7.9 mio (15%)

MSEs 85%

(44.8 mio)

MSEs Source:

Kompas,

August 11, 2006 Medium + Big Corporates

Microfinance in Indonesia

MFIs

Source : Central Bank Directorate of Rural Banking Supervision

Bank Rural Banks (BPR/BPRS) Act License Supervision = The Banking Act No.10/1998 = Bank Indonesia, the Central Bank = The Central Bank Act No.23/1999 Non Bank Formal Non Formal BRI Unit Act License Supervision = The Banking Act No.10/1998 = Bank Indonesia, the Central Bank = * BRI Branches * Bank Indonesia for BRI as a Whole (Commercial Bank) Village Credit Board (Badan Kredit Desa =BKD) Act License Supervision = Bank act No.10/1998 = Bank Indonesia, the Central Bank = BRI on behalf of Bank Indonesia Cooperatives (KOSIPA) Act License Supervision = Cooperative Act No.25/1992 = State Ministry of cooperative & Small Enterprise = State Ministry of cooperative & Small Enterprise LDKP (The Funds and Credit Institutions) Act License = -------- = Governor of each Province Supervision = Local Government Level I

• • • •

Non Government Organization (NGO) Self Help Group BMT Rotating Saving & Credit Association (ROSCA)

ABOUT BANK BRI…

 Bank BRI was founded in 1895 by Raden Arya Wirya Atmaja, in Purwokerto (Central Java) as a Support and savings bank for civil servants.

 The growth of BRI is regarded as the beginning of Indonesian rural banking.

 After 111 years of operation, Bank BRI still focuses its business on microbanking:

making banking products and services accessible for the poor in Indonesia

.

VISION

Becoming a leading commercial bank in Indonesia which puts customers’ satisfaction as the priority.

MISSION

1. Performing the best banking activities focusing on providing services for Micro, Small, and Medium Enterprises to support Indonesia’s economy.

2. Providing excellent services for customers through widespread network, supported by professional HR by implementing GCG.

3. Providing optimum added values for all stakeholders.

STRATEGIES

1. Focus on the core business 2. Expand operational coverage 3. Strengthen Risk Management 4. Use information technology for operational efficiency

BRI-Unit 1970

Initiated to support BIMAS Program (the Rice Self Sufficiency Program): BRI’s functioned as a government agent to channel subsidized loans for farmers BIMAS Program was successful.

BRI Unit Unsustainable

Since 1984, BRI Units …

      Structurally an autonomous financial unit Staff accountability closely associated with Unit’s performance Under branch’s supervision Strengthening the internal supervision, audit capacities and staff capability Commercial approach Market based products

Fundamental Changes in Unit Banking Business Policies



Micro Banking staff become BRI Employees



New accounting system focusing on transparency



Introduction of KUPEDES (General Rural Credit)



Relocation of Poorly-sited BRI Units



Development of SIMPEDES (Rural Savings)



Introduction of performance incentives



Organization of staff and supervision



Personnel Training and Development

Simplicity

Basic Principles

BRI MICRO BUSINESS DIVISION

VISION

Promoting BRI as the Best Microfinance Provider in the World

MISSION

1. Providing economy; the BEST services in microbanking to enhance the poor 2. Making contribution to BRI in the form of maximum profit and benefit; 3. Actively participating in the international microfinance development.

BRI MICRO BUSINESS DIVISION

STRATEGIES

         Reorganizing so as to be more focused in competition Taking steps for efficiency and effectiveness Product development Market expansion IT development HR quality and service enhancement BRI Units’ Office/outlet performance enhancement Optimizing networks Locking micro market using

Strategic Alliance

BANK RAKYAT INDONESIA

Networks

1 Head Office 4.229 BRI Units 13 Regional Offices 11 Regional Audit Offices 331 Branches 207 Sub Branches 45 Sharia Branches 133 Village Service Posts ATMs : 977 ATM BRI 9.000 ATM Bersama 3.627 ATM Link ATM Cirrus & Alto around the world Phone Banking Facility

Income Levels

Target Customers

Commercial Financial Services

Subsidized Poverty Alleviation Programs

Lower Middle Income

Standard Commercial Bank loans; full range of savings services

Economically-Active Poor Poverty line

Target

Commercial Micro loans Interest bearing savings accounts for small savers

Extremely Poor & Displaced households

Source: Robinson, M.. 2002.

The Microfinance Revolution. Lessons from Indonesia

,. The World Bank & Open Society Institute.

Washington DC.

Poverty programs for such purposes as food and water, Medicine and nutrition, employment generation, skills training, and relocation

BRI APPROACHES

Poverty Alleviation Program Target : Below the Poverty Line 1. Rural Income Generating Project (RIGP)

• • •

Collaboration between BRI & Government agencies Interest subsidized by government Funding from IFAD, ADB, BRI, etc.

2. Program Loans

• • •

Focus on strengthening rice production and food security program including cooperative sectors Target: farmers, agricultural sector, and cooperatives Interest rate set up by the government

BRI’S APPROACHES

Target : Above the Poverty Line

3. Microbanking

     Target: micro entrepreneurs & the economically active poor Loan size up to Rp 50 million (US$ 5,600) Commercial approach Simple procedures, quick disbursement Loan product: Kupedes (the General Rural Credit)

4. Small Loans

   Target: Viable small enterprises Loan size up to Rp 5 billion (US$ 55,000) Conventional banking approach

BANK RAKYAT INDONESIA - MICROBANKING A Commercially Sustainable Microfinance System BRI is known as the largest and the best microbanking system in the world.

• more than 4,200 outlet, covers the country up to the level of sub-district and village • almost 30,000 employees • 3.4 million borrowers, 32 million savers • Provide wide range market-driven products (loan, saving and other services) • Good financial performance (almost all outlets are profitable, NPL<2%, ROA>6%)

BRI

GO PUBLIC

• • Bank BRI made its Initial Public Offering (IPO) in November 2003, with 59.5% of the shares was owned by the government and 40.5% belonged to the public (55.3% went to foreign investors, and 44.7% to domestic investors).

As of September 2006, 42.6% of the shares was owned by the public (88.5% went to foreign investors; 11.5% to the domestic)

BRI is Public listed company at Jakarta Stock Exchange.

Share Price at Jakarta Stock Exchange IPO : Rp. 875 Recent : Rp. 6,400 (June 5, 2007) Share Holders

Government Public : 57.4% : 42.6% Local ownership : 11.5% Foreign ownership: 88.5.4%

BRI FINANCIAL PERFORMANCE

DATA Total Asset Outstanding Loans Public Deposits Net Profit Net Interest Income CAR

Latest update: April 2, 2007

31 Dec. 2005 (billion) In USD (mio) 122,776 13,641 31 Dec. 2006 (billion) 154,725 In USD (mio) 17,192 Growth 26.02% 75,533 97,046 3,809 12,426 8,393 10,783 15.29% 423 1,380 90,283 124,468 4,258 13,770 10,031 13,830 18.82% 473 1,530 19.53% 28.26% 11.79% 10.81% 23.08%

Loans:

BANK RAKYAT INDONESIA Financial Highlight Maintained Key Success Factor

Proven Commitment and Focus to Micro, Small and Medium Enterprises

100% 17.4% 3.7% 24.2% 14.7% 4.6% 26.9% 13.6% 4.6% 28.0% 13.2% 6.2% 28.5% 13.3% 8.2% 27.0% 50% 24.2% 23.4% 23.1% 21.9% 21.2% 86.7% Loans to MSME 30.5% 30.5% 30.8% 30.2% 30.2% 0% 2002 2003 2004 2005 2006 Micro Small Consumer Small Commercial Medium Corporate

Loan Definitions : By Loan Size

Micro Loans : Up to Rp 50 mio (US$ 5,000) Small Consumer : Up to Rp 200 mio (US$ 20,000) Small Commercial : > Rp 50 mio to Rp 5 bio (US$500,000) Medium Loans : > Rp 5 bio to Rp 50 bio (US$ 500,000 – US$ 5 mio) Corporate Loans : > Rp 50 bio ( > US$ 5 mio)

BANK RAKYAT INDONESIA

Loans: Steady High Growth

100.00

50.00

39.37

9.53

9.52

12.01

2002 Micro Medium 47.60

12.70

11.20

14.54

2003 62.37

8.46

2.86

17.47

14.38

19.19

75.53

9.94

4.72

21.55

16.54

22.78

90.28

12.00

7.42

24.42

19.15

27.28

2004 Small Consumer Corporate 2005 2006 Small Commercial Total Loan CAGR – by Business Segment Mikro Small Consumer Small Commercial Medium Corporate

2002 - 2006 (Full Year)

22.8% 19.1% 26.5% 50.3% 15.0%

BANK RAKYAT INDONESIA Loans: Steady High Growth



In the last five years, loan growth was driven by small and medium loans micro,



Medium loans showed BRI expanded its loan book.

the highest growth in percentage, but in the amount of loan, micro loans and small commercial loans were still the segment where



In 2005 -2006, loan increased by IDR 14.75 trillion. Micro and Small Commercial Loans contributed 50 % of it.

BANK RAKYAT INDONESIA

Loans: Steady High Growth

2005-2006 Loan Expansions by Business Segment (IDR Trillion) Micro Small Consumer Small Commercial Medium Corporate 2.05

2.50

idr trillion 2.61

2.88

2.71

4.50

5.00

BANK RAKYAT INDONESIA

Deposits: Trending Down of Cost of Funds and Improving Mix 12.0

12.75

12.75

12.25

11.25

9.75

130 8.0

7.43

6.20

6.24

6.21

6.07

90 4.0

4.60

4.73

50 0.0

13.4

17.4

Dec-04 Dec-05*) Demand Savings 16.6

Mar-06 Time 21.0

20.7

27.9

Jun-06 Sep-06 Dec-06*) BI Rate (%) COF BRI (%) 10

BANK RAKYAT INDONESIA

Deposits: Trending Down of Cost of Funds and Improving Mix  BRI’s cost of funds had been relatively resilient in the period of increasing interest rate, and decreasing steadily in the time of declining interest rate  Although there were some shifts toward high cost funds (time deposits) in late 2005 up to Q3 2006, low cost funds were still the majority in BRI deposits.

 Despite the shift, BRI’s deposits mix was steadily better than the Industry’s

2007 : Outlook

Changes in Regulatory Environment

Relaxation Policies from Bank Indonesia

Intended to spur loan disbursements, especially loans to MSMEs



Easing criteria of one debtor one loan classification. Single loan classification will only be applied to loans with total exposure of equal or more than Rp. 5 billion



Opportunities for companies with bad loan history to get new loans as long as the cause of the bad loans are not related to any mismanagement practices or any bad intentions.



Quality of loans with total exposure below Rp 5 billion , or loans to projects guaranteed by the Government, will be determined solely on timeliness of payments.



Maximum loans of up to 30% bank’s legal lending limit will be permitted for loans to all State Owned Enterprises engaged in development projects (not only infrastructure projects).

BRI in 2007 : General Directions



Maintaining loan growth at around 20%



Maintaining high loan quality, by keeping NPLs (gross) at around + 5%

 

Targeting deposits growth at around + 14% Maintaining the dominance of low cost funds in the deposit mix, targeting more retail depositors



Lower interest rate will give more advantage to BRI:



High net interest margin can be maintained: - Better mix of funds resulted in a lower cost of funds - High quality of loan growth



better valuation of government bonds



BI’s relaxation policy and lucrative business in serving MSMEs meanthat there will be more opportunities as well as more competitions among banks

BRI in 2007 : General Directions

Micro Businesses - Emphasizing the Economic of Scale



Opening new outlets in the prospective areas, continue the on line process of the existing outlets, on cost and benefit basis



Widening micro customer base by recruiting new customers long fostered through ‘subsidized loan schemes’



Setting more challenging targets for micro units accompanied by fairer incentive schemes



Improving and polishing products to cater more to needs and to compete better customers’

THANK YOU