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

Abstract

PurposeTo 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/approachThis 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.FindingsFactor 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/implicationsThe 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 implicationsA useful lesson learnt for national/international development agent which wants to set up a sustainable MFI to assist the poor and alleviating poverty.Originality/valueThis 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.