Microlending has helped make BTPN one of Asia’s most profitable banks – Economist
Indonesian microfinance -Rich pickings
Apr 20th 2011 | Jakarta | from the print edition
MENTION microfinance in Asia and thoughts usually turn to India, which is struggling to regulate the industry, and Bangladesh, where Muhammad Yunus, the Nobel prize-winning founder of Grameen Bank, has been turfed out of his job. Indonesia offers a brighter picture. There, a range of lenders is successfully funnelling credit to its entrepreneurial poor.
They include Bank Rakyat Indonesia, a state-owned behemoth that had a whopping $7.4 billion in microloans outstanding in September and operates throughout Indonesia’s many islands. Non-profit lenders, pawnshops and co-operatives also swim in the microcredit sea.
So, too, do private-sector banks. Among the keenest of them is Bank Tabungan Pensiunan Nasional (BTPN), which entered the market in 2008 after a buy-out by Texas Pacific Group, a private-equity firm. BTPN’s microloan portfolio doubled in 2010, for the second year in a row, to 4.6 trillion rupiah ($500m) or roughly 20% of the bank’s total loan book. The bank, which was founded in 1959 to serve retired bureaucrats, boasted a racy 4% return on assets in 2010. Microloans, which command higher yields to reflect greater risk, had a 14% net interest margin.
Most of BTPN’s firepower is concentrated on Java, Indonesia’s most populous island, and on the family firms that are the lifeblood of the informal economy: market traders, household producers, repair shops and so on. A typical loan is for $3,000, usually for a year or two, with annual interest rates of around 25%. Many opt for daily or weekly loan repayments. With the economy growing rapidly, many small businesses are eager to expand.
Customers are often too busy to drop in to the branch so BTPN equips its staff with portable electronic devices that have been customised to scan fingerprints as well as bank-issued cards. A fingerprint detector is handy for customers who are illiterate or have an inconsistent signature. The device also zaps data back to head office so that management can keep tabs on loans and deposits in real time, instead of waiting for forms to arrive from BTPN’s 1,000-plus branches, triple the number in 2008.
The new branches are mainly outside city centres and are decidedly bare-bones. At a poky BTPN branch in Ciracas, on the southern rim of Jakarta, a dog-eared sign hangs on the door and the floor could use a polish. This is deliberate, says Jerry Ng, the bank’s chief executive. Low-income customers “don’t dare” to walk into a posh banking hall (BTPN’s branches in central Jakarta are much plusher). Retired people get a tailored approach, too: BTPN operates branches that open at 5.30am on the first of the month, when state pensions are paid.
For its microborrowers, BTPN offers free training courses on financial skills. On a recent afternoon in Ciracas, 20 or so mostly female customers squatted on straw mats as an instructor handed out envelopes marked with different coloured squares to signify things like household expenses and savings. The courses seem to be popular with entrepreneurs. They also give bankers a way to size up borrowers: those who struggle to separate petty cash from capital might not be ready for the big time.
BTPN’s breakneck expansion is bound to slow this year, though Mr Ng predicts the bank’s overall loan-growth rates will still be in the high 20s (from 48% in 2010). Mr Ng is working on a strategy for what he calls the “productive poor”, who are a rung or two below micro-entrepreneurs, and are mostly served by non-profits.
In India some politicians have cast commercial microcredit lenders as villains. So far, there is no whiff of a backlash in Indonesia. Most Indonesians accept the principle that nobody will invest capital unless they expect a return, says Nick Cashmere of CLSA, a brokerage. BTPN’s customers seem happy enough, too. Daniel Ginting, a fruit vendor, already has a 100m rupiah loan charging 2.6% a month. Now he plans to open a string of air-conditioned shops to sell his produce. “I’m sure BTPN will give me the loan because it needs customers like me,” he says.