The trend of microfinance products gaining traction in populous nations like Indonesia will have positive results for their economy. I've been a fan of microfinance for some time now. My previous blogposts on this will bear me out.
However, as always, the caution is always on the mode of delivery. The Grameen model is the ideal one. I'm not sure how Indonesia is doing the delivery of microfinance products. But, if banks are the ones providing the delivery of microfinance products one key feature of the Grameen model will certainly be absent. This is the feature of community-guarantee, where five borrowers who are known to each other will collectively guarantee and vouch for each other. This feature has been, in my view, crucial in reducing the rate of defaults in microfinance loans.
The absence of this feature has been my concern about Malaysian-based microfinance products.
Bloomberg carried this report: