Indonesia Microcredit Failure

by Roes Arief Budiman, President, Budiman Mikro Usaha

  • Project: Loans for Small Business Owners
  • Location: Indonesia
  • Sector: Business Development
  • Professional Designation: Social Enterprise


I started my microcredit operation in Indonesia in February 2008. Around mid-2009 the business grew to larger than 400 members and the repayment rate was above 90%. We gave $100-200 loans to small business owners.

The plan to grow larger too soon backfired. My staff in Indonesia and I did not select small business clients carefully. I was in Indonesia in 2010 and found that our clients borrowed money without careful business planning. Their businesses were having difficulties soon after getting the microloans. Some used the money for consumption.

The 90% repayment rate dropped to 50% in 2010. We are still struggling now to bring the repayment to a sustainable level.

I decided to increase the interest rate to make the microloans not cheap. We found that the clients took us for granted. They used the microloans to pay loan sharks. Our “cheap” money was not treated as a valuable resource. A totally unexpected outcome from what I thought initially.


Select three phrases that describe this failure.

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Got something to say? Feel free, I want to hear from you! Leave a Comment

  1. Tahsin says:

    Perhaps investing in learning about the culture and running simulation would be a good tee-off for microcredit providers. I am from Bangladesh and even here people use money for first personal consumption.

  2. Andy says:


    Thank you for sharing. Can I ask why was the decision to increase in scale was not modeled after a best practice? This is insightful, and many realize that MFI expansion can be detrimental to sustainability, because the quality of service – or in your case – ability to monitor is then compromised.

  3. Julie Emery says:

    TLM is a microfinance group based in Australia that enjoys a high rate of success in Eastern Indonesia NTT. Their model may be worth seeking. I have watched the progress and success on the ground.

  4. Jennifer Kavanagh says:

    I too am a microcredit practitioner, and I sympathise. I have had my own failures, which I might share in another posting. We have always found that the work before a loan is the most important – although labour intensive, it seems crucial to work with clients to enable them to understand the nature and demands of their business.

  5. Mujibul says:

    Does higher interest rate help your business? How much do you charge now?

    Besides loan sharks you need to think about other MFIs in your operation zone. Be sure you are not overlapping.


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