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.