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

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  • Rusdy Hartungi

Abstract

Purpose - To 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/approach - This 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. Findings - Factor 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/implications - The 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 implications - A useful lesson learnt for national/international development agent which wants to set up a sustainable MFI to assist the poor and alleviating poverty. Originality/value - This 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.

Suggested Citation

  • Rusdy Hartungi, 2007. "Understanding the success factors of micro‐finance institution in a developing country," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 34(6), pages 388-401, May.
    • Handle: RePEc:eme:ijsepp:v:34:y:2007:i:6:p:388-401
    DOI: 10.1108/03068290710751803
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    References listed on IDEAS

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    1. Rockart, John F. (John Fralick), 1982. "The changing role of the information systems executive : a critical success factors perspective," Working papers 1297-82. Report (Alfred P, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Seibel, Hans Dieter & Imady, Omar, 2003. "Sanduq: A microfinance innovation in Jabal Al-Hoss, Syria," Working Papers 2003,1, University of Cologne, Development Research Center.
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    Cited by:

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    2. Dilruba Khanam & Syeda Sonia Parvin & Muhammad Mohiuddin & Asadul Hoque & Zhan Su, 2018. "Financial Sustainability of Non-Governmental Microfinance Institutions (MFIs): A Cost-Efficiency Analysis of BRAC, ASA, and PROSHIKA from Bangladesh," Review of Economics & Finance, Better Advances Press, Canada, vol. 12, pages 43-56, May.
    3. Shakil Quayes & Baqui Khalily, 2014. "Efficiency of Microfinance Institutions in Bangladesh," Economics Bulletin, AccessEcon, vol. 34(3), pages 1512-1521.
    4. Syeda Sonia Parvin & Belayet Hossain & Muhammad Mohiuddin & Qingfeng Cao, 2020. "Capital Structure, Financial Performance, and Sustainability of Micro-Finance Institutions (MFIs) in Bangladesh," Sustainability, MDPI, vol. 12(15), pages 1-18, August.
    5. Miller, Paige & Brux, Jacqueline Murray & Neema, Clementia Murembe, 2016. "Microcredit in Uganda: Fundamental Reform or Just another Neoliberal Policy?," African Journal of Economic Review, African Journal of Economic Review, vol. 4(2), July.
    6. Shakil Quayes & Baqui Khalily, 2013. "Efficiency of Microfinance Institutions in Bangladesh," Working Papers 19, Institute of Microfinance (InM).
    7. Miranda-Reyna, Montserrat & Carrillo-Urbina, Gilberto Jaime, 2017. "Impacto de los indicadores financieros en el desempeño de las instituciones microfinancieras en México: un estudio de panel desbalanceado," eseconomía, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 12(46), pages 41-60, Primer se.

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