Bali, 28-7-2008

Keynote Speech at The Asia Pacific Regional Microcredit Summit

 

KEYNOTE SPEECH BY
DR. SUSILO BAMBANG YUDHOYONO
PRESIDENT OF THE REPUBLIC OF INDONESIA
AT
THE ASIA PACIFIC REGIONAL MICROCREDIT SUMMIT
BALI, INDONESIA, JULY 28th 2008



<i>Bismillahirrahmanirrahim,
Assalamu‘alaikum warahmatullahi wabarakatuh</i>
Peace be upon us,
<i>Om swasti astu,</i>

Professor Boediono, Governor of Bank Indonesia,
The honorable Professor Muhammad Yunus,
I would like to thank to your excellence speech that given us, that inspired us all to do more, to do better in reducing poverty by succeeding this micro credit program across the region, across the globe.
Mr. Sam Daley-Harris, Director of the Microcredit Summit Campaign,
Dr. Toledo, Former President of Peru, my friend, welcome,
Director of Bank Rakyat Indonesia, Governor of Bali,
Excellencies Ministers,
Distinguished Participants ,

Ladies and Gentlemen,
It is my pleasure and honor to welcome you all to this important summit and to Indonesia. We are very proud to host the representatives of some 60 nations at this gathering.

To those of you who are in Bali for the very first time, let me warn you, this may not be the last time we see you. Bali is a beautiful, addictive little corner of the world. I hope that you have a wonderful time here.

It is also a pleasure for me to welcome back Professor Muhammad Yunus to Indonesia. He last visited Indonesia in August 2007 and gave a Presidential Lecture on micro-finance management as a way to help the poor break free from poverty. The Nobel Peace Prize which he won in 2006 is a resounding recognition that micro-finance is not just simply a tool to empower the poor, but it is also an important tool to promote peace, stability and political development.

We are gathered here today to once again tackle our shared and enduring problems of poverty. With fuel prices creeping up ever higher, this problem will become ever greater, ever menacing. Many Governments are revising their economic forecasts, and lowering expectations. This is potentially threatening to the political and socio-economic stability among us. A poor community is often a disgruntled community, full of frustration and anger. That is why, in this globalized world, we must tackle poverty together, to safeguard our collective future.

Today’s forum provides a timely opportunity to beat down the doors of poverty. For more than a century, micro-finance has rescued the poor from becoming even more impoverished. Micro-finance provides the poor with small loans to start up businesses, and to weather unexpected crises.

Indeed, micro-credit has greatly contributed towards the Millennium Development Goals of poverty eradication. Through gathering such as ours today, we can come up with even more innovative ways to lessen the burden of poverty.

Why micro-finance? Quite simply, because it works. If you have limited education and capital, but you have good ideas and want to start a business, micro-credit is the only alternative. In the world of official banking, lack of skills and capital translates into “high-risk”, particularly if you are in the agricultural sector. Micro-finance institutions do not see risk, they see opportunity for the community and for themselves.

Indeed, contrary to popular belief, small-scale borrowers are good business. According to Bank Indonesia, less than 1% of loans, yes, 1 % to small enterprises are non-performing loans. In fact, the banks that survived Asia’s 1997 financial crisis were those that focused on small enterprises.

And economies focused on small enterprises are making a long-term investment, allowing the economy to grow from the bottom up. Micro-credit is especially important because it relieves unemployment, generating income for jobless families. But in order to sustain their businesses and self-employment, they need continued access to capital.

Our goals are hindered by real-world dilemmas. It is fitting that this summit takes place here, as Indonesia’s experience illustrates the challenges that face the future of micro-credit, and what may be done to address them.

Consider our history. The first rural bank in Indonesia was established more than 100 years ago. By the beginning of the 20th century, some 13,000 community-based institutions were providing loans to rural enterprises. Today, Indonesia has more than 50,000 micro-finance institutions, among the largest collection in the world.

Yet, some 40 million Indonesians still lack access to any financial services; we refer to them as the “un-banked majority”. They exist in every province, and they badly need the services of micro-finance outlets. These mom-and-pop enterprises lack collateral, and without it, they often can not access more formal sources of finance, such as state loans. The desperate turn to unscrupulous money lenders who charge them sky-high interest rates and leading them into endless indebtedness.
Why do these millions do not have access to micro-finance?

First, because many of them live in remote areas with no access to financial institutions, even micro-credit institutions. We are constrained by geography, and by infrastructural limitations.

Secondly, many micro-credit institutions that do exist lack access to adequate capital or technical know-how. They fail to grow. They can only provide the most basic of banking services. A lot of micro-credit is channeled through community groups, which disband after the funds have been distributed. So borrowers are resource-less when they need an emergency injection of capital.

Excellencies Ladies and Gentlemen,
The Indonesian Government takes this problem very seriously. One of the top priorities of my administration is rural development, as rural growth eases urban congestion and unemployment. Therefore we need to focus on micro-credit in the rural sector.

That is why micro-credit has been at the heart of my Government’s policy in combating poverty and promoting the welfare in rural areas. Because of its importance, I have personally led my Government’s national efforts to expand micro-credit programs to reach as many poor families in the shortest time possible.

My government has also placed emphasis on development policies that promote “growth with equity”. We must ensure that the economic pie is spread more evenly and, most importantly, trickles down to the poor.

In my view, growth must also be inclusive. Any development process must from the start, ensure that all elements of society, including the poor, have access to capital resources and opportunity. They must be reached and empowered so that all can grow. Thus, development and empowerment must go hand-in-hand.

And, in the wake of current energy and food crises in many parts of the world, we do need a New Deal policy at the global level that would better protect the poor in developing countries.

The World Bank predicts that, if the trend in oil and food prices persist, we will see 100 million people pushed back to poverty, 33 countries around the world will potentially experience political and social turbulences and MDGs will be pushed back 7 years. We cannot let this thing happen. Not in our time.

Thus, micro-credit can play an important role in this New Deal policy. Micro-credit can be a critical solution as it alleviates poverty, ensure growth equity, and bridges development gaps.

Distinguished Guests,
Ladies and Gentlemen,
We have seen encouraging progress in recent years. Many commercial banks are now actively venturing into micro-finance. Bank Rakyat Indonesia, Bank Mandiri and BNI have been at the forefront of finding innovative ways to reach the poor through micro-credit in this country. For example, Bank Mandiri now offers loans of only a few hundred dollars, and they are reducing transaction costs through techno-logical developments such as the use of ATMs and mobile electronic collection device.

Commercial banks are also improving their links with micro-finance institutions, providing them with loans, either directly or through non-governmental institutions. Today, some 30 commercial banks are linked with some thousands of micro-finance institutions. Indeed, Indonesia was one of the first countries in the world to foster these types of linkages. We hope that these relationships will only strengthen in the future.

Various programs are also designed to help empower micro-businesses. In late 2007, we launched a program called “Credit for the People”, or Kredit Usaha Rakyat. It is basically a subsidized guarantee scheme, so that government guarantee some 70% of the loan. The average loan size is small, only some 9 million rupiah, or about one thousand dollars. We are very proud to report that more than 900,000 small enterprises have benefited from this program. This year alone, we hope to disburse some 14 to 15 trillion rupiah for this pro-poor program, equal to US$1.6 billion.

Indeed, the world of micro-credit can be described by the five-finger philosophy.

The first finger represents the financial institution, the provider of the loan.

The second finger represents the government, which provides facilities, direction, and establishes regulations for all parties concerned.

The third finger represents the supporting institutions, those organizations that provide credit guarantees.

The fourth finger represents the NGOs, the financial consultants, and other parties which give advice and guidance to the micro-clients.

The last finger represents the micro-client itself.

All these five fingers are inter-connected. But there needs to be better synergy between them. The institutions and individuals in question must better understand each other’s needs, concerns, and limitations. They must better communicate with one another, and more often, so that each party strives towards the same direction.

Ladies and Gentlemen,
I grew up in a poor rural area not unlike many parts of Indonesia. I remember vividly how many families did not necessarily consider themselves poor, and how individuals had great ideas about how to make a living. The problem was they did not have the funds to realize their potential. I saw firsthand how a little bit of help can go a long way, particularly if they can count on that financial assistance when they really need it.

Many small businesses require more capital when a family member has a medical emergency, or when natural disaster strikes – they need financial help in order to keep the business running. Communities around the world are full of entrepreneurial spirit but the resources available to them do not match their drive.

We have to make sure that 175 million of the world’s poorest families can match their drive with appropriate credit. Help them employ themselves. Help them gain the resources that will help them earn more than 1 dollar a day. Help them grow their communities.

I sincerely hope that the broad range of views offered by this summit will result in some creative brainstorming about tackling the challenges of micro-credit. I hope that we can share our best practices, and encourage better co-operation among us. There is so much to learn and so much to be continued. The potential among us is limitless.

The millions of poor that we serve are full of hope. They seek opportunity, and they have the drive and will to seize these opportunities. Let us keep their hope alive. Let us empower them with opportunities that will fill them with even more hope and drive. These two things – hope and drive – grow communities, grow nations.

Finally Ladies and Gentlemen, by saying <i>"Bismillahirrahmanirrahim"</i>, I take great pleasure in declaring this summit open.

I thank you.


*****



Bureau for Press and Media Affairs
Presidential Household