7. Savings is The Primary & Main Indicator of People Welfare as the End Objective of Microfinance

June 18, 2009

A vision without an action is just a dream

An action without a vision is just wasting time

A vision with an action will change the world

Joel Arthur Barker


There is a general consensus that providing savings service is important, since there is much demand on this service from the poor, and since savings plays protection role towards seasonal cash need and fulfill insurance function. More over, establihing savings strengthening client financial discipline and finally can become as a collateral and functioning as source of fund for the MFI.

Jonathan Morduch and Barbara Haley,

Analysis of the Effects of Microfinance on Poverty Reduction,

 NYU Wagner Working Paper No. 1014, June 28, 2002


In fact, the very poor react more powerfully to financial services that build and protect assets that they do to the chance to take on debt.

Hugh Allen, Founder of VSL Associate


Objective of micro-finance is providing quality and comfortable financial services that affordable for the poor. But its end objective is improving well-being of the served people—including eradicating poverty for people who are categorized as the deprive people. To this end every one is agree. But, when we start discussing how is the concrete form of people well-being that is going to be achieved, may be we will not easy to agree. Several answers that I got when I asked this question to them who works decades in microfinance is if:


–          The MFI grows (its assets of loans increase);

–          its number of debtors is increase;

–          its number of clients and employees are increase;

–          create many new jobs;

–          reduce unemployment in the poor community


But when I ask a reflective question, is it true when all the said conditions are fulfill, we are ensure that the people is more prosper? Many of them answered, “No!” or at least, “It depends!”


It is not easy to find a concrete indicator of people that more prosper. Anyway, we should endeavor to choose one or several indicators that really reflect more prosper people during certain period of time when we do microfinance activities. With no indicator that is easy and cheap to measure, we will never have a clear direction in our activities, or we will tire since we feel that we achieve nothing.


From my experience in helping many MFIs, the board and the manager are reluctant to choose one or several success indicators for certain period of time. The reason is various. The most are their fear that once an indicator is chosen, that indicator will become their working target during that period of time. Meanwhile, if they do not choose any indicator, they do not need to account their achievement on certain target. Even, they said proudly that they try to improve people welfare comprehensively or holistically or another sophisticated jargon. But all that means they do not want to be accountable on their job or responsibility. That is why in this situation we need our own honesty and courage.


Act No. 10 Year 1992 on Population Growth and Prosper Family Development dated 16 April 1992 cited a Prosper Family is a legal married family that able to fulfill their needs of a decent spiritual and material life, belief in God, has a harmony and balance relationship among its members, and between the family and its neighborhood and environment.


In 1995 National Coordinator of Family Planning Agency (BKKBN, Badan Koordinasi Keluarga Berencana Nasional) held a data collection and developed an indicator that consists of 23 criteria. A cross sector team and experts of many disciplines from Indonesian Sociologist Institute chose the 23 indicators. In the data collection Prosper Family is categorized into five levels:

  1. Pre Prosper Family (Pre P), i.e. family that has not been able to fulfill their minimal basic needs, like spiritual, food, clothing, house and health.
  2. Prosper Family I (PF I), i.e. family that has been able to fulfill their minimal basic needs, but still has not been able to fulfill their socio psychological needs, like education, family planning, interaction in the family, interaction with the neighborhood, and transportation.
  3. Prosper Family II (PF II), i.e. family that has been able to fulfill their socio psychological needs, but has not been able to fulfill their developmental needs, like the need to save and get information.
  4. Prosper Family III (PF III), i.e. family that has been able to fulfill their basic, socio psychological and developmental needs, but has not been able to give a regular contribution to society, like material contribution and actively participate in social activities.
  5. Prosper Family III Plus (PF III Plus), i.e. family that has been able to fulfill basic, socio psychological and developmental needs, and has been able to give a regular contribution and actively participate in social activities.


The 23 criteria are used to grade a family into the five categories above and divide them into four groups as follow:[1]


Pre Prosper: If the family does not meet one of indicator as Prosper Family I


PF I: Can meet their minimal basic needs:

  1. Member of the family practice their religion according to their-own belief.
  2. In general every member of the family eat twice or more a day.
  3. Every member of the family have a different clothing for home, work and traveling
  4. The widest part of their house’s floor is dirt.
  5. If the family send the sick child or other member of the family to a health facility/officer. If they are Fertile Age Couple who want to plan their family, they go to a health facility/officer or use modern family planning medicine/method.


PF II: The family should meet indicators number 1 to 5, and should also meet socio-psychology indicators number 6 to 14 as follow:

  1. Member of the family practice their religion regularly according to their-own belief.
  2. At least once a week they eat meat/fish/egg.
  3. Every family member get at least one new cloth last year.
  4. The size of the house is at least 8 meter square per member of the family.
  5. In the last three months every member of the family is in a healthy condition in order to be able to do their own role/function.
  6. At least one member of the family is 15 years old and has a regular income.
  7. Every 10-60 years old member of the family is able to read Latin word.
  8. Every 6-15 years old child goes to school at the time of data collection.
  9. If two or more life children in Fertile Age Couple family, at the time of data collection they use contraception (except if she is in her pregnancy).


PF III: The family should meet indicators number 1 to 14, and should also meet family development indicators number 15 to 21 as follow:

  1. The family endeavor to improve their knowledge on religion.
  2. Part of family income can be saved as family savings.
  3. Usually eat together at least once a day and that occasion is used to communicate among member of the family.
  4. Participate in social activities in the neighborhood.
  5. Going outside together for recreation at least once every six months.
  6. Read a newspaper or magazine, or listen a radio, or watch a television to get news.
  7. Member of the family is able to use transportation vehicle that is common in the region.


PF III Plus: The family should meet indicators number 1 to 21, and should also meet family development indicators number 22 and 23 as follow:

  1. The family or member of the family gives a regular contribution for social activities in term of material.
  2. The head or member of the family actively play role as member of the board of society, foundation, or other community institution.


In international microfinance world, there are several tools that try to measure social impacts of an MFI, among others are:

  1. CERISE Social Performance Indicators Initiative
  2. Social Performance Assessment (SPA) Tool
  4. CGAP-Grameen-Ford Progress out of Poverty Index (PPI)
  5. FINCA’s Client Assessment Tool
  6. M-CRIL’s Social Rating
  7. Microfinanza Social Rating
  8. Planet Rating


All those tools can be downloaded from the internet. Just for an example for our discussion, I will present PPI that was developed by CGAP, Grameen Foundation and Ford Foundation. The PPI is claimed as the easiest and most objective tool to assess poor client. The PPI is a unique composite of easy-to-collect, country-specific, non-financial indicators such as family size, the number of children attending school and the type of housing. The PPI estimates the likelihood of an individual being under the national poverty line, international income indicator as of US$1/Day/PPP[2] and US$2/Day/PPP. The PPI uses ten simple indicators that can be quickly collected by field staff. With 90% level of confidence, estimation of group poverty level in general is accurate up to two percent. The PPI can help the program to target the market, track poverty movement over time, and report poverty level. The following is the PPI for Indonesia.









1.   How many members does the household have?  A. Seven or moreB. Five or six

C. Four

D. Three

E. One or Two






2.   What is the highest education level passed by the female head/spouse?  A. Elementary school or lower; or unknownB. Junior high school (general, vocational, or Madrasah)

C. High school (general, vocational, or Madrasah) or higher; or no female household head/spouse





3.   Is any household member a government employee or self-employed with permanent employees? A. NoB. Yes



4.   How many rooms are in the house?  A. Four or lessB. Five or Six

C. Seven

D. Eight or more





5.   What is the main material of the floor? A. Dirt, other, or no dataB. Tiles/terrazzo; cement/bricks; lumber/board; or bamboo

C. Ceramic/marble/granite/stone





6.   Where do most household members go to the bathroom? A. OthersB. Own toilet without septic tank

C. Own toilet with septic tank; shared toilet; or sewage drain





7.   What is the main source of drinking water? A. OthersB. Pipe water; or mineral water

C. Well water with electric or hand pump




8.   What is the main fuel your household uses for cooking?  A. Firewood; charcoal/coal; or othersB. Kerosene

C. Electricity, or gas/LPG




9.   Do you store foodstuffs or cooked food that goes bad easily in a refrigerator? A. Does not own a refrigeratorB. No

C. Yes




10. Does the household have a television? A. NoB. Yes




Total score


Source: Microfinance Risk Management, L.L.C., http://www.microfinance.com




Estimated poverty likelihoods associated with scores

If a household’s score is . . .

. . . then the likelihood (%) of being below the poverty line is:









































Surveyed cases weighted to represent Indonesia’s households.

Based on the 2000 IFLS.

Source: Microfinance Risk Management, L.L.C., http://www.microfinance.com





Reading the-23 criteria to grade prosper family from BKKBN, we may become more confuse since the criteria are too sophisticated and the measurement cost is prohibitive for our microfinance activities. Since the criteria is developed for data collection.


From the PPI for Indonesia we can see that the tool is used to assess poverty level of the client before she receive microfinance service from an MFI, and after several period of time we re-assess to check is there any movement after she receive microfinance services. But the PPI can not be used to monitor the progress of the client continuously, since we hold the assessment periodically. Another consideration is we need a significant time and money to collect the data and analyze them. Or if the period between two assessments is too short, may be there has not been any significant movement. In short phrase, there is a methodological issue in assessing the indicators.


Meanwhile what we need is one or several indicator to measure and evaluate how success our microfinance activities within certain period of time, that is easy and cheap to collect (with no significant cost). At this point, I would like to remind that the most important issue in choosing a welfare indicator as a success measurement of microfinance activities within certain period of time is that we should be critical and honest to ourselves.


In his book Development as Freedom, Amartya Sen[3] explains extensively development as a process to enlarge real freedom that people enjoy. Amartya Sen invites us to be honest and carefully in choosing indicator of successful development. Increase the income level, for example, should be examined by other determining factors. In his book he presents a statistic that shows even though the per capita income of African Americans in the United States is considerably  lower than that of the white population, African Americans are very  many times richer in income terms than the people of China or Kerala, India (even after correcting for cost-of-living differences). African American tends to do better in terms of survival at low age groups (especially in terms of infant mortality) vis-à-vis the Chinese or the Indians, but the picture changes over the years. In fact, it turns out that men in China and in Kerala decisively outlive African American men in terms of surviving to older age groups.[4] This phenomenon is about the same as a person whose income is one million rupiah per month in Jakarta is not necessarily more prosper than a person whose income is three hundred thousands per month in a village in Gunungkidul, Jogja.


We also knew that many people increase their income, but they are not more prosper. The main reason is that they can not manage their household finance/economy.[5] So, as an indicator of people welfare that we are going to achieve using microfinance, the easiest and cheapest to collect and very relevant with our expertise and our duties—i.e. microfinance, and the poor need it badly is the ownership and increase of mid-and-long term planned savings of money. As we may know, many poor do have non-cash savings, like cattle, tree, jewelry, etc., but they have no or insignificant equal-to-cash savings, while they are very prone to many risks. On the risk event, including death—especially the death of the bread-winner in the family, they are forced to sell their non-cash savings at lower than market price or they borrow to fulfill their need of cash!


There is an argument says that the poor capability to save is not significant. “Our income is not enough to live, do not say about savings!” For this question, once again I should say that microfinance can be used to help poor people that are willing to improve herself or her family or develop her business. The final objective of microfinance is a person who realize that she can improve herself and become independent, not just a person with a savings! Since savings in particular, and microfinance in general, is only a means to build human and community. Also, microfinance is not an assistance that can be receives by someone with no effort from herself. To receive microfinance assistance she needs to work “harder”, in terms of:

–          uses her brain/mind to be more creative—so she can see an opportunity in the market; or

–          uses her unproductive time and or unused labor optimally—so she can get additional income; or

–          something that can be understood but several people can not do it since it needs willingness, i.e. control consumption and expenses based on needs, not wants—so she can control and reduce their consumption expenses.


Although National Socio-Economic Survey in 2003 and 2004 only cover 10,000 household, let us notice the percentage of average Indonesian household expenditure. Indonesian household prefers to buy entertainment like cigarette and Areca catechu instead of education or health or even egg and milk! The research of Demography Agency of Faculty Economy of Indonesia University shows 40.7 percent poor household in Indonesia has a regular expenditure to buy cigarette. For poor household, cigarette consumes 12.43% of total expenditures, far higher than their expenditure for protein, health, and education.[6] It is not difficult to find an example in our neighborhood. There are many poor families that feel incapable to save, but can give daily pocket money of five thousand rupiah to their child. That amount is almost the same as side dish expenditure for the whole family per day! It is not difficult to find an example of a family that the child does not want to help their parent to do chore with thousand reasons. If those people want, then they can save five hundred or one thousand, or even five thousand a day (for year 2008) is not difficult, even for families with low income in many parts of Indonesia. Of course the toughest requirement is willingness to do it, since its consequence is they should work “harder” as I explained above. Maybe they should reduce the number of cigarette they smoked, or even should buy and consume a cheaper staple foods and cloths, or should work more creative or longer! But, once they realize that they are capable to save, let say just one

Percentage of Average Monthly Expenditure Per Capita By Group Commodity Indonesia 2003, 2004, 2005 and 2007


Group Commodity





– Cereal





– Tuber





– Fish





– Meat





– Egg & Milk





– Vegetable





– Bean





– Fruits





– Oil & Fat





– Drink





– Spice





– Other consumption





– Ready to eat or drink





– Tobacco and Areca catechu





Total Food





Non Food
– Housing and household facility





– Good and services





– Education





– Health





– Clothing, shoes & accessories





– Durable





– Tax & insurance





– Party & festival





Total Non-Food





Source: BPS, Survei Sosio Ekonomi Nasional, Modul Konsumsi, 2003 dan 2004 (only cover 10,000 households), 2005,2007



hundred thousand rupiah a year, they will be more confident that they can become an independent person! Actually, if we can transform successfully their habitus[7] from incapable into willing and capable to become independent, then our main mission has been achieved. The rest is “just” financial services to help them in accelerating their process to become more prosper.


Here is my own story. I had a driver that had been working for six months and he never had money. While he was still single and did not need to pay any cost of living, since it was part of his remuneration. When I asked how it could happen, he said that he should remit most of his salary to his parents at home in the village. Then I asked him, “Will your parents die if you do not remit your money?” He said, “No!” Then I asked him not to remit his money home, and ask him to save it. I told him, if he wants to give part of his money to his parents, it will be better annually or bi-annually and non-cash like repair their house or cleaner and healthier toilet, since their parents can not save in the village. Now my ex-driver has a house in Cibubur, has four cars that he uses for pick-up service business, and takes English course since he wants to be a guide in his elder years. He did help his parents to repair their house into a permanent house and finance a circumcision party for his nephew in the village.


On 9 August 2008 KSP MDM held a Household Financial Management and Co-Operative Education Seminar for 1,000 members, and one month after the seminar, its share savings increase more than IDR 100 million!


KSP MDM (Koperasi Simpan Pinjam Mentari Dana Mandiri) is a Saving-and-Loan Co-Operative of morning market and street stall vendor in Salatiga. As part of the Salco 7th anniversary, on August 9, 2008, KSP MDM held a household financial management and cooperative education seminar. As the main speaker, I was asked to explain and convince to their member on the reason and need to increase share savings. At KSP MDM, every Regular Member should buy a share savings of IDR 10 million that should be paid within 5-10 years. Member whose share savings has reached certain amount will be covered buy health and life insurance. KSP MDM will also render a loan to the Association of Morning Market Vendor Salatiga to buy or rent a market building, if one day they are not allowed to do business at present site: foot ways and parking area of the market. One month after the seminar, the share savings increased IDR 100 million! While other MFIs needed fund badly since it was near Idul Fitri. This true story shows that the poor capable to save, even better if we educate them on the need and importance of savings for themselves.





Box 4: Cooperative Share Savings as Pension Fund

This is a true story, although I do not use the real name. Mr. Mangun is a peasant with no land in Ngablak, Magelang, Central Java. His house has a dirt floor, bamboo wall, and no electricity. He has five daughters. Two of them have been working out of town. The rest are still primary and secondary students. In March 2008 Mr. Mangun met a field officer of KSP MDM. After he was explained on family welfare and cooperative, Mr. Mangun joined as Member. On September 2008 Mr. Mangun has share savings of IDR 3 million. He said that he want to pay the cooperative share of IDR 10 million within 5 years as his pension fund, while he will also receive dividend every year. He also borrowed IDR 6 million with 10 months tenor from KSP MDM to buy two calves. He chose to borrow money from KSP MDM and not chose to borrow calves from someone with profit sharing. If he borrows a calf, he should have a permission from the owner to sell it. But by borrowing money from KSP MDM to buy calves, he can sell them any time at any price with no permission from anyone including KSP MDM.


There is a joyful development. Now many parties become more critical on the definition of the poor base on their income. More people start looking at assets or wealth as a base to define the poor. Absolutely, the picture of world poverty will change dramatically if we define the poor base on assets or wealth. We see many absolute deprive in metropolitan, like Jakarta, Surabaya, Medan, and Makasar. Based on my own experience, there are many people in rural area are categorized as poor or admit themselves as poor. But, when in a household financial management education I asked them to list their assets or wealth, usually they were surprise and said, “Hay, we are actually rich!” It is true that they have no money or significant amount of liquid assets, but they are not poor. What actually happens is that they were asked to look at themselves as poor and need helps from government or NGOs that just run their programs.


As logical consequences of the definition of poor base on assets or wealth, there is a new trend to provide financial services that can help low income family to build their assets and wealth, i.e. by establishing savings and productive assets, including education, housing ownership, land, small business, cattle, investment, and pension fund. Even several government start packaging their social security program using assets-based social policy. One example is Korea. The Korean Ministry of Health and Welfare implemented Child Development Accounts (CDAs) in April 2007. CDAs have been viewed as a mechanism for providing financial education to underprivileged children and for providing opportunities to individuals to acquire assets that enable development. The plan is part of a broader effort to reduce widening gaps between the rich and poor in Korea by investing in human capital and also to address very low birth rates in the country.


In 2007, CDAs targeted a total of 41,500 children, comprising 37,000 children who were on welfare or orphaned and 4,500 children with disabilities. In 2008, the Korean government expanded its CDA program to include all newborns in low-income households that are already enrolled the National Basic Livelihood Security Act, an existing public assistance program. CDAs will expand over time to include children of all the working poor born on or after January 2009. By 2010, the government intends for the program to encompass all children born into low- and middle-income households, which will be approximately 50 percent of all Korean newborns.


At age 18, children will be allowed to access the CDA funds to use for education, housing, or microenterprise. The maximum monthly deposit into a CDA will be US$30, matched 1:1 by the Korean government. In 2007, the monthly CDA deposit for institutionalized children and children without parents is US$60, of which US$30 comes from organizational sponsors and US$30 is matched by the government. Starting in 2010, the Korean government plans to provide matched deposits twice: US$200 at birth, and US$200 at age 7.[8]


In the last five years we can witness an endeavor of using happiness a human development indicator.[9] Happiness is not easy to measure. But I do believe many people will agree with me that someone who has savings is usually happier than the one with no savings. Off course there is an indifference point where amount of savings will become the limit of someone happiness, since someone who has more savings is not always happier than other with less savings.


Savings is clearly a valid welfare indicator, since according to personal financial planner everyone is suggested to have emergency savings of minimum six month costs of living. The poor should have an emergency savings more than six months cost of living. Although their cost of living is lower, but in the event of crisis their cost of living will increase. In the developing country with no social security system like Indonesia, the poor needs badly emergency savings. Since every one should establish their own social security system.



Since savings capability of the poor is small, maybe there is someone who will says that even if they save during their life time, they will just be able to save insignificant amount, let say “only” five hundred thousands or one million rupiah. To address this comment I just can ask a reflective question. “Which one will she choose: whether she wants to inherit five hundred thousand savings, or inherit debt (how ever small it is)?


In Box 5 and Box 6, I give two stories that can assure us that the poor is will and capable to save.


Box 5: Monkey and Human Being


Theory Darwin says that monkey and human being has the same origin. In the evolution, finally human walks by their foot, while monkey “walks” by hand. This is why human’s legs are longer than its hand, while monkey’s hand is longer than its legs. The evolution of the way the human walks has made human population grows faster than monkey. Walking by foot, human can use their hand to bring home their works: pick up fruit and vegetables or hunt in the jungle, into where they live—on the tree or in the cave, as their inventory for their family during famine, summer, or winter season. Meanwhile, the monkey can not bring what they pick up or catch home to their place of living—since they should “walk” by hand. Many of them will die during famine or winter season. The impact of the different way of walking is that human start knowing a concept of savings, while monkey has no concept of savings and that is why their population can not grow as fast as human since many of them are dead due to famine.


If I tell this story in a training or seminar, usually one of the participants laughs and says, “It means that human who can not save is the same as monkey.” And I just confirm, “That gentleman or lady says that, I do not say that!”




Box 6: Bit by bit to build mountain


This is a true story of an 88 years old woman. Her name is Oseola McCarty. She is a washer woman. Her life story will make you aware that there is a form of efficiency to create wealth that is fantastic and most democratic in the world. The system is called accumulative system. The system has a power that able to transform poor people to become rich people. Oseola McCarty’s life was very tough. When she was eight, she should leave her school, although she was in the grade two of a primary school. She was forced to dropout since she should help her mother to wash and iron cloths of her neighbors. Seventy years later, Oseola still a washer woman.

Until the end of the Second World War, her wage is about 1.5 to 2 dollar per cart. This amount is the amount of cloth to be washed of average family with 4 members. After the war end, she increased her tariff to $10 per cart. She usually worked 10 hours a day, 6 days a week when the demand is high. But, even in the peak demand her income never more than $9,000 per year.

Oseola has been 40 years when she starts to save. At the beginning, she saved penny (1 cent) and nickel (10 cent). Then increase to 25 cent per day. Finally she can save one dollar note in a local bank. She disciplines herself not to withdraw any of her savings. Bit by bit, her savings is increase. From time to time, the principals and the interest are increasing.

In summer 1995, Oseola McCarty that did not finish her primary school and whose income is never more than $9,000 per year, was able to donate her money of $150,000 to University of Southern Mississippi!


Quoted from: Burke Hedges, Copycat Marketing 101, Network TwentyOne Indonesia, 2001



[1] Source http://www.bkkbn.go.id/, 8 October 2008 at 16.10


[2] PPP = Purchasing Power Parity.

[3] Amartya Sen is the Nobelaurate in economy in 1998 that succesfully encourage The World Bank to use HDI (Human Development Index) indicator instead of just use GDP (Gross Domestic Product) to measure development progress of a country.

[4] Amartya Sen, Development As Freedom, Oxford University Press, 1999, page. 21-23

[5] Just for an example, we can read the result of Financial Planning Survey by Swa Sembada Magazine No. 14/XX/8 dated 21 July 2004 with the headline “80% of Executives is Threaten to become Poor in Their Elder Years, They are Consumtive, More Expenses than Income, Poor Investment and Not Prepared for Their Elder Years. Ah, May be You are in the Same Position. How to Stay Rich in the Elder Years? Page. 24-56. Or please read books from motivators like Napoleon Hill or Robert T. Kiyosaki.

[6] Excise on Cigarette Needs to be Increase, The Poor will be Helped if They Reduced Their Cigarette Expenditure, Kompas, 1 Agustus 2008

[7] Habitus is a set of instings, individual or collective, that shape the way of feeling, thinking, seeing, understanding, approaching and relating with a person or group.

[8] Many other examples can be read at Global Saving, Assets & Financial Inclusion, Lessons, Challanges & Directions, Report from a Global Symposium, June 2007, Singapore, http://www.globalassetsproject.org

[9] Read for example Blanchflower, David G., and Andrew J. Oswald, Happiness and The Human Deelopment Index: The Paradox of Australia, Working Paper 11416, June 2005,  http://www.nber.org/ papers/w11416

8. Money as Education Means

June 15, 2009

Money is a very good servant, but a very bad master.

P.T. Barnum, Founder Member of Barnum & Bailey Circus


It is not what you do, but how much love you put into it that matters.

Mother Teresa


Building an established and well-being is also called as jihad.

K.H. Said Aqiel Sirajd



The most popular activities of microfinance are saving and loan. These products are simple. They are easy to understand by many poor and easy to do by the manager. But, for microfinance manager, simplicity of a product frequently becomes an obstacle to achieve a successful microfinance activity.


Due to their lack of understanding, many microfinance manager offers current account or transaction account—usually is called as savings or voluntary savings, i.e. an account that it features are deposit and withdrawal can be done every time during cash hour. While for loan product, we can see easily that they offer monthly installment loan. Both products—current account and monthly installment loan—are very interesting for their clients. Their clients did know and familiar with those two popular products and they feel benefited by the products, even better if the MFI charge a low loan interest and give a high savings interest!


What we have been witnessing is many MFI that provides those two simple products facing sustainability problem. The MFI could not mobilize a significant fund from their client in the long run, since their client use the account for transaction only, or just for securing part of their money when they do not need them temporarily, and not as a means to build their asset or improve their well-being. Although we can guest or say that those two simple products are good since they can be used to help the client in securing their money when they do not need it. But the operational cost for that security service is too prohibitive, and de facto that services do not help the client to improve their welfare. Beside that, in many cases that current account product can not be used for business transaction due to incapability and or unreadiness of the MFI or due to inability of the client to use it.


Meanwhile monthly installment loan, frequently become more problem for the MFI, even worse if the tenor is more than one year and with no principal payment (100% balloon payment at due time)! Stuart Rutherford from Safesave says that the poor have multiple financial challenges: 1) simple day-to-day money management; 2) putting together useful lump sums; and 3) risk management and coping with emergencies.[1] Putting together their money to pay monthly installment is a big challenge and tough for them.


To overcome this problem, the MFI should launch various product that are interesting for their clients, but more than that the products should also improve the client well-being and help the MFI to maintain its’ sustainability and develop its’ organization and expand its’ outreach. The products are:

–          Planned savings, for minimal six months with as low as and affordable initial and minimum deposit by the target market, with below the market saving interest or even with zero interest.

–          Daily or weekly installment loan, with interest higher than the market and in the installment is included a portion of compulsory savings; and

–          Life or loss insurance[2]

those are targeted to fulfill all needs of the poor of useful lump sum, like maternity, education, circumcision, wedding, burial, holiday, increase working capital, buying a consumption product, party, social contribution, etc.


For many people who do not understand microfinance and marketing, those products are not interesting and not pro-poor. But, the truth is this is the actualization of money as education means in microfinance. The core benefit of education (product) is enforcement to learn[3]. If we just want to get the knowledge, we do not need to go to school or course center. We can learn it by ourselves. If we just want to get the certificate, then we just need to “buy” the certificate and we do not need to go to school, although maybe the institution that sells the certificate is a school. We buy education from school or course center or other places, since we need enforcement to learn from that institution. In the education process they give us a homework, test, quiz, or examination, in order to force us to learn, since naturally we do not want to learn the topic by ourselves.


The same thing happen in microfinance, the actualization of education is not primarily in classical or group education. But in every financial product that is offered by the MFI. The planned savings minimum six months with no interest of lower than market interest is mean to enforce the client to educate them becoming a discipline and independent person. When they want to open a savings account, they should be asked: what is her objective in opening that account, how much is she going to achieve or accumulate during certain period of time. By answering those questions she educate herself to become an independent person, since she dare to plan (decide an action to be done in the future)—a characteristic of an independent person! By regular daily or weekly or periodic deposit, the saver is educated for discipline. So, a really helpful savings product/service is the one that can receive as low as possible minimum deposit affordable by the target community. But, as we all knew, the operational cost to receive cash deposit of IDR 500 (USD 0.05) or UDS 500 is not different. That is why the savings interest should be lower than the market savings interest. The interest difference can then be used to cover the operational cost in order to maintain sustainability of the MFI. If necessary, the plan savings give no interest (zero interest), and charge a service fee to the savers. So, the savers will not receive full amount of money that she deposits. In India, there are people who work as deposit collector. Every saver clients should deposit for 220 days of 5 rupees per day. When it is due, they will deposit 1,100 rupees (about USD 25), but they will receive only 1,000 rupees since they should pay service fee of 100 rupees to the deposit collector.[4] In Kayu Manis, Matraman, Jakarta, there is a ROSCA that is managed by Ibu Yuli. As a principal, every day she should collect deposit of IDR 2,000 (USD 0.2) from 144 members. But, the member who got her turn gets “only” IDR 286,000, since Yuli collect IDR 2,000 as management and collection fee. Frequently, Yuli receive additional fee of IDR 5,000-10,000 from the member who got her turn.[5] For you who feel or think that the fee is weird or unfair or rude, please try to save of IDR 1 million in a big commercial bank. Do not do any transaction for a year. See what happens to your saving balance. Do not be surprise if your saving balance does not increase but becoming less than a million rupiah! Maybe you will say, “Ah, that is a big commercial bank. An MFI should help the poor.” Then the question you should answer is, “Who is going to cover the operational cost of the MFI—that its’ field officer collects daily deposit of IDR 1,000—in order to be a sustainable MFI and be able to serve more people?”


The same argument is valid for micro-loan. This product can be use as education means for client by imposing compulsory savings in every loan and the savings deposits should be paid at the same time as the loan installment. In every consulting session for MFI, I always ask to the board and manager: is there any money-lender in their area of operation, how much is their loan interest, and does she has many clients? Usually the answer is yes, the loan interest is 20% per month (or even higher), and she has many clients! Then, I ask: what if their MFI launch the same product, i.e. daily installment loan with 20% interest for 30 days. “Hey, we are not money-lender!” claim them. I continue by saying that I am agreeing, so we should modify the product. I propose that the MFI pay part of the loan interest back to the client if they have pay the loan back and always pay the installment on time. As an example, for loan of IDR 1 million, the client should pay installment of IDR 40,000 in 30 days. If the client paid back the loan on time, the MFI should pay her back, IDR 100 thousand for example, as her compulsory savings that is not allowed to be withdrawn if she is still a client of the MFI, or should get an approval from the board for certain exceptional case. In this way, the client who borrows ten times of IDR 1 million will have a compulsory savings of IDR 1 million within ten months! Indirectly, we enforce the borrower to save and to build her assets. If there is no such enforcement, many of them will be trapped in permanent debt and will never increase their equity! If the borrower could not develop her business, then after she borrows ten times, actually she does not need loan. She can withdraw her compulsory savings, and she can save IDR 40,000 (USD 4) daily! But, if she uses to have a loan—because when she does not have loan she feels that she has no obligation to deposits or because her habit is to borrow as we will discuss in Chapter 9—then she need to borrow her own money using her savings as collateral. The latest condition is also common in commercial bank. It is called cash collateral. After I explain about the product, no one will say that the MFI is same as money-lender. Although some of them are still uncomfortable and feel that the interest is still too high, i.e. 10-15% per month. My answer is the same reflective question, i.e. “Who is going to pay the MFI operational cost in order to be able to sustainable and serve more poor?”


In this way we can actualize the principle of money as education means. Education should not be understood and should be realize as classical or group meeting that frequently fails since many poor can not let their business or income generating activities unattended. For many poor, every time she should leave their business place, it means an opportunity loss, even worse loss of customers! In micro-finance, education should be actualize in the form of product that linked by financial services offered to the clients.


Some of MFI manager are not agree with the idea and they say proudly that they have no difficulties in running a classical education in group. They even say that they have a positive feedback from classical education they held. Participants always ask when the next training is. When I ask how many client do they have at this moment, in average the MFI has about a thousand clients “only.” I just wish they can keep running classical group training consistently when they have five thousand, or ten thousand, or a million clients! I do really hope to become an eye witness the organization of classical group training and the progress of that MFI.

[1] Global Saving, Assets & Financial Inclusion, Lessons, Challenges & Directions, Report from a Global Symposium, June 2007, Singapore, www.globalassetsproject.org, page 8.

[2] By becoming as an agent of an insurance company.

[3] For a markerter, product is everything that is offered to the market for interest, use, or consumption that can fulfill their needs or wants. A product has five levels: core benefit, basic product, expected product, augmented product, dan potential product.

[4] The complete report can be read in Struat Rutherford, The Poor and Their Money: An essay about financial services for poor people, Institute for Development Policy and Management, University of Manchester, January 1999, page 5-8.

[5] The complete story can be read in Kompas, Sunday, 22 October 2006, page 18, “Sustainable due to Trust,” by Ninuk M. Pambudy.

Business Planning and Household Financial Management

June 15, 2009

KP Lesman 200905  Pada 18-20 Mei dan 25-27 Mei 2009 Irawan memfasilitasi pelatihan Perencanaan Usaha dan Pengelolaan Keuangan Keluarga pada warga korban gempa Jateng-DIY 27 Mei 2006. Pelatihan di Kulon Progo, DIY, diikuti oleh 30 orang dari sembilan kelompok usaha, sementara pelatihan di Gunung Kidul, DIY, diikuti 25 orang dari lima kelompok usaha. Setelah mengikuti pelatihan ini mereka mengetahui perbedaan antara “usaha” dan “mata pencaharian”, antara “kaya” dan “sejahtera”, antara konsep penjualan dan konsep pemasaran, arti  “orang yang sukses,” tingkatan produk, dan pasar. Pelatihan ini diorganisasi oleh Persekutuan Paguyuban Petani Lestari Mandiri, Boyolali sebagai pelaksana dari program YCAP dengan AUSAid.

  On May 18-20 and May 25-27, 2009 Irawan facilitated Business Planning and Household Financial Management for the survivors of Jateng-DIY 27 Mei 2006 earthquake. Training in Kulon Progo, Jogja, was attended by 30 participants from nine business groups, while training in Gunung Kidul, Jogja, was attended by 25 participants from five business group. After the training they know the difference between a “business” and an “income generating activity”, between “rich” and “prosper”, between selling concept and marketing concept, the right meaning of “successful person”, level of product, and market. The trainings were organized by Farmers Group Association Lestari Mandiri, Boyolali as implementer of livelihood program of YCAP and AUSAid.

ToT Household Financial Management

June 15, 2009

ToT Setara 200905Pada 3 Mei 2009 Irawan memfasilitasi Pelatihan Untuk Pelatih tentang Pengelolaan Keuangan Keluarga bagi Koperasi Wanita Setara, Klaten, Jawa Tengah, dengan 25 peserta. Pelatihan ini dilaksanakan sehubungan dengan rencana kerja Pengurus yang menargetkan penambahan jumlah anggota dari 1.602 orang pada tahun 2008 menjadi 3.000 pada tahun 2009.

On May 3, 2009 Irawan facilitated a Training of Trainers on Financial Household Management at Women Co-Operative Setara, Klaten, Central Java. The training was attended by 25 trainers and was held in order to achieve target of the Board Member to increase number of members from 1,602 by the end of 2008 to 3,000 by the end of 2009.

Microfinance for Leprosy and Disable People

May 2, 2009

Pada 8 April 2009 Irawan dan YTLI (Yayasan Transformasi Lepra Indonesia) mendiskusikan peran kegiatan keuangan-mikro dalam program VBCR (Village Based Comprehensive Rehabilitation). Dalam diskusi tersebut Irawan menyarankan agar tujuan dari kegiatan keuangan-mikro program VBCR adalah membangun komunitas yang mau menolong dirinya sendiri untuk lebih menyejahterakan keluarga secara realistis dengan tetap berpengharapan dan berperilaku hemat di desa yang penduduknya cukup banyak mantan penderita kustanya atau penyandang cacatnya. Sementara sasarannya adalah sekurangnya 50% anggota komunitas tersebut memiliki simpanan darurat sebesar enam bulan biaya hidup keluarga dan jaminan pelayanan kesehatan bagi mantan penderita kusta dan penyandang cacat sebagai wujud nyata penting dari peningkatan kesejahteraan keluarganya. Untuk itu YTLI perlu bekerja sama dengan BPR atau KSP yang bersedia melayani warga di desa sasaran. Oleh karena itu, bila ada BPR atau KSP di NTT dan pantai Utara Jawa Timur dan Jawa Tengah, yang mau bekerja sama dengan YTLI untuk mempekerjakan mantan penderita kusta yang memang memiliki kemampuan atau keterampilan yang sesuai dan yang mau melayani warga desa yang penduduknya banyak yang merupakan mantan penderita kusta dan penyandang cacat, silakan menghubungi kami. BRP dan KSP yang bersedia akan mendapat bantuan penguatan kelembagaan dari Kantor Konsultan Keuangan Mikro Irawan & Rekan untuk mampu menyediakan pelayanan penerimaan setoran simpanan dan pinjaman harian. Kesediaan itu merupakan wujud dukungan pada YTLI untuk mewujudkan Indonesia Tanpa Kusta. Juga, apabila ada yang berminat untuk mengetahui atau membantu karya YTLI silakan hubungi 62-21-821-6773, atau nuah.tarigan@transformasilepra.org.

On April 8, 2009, Irawan and YTLI (Transformasi Lepra Indonesia Foundation) had a discussion on the role of microfinance in VBCR (Village Based Comprehensive Rehabilitation) program. In the discussion Irawan suggested the goal of microfinance activities of VBCR is to build a community who are willing to help themselves to increase their family welfare realistically, keep hoping and thrift in the village with many ex-leprosy or disable people. While its objective is at least 50% of community member have an emergency savings of six-months minimum family living costs and health service guarantee for the ex-leprosy and disable people as an important tangible indicator of welfare improvement. To achieve that goal and objective, YTLI needs to cooperate with BRP or Saving-and-Loan Cooperative that are willing to provide financial service in the targeted villages. So, if there is a BPR or Salco in East Nusa Tenggara and in the North Coast of Central Java and Ease Java, that are willing to employ ex-leprosy or disable person who has the required skill and knowledge, and willing to provide financial services to the village with many ex-leprosy or disable people, please do contact us. The BPR and Salco will receive capacity building from Irawan & Partner Microfinance Consultant to be able to provide daily deposits saving and loan. The willingness of the BPR or Salco is their participation to free Indonesia from leprosy. If you need more info or want to support YTLI, please contact 62-21-821-6773, or email nuah.tarigan@transformasilepra.org.

Savings and Health Insurance Product

May 2, 2009

Pada 7 April 2009 Kantor Konsultan Irawan dan Rekan, PT Nusumma Utama dan perusahaan asuransi internasional mengadakan rapat pengembangan produk simpanan/tabungan yang memberi manfaat asuransi kesehatan. Sebagai salah satu wujud penting dari peningkatan kesejahteraan anggota/nasabah, mereka yang sudah menabung sebesar Rp1 juta sampai Rp25 juta akan mendapat jaminan rawat inap di 700 rumah sakit dan klinik di seluruh Indonesia dan luar negeri cukup dengan menunjukkan kartu tabungan yang sekaligus kartu kepesertaan asuransi tersebut. Sebagai contoh, penabung yang tabungannya sudah mencapai Rp1 juta mendapat jaminan uang muka sebesar Rp2 juta di rumah sakit agar dapat segera ditangani dan tidak harus meninggal dunia sementara anggota keluarganya mencari pinjaman untuk membayar uang muka di rumah sakit. Bila simpanannya sudah mencapai Rp2 juta, jaminan pelayanan kesehatan yang diterima adalah rawat inap dan pembedahan sampai maksimum Rp10 juta per tahun di kelas kamar sebesar Rp100.000 per hari. Jaminan akan bertambah seiring dengan kenaikan saldo tabungan yang dicapai. Bila tabungannya sudah mencapai Rp25 juta, jaminan pelayanan kesehatan yang diberikan adalah rawat jalan sesuai kebutuhan (tanpa batas) dan rawat inap sampai Rp36 juta per tahun. Di samping itu, penabung juga akan dilindungi asuransi jiwa sebesar target tabungannya bila penabung disiplin mencapai target tabungan tahunannya. Poduk ini sangat murah bila pesertanya banyak, maka apabila ada BPR atau KSP yang berminat untuk bergabung dalam konsorsium ini, silakan menghubungi kami.
On April 7, 2009 Irawan & Partner Microfinance Consultant, PT Nusumma Utama and an international insurance had a meeting to develop a saving product that is bundled by health insurance and endowment. As an important realization of welfare improvement for client/member of Microfinance Institution, savers whose balance has reached IDR 1-25 million (about USD100-2,500) will get health service guarantee in 700 hospitals and clinics in Indonesia and overseas only by presenting their savings card that is insurance participant ID-card also. Example: savers whose balance has reach IDR 1 million will be guaranteed by in-patient deposit IDR 2 million, so they will be cured by the hospital, and do not need to die while—may be– their family member try to get loan to pay the total cost. When their savings reach IDR 2 million, they will get in-patient and surgery coverage up to IDR 10 million per year in room class IDR 100,000 per day. The benefit will increase as their savings balance increase. When the balance has reach IDR 25 million, they will be covered by out-patience service as needed (unlimited) and in-patient service up to 36 million per year. During the saving period, the savers will also be covered by life insurance if they deposit their savings on schedule. This product is very affordable if we have many members, so if there are BPR or Saving-and-Loan who are interested in joining in the consortium, please do contact us.

RAT KSP Bina Artha Lestari

April 1, 2009


KSP Bina Artha Lestari (BAL), Wonosari, Gunung Kidul, Jogja, mengadakan RAT 2008 pada 14 Maret 2009, walau baru didirikan pada 26 September 2008. Dalam RAT yang dihadiri 30-an petani anggotanya, Irawan memberikan pendidikan Pengelolaan Keuangan Keluarga melalui KSP dan memberi tantangan pada KSP BAL apakah mau melanjutkan usaha simpan pinjamannya secara serius atau membubarkan diri saja. KSP BAL menetapkan Simpanan Wajib Khusus bagi Anggota Biasa sebesar Rp 3 juta yang wajib dilunasi 5 tahun.

Saving-and-Loan Co-Op Bina Artha Lestari (BAL), Wonosari, Gunungkidul, Jogja, held Annual Member Meeting 2008 on March 14, 2009, although it was established and commenced it operation last September 26, 2008. The meeting was attended by 30 peasant members. In the meeting, Irawan facilitated a training on Household Financial Planning through Saving-and-Loan Co-Op. Irawan also challenged them to run the operation more serious or to dissolve soonest. The co-op sets share of IDR 3 million per member that should be paid within 5 years.

RAT 2008 Koperasi Kredit Bina Seroja

April 1, 2009

rat-2008-cubs2Koperasi Kredit Bina Seroja (KKBS), Cawang, Jakarta, yang adalah salah satu KSP Berprestasi Indonesia 2008, mengadakan Rapat Anggota Tahun (RAT) 2008 pada 9 Maret 2009. Pada RAT tersebut hadir 426 anggota dengan hak suara tersebut Irawan memberikan pendidikan Pengelolaan Keuangan Keluarga melalui Koperasi Simpan Pinjam. Pada kesempatan tersebut ada sekurangnya 32 anggota yang menyatakan kesanggupan untuk meningkatkan simpanan sahamnya menjadi Rp15 juta pada akhir tahun 2009. Di KKBS anggota yang memiliki Simpanan Saham minimal sebesar Rp15 juta akan diikutsertakan dalam Program Jaminan Pemeliharaan Kesehatan yang dikelola oleh PJPK (Pelayanan Jaminan Pemeliharaan Kesehatan) Sint Carolus dengan manfaat rawat jalan tanpa batas dan rawat inap sampai Rp35 juta di 180 rumah sakit di Jabodetabek.

Credit Union Bina Seroja (CUBS), Cawang, Jakarta, one of the Indonesian Best Performer Salco 2008, held Annual Member Meeting 2008 on March 9, 2009. In the meeting that was attended by 426 voting members, Irawan facilitated a training on Household Financial Planning through Saving-and-Loan Co-Op. In the meeting, at least 32 members pledge a resolution to pay their share minimal IDR 15 million. For member who has minimum IDR 15 million share savings, CUBS will register them as a member of Sint Carolus Managed Care. The managed care contribution will be paid by CUBS, and the member will get benefit of unlimited out-patient service and up to IDR 35 million out-patient service in 180 hospitals in Jabodetabek area.