Lender to Small Lenders
    Category: Companies & People By : Ardian Wibisono Read : 1702 Date : Wednesday, June 12, 2013 - 09:37:30

    Ahmad Zamroni / Forbes Indonesia

    Financial inclusion is one of the major challenges of development. The Banking Association (Perbanas) recently found that about one third of the population has no access to a financial system, especially those at the bottom of the pyramid in rural areas. Besides a potential market for banks, this unbanked group could also have their poverty alleviated if they had easier access to bank credit, such as loans to start or expand a business.

    This is the problem that Bank Andara would like to help solve, by providing microfinancing. Yet others are ahead of it in doing this, such as Bank Rakyat Indonesia, which provides microfinancing directly to consumers. So Bank Andara's shareholders, which founded the bank four years ago, decided to take a different approach.

    Rather than help individuals, they chose to have the bank work with microfinance institutions (MFIs) such as rural banks (BPRs) and cooperatives, which in turn have access to the unbanked market. “Instead of going directly to the end user, we get deeper and wider reach to the bottom of the pyramid,” says David Yong, president director of Bank Andara. As of last year, Bank Andara has worked with 736 MFIs, around 500 of them are BPRs, and booked almost Rp 1 trillion of loans, double from the previous year. This market is also big, as it is estimated there are around 44,000 cooperatives across the country. The bank claims to reach about 1.2 million customers through its model.

    Aside from a special business model, the bank also has a unique set of shareholders. Bank Andara, whose name is derived from the Sanskrit word for light, has among its owners the World Bank's International Finance Corp., German financial group KfW Bankengruppe and the Dutch Hivos Triodos Fonds, a microfinance institution.

    The bank was originally a rural bank in Bali named BPR Sri Partha. The above group, along with the NGO Mercy Corps, bought it in 2009, using funds that came in part from the Bill and Melinda Gates Foundation. They then restructured the entire operation to its new focus (Sri Partha's founder I Wayan Gatha remains a shareholder as well).

    What Bank Andara offers is as simple as what MFIs offer their customers, such as saving and loans. It doesn't offer ATM cards. Bank Andara benefits from the extensive network of the MFIs they work with, allowing less cost compared to normal commercial bank that has to open many branches to reach customers. Bank Andara will lend up to Rp 5 billion to each of these MFIs, which translates into an average of Rp 15.8 million to the end customer, although lending can go as low as Rp 500,000. Bank Andara also has its Andara Link, which is a network that connects Bank Andara to the MFIs as well to other MFIs that allow them to offer remittance services and pay bills.