Understanding the Financial Preferences and Practices Among Youth in Rural Eastern Indonesia: In-Depth Interviews
Abstract
This paper is an original, in-depth interview study of 31 low-income rural youth in Eastern Indonesia. This study explores the question: What are the issues critical to understanding youth financial access in rural Eastern Indonesia? This paper is organized in the following sections: 1) an analytic overview of youth financial services around the world; 2) case studies of research done on the topic in Indonesia; 3) a description of the methodology; 4) description of the youth who were interviewed for this study; 5) discussion of main themes that emerged from the interviews and 6) summary with implications. The author finds that Indonesia youth use a wide range of informal financial mechanisms and describes the perceived disadvantages of using a bank that serve as barriers to financial inclusion. These barriers include: discomfort with financial institutions, not having enough money to warrant opening an account, paperwork challenges, negative experience with financial institution and lack of convenience due to location. These findings can be useful to practitioners and policymakers who wish to understand the financial preferences and practices of youth in an effort to improve financial access outcomes.
INTRODUCTION
Like many developing countries, Indonesian youth account for a large portion of the population. As the fourth most populous county in the world, its total population is estimated at 240.3 million, of which 38 million are youth between the ages of 15 and 24.1 In 2002, 8.6 million poor Indonesian youth represented 15% of the youth population or 22% of the 38.4 million poor in the country.2 Although young people are economically active, they often do not use formal financial services, and thus they are forced to use the informal financial market.3 In fact, over one-third of adult Indonesians has no savings and are considered “financially excluded” and only about 17% of Indonesians borrow from banks, with about one-third borrowing in the informal sector. 4
According to a World Bank Indonesia Researcher Yoko Doi, “the cumulative effect of a large swathe of the population being effectively excluded from access to formal financial services carries both private and social costs, and it ultimately undermines economic growth and development.”5 Indeed, an increasing number of academic studies show that granting the poor access to financial services can improve their lives in various ways.6 This includes a variety of “asset effects,” such as: savings,7 child well-being,8 educational outcomes,9 safer sexual attitudes and behavior among at-risk youth,10 improved physical and mental health,11 and increased solidarity among households with orphans.12
This paper offers an analytic review of youth financial services in the world and the existing literature on Indonesian youths’ financial preferences and behaviors. It also presents some findings about the financial preferences and behaviors of youth who live in Eastern Indonesia. According to the World Bank, financial inclusion and financial access refer to having a bank account, using banks as their primary financial institutions (public & private), using mainly non-bank financial institutions (microfinance institutions or financial cooperatives), or being able to reach a bank within walking distance.13 In this paper, the term “youth” refers to people between the ages of 15 and 24.
OVERVIEW OF YOUTH FINANCIAL PRODUCTS AND SERVICES AROUND THE WORLD
Several methods of providing financial access to youth exist in the world. The three most common types of youth financial services are credit, savings, and financial education. Less common products that are made available to adolescents include: checking accounts, savings groups, internal group lending, insurance, and remittance services.
Moreover, financial products and services can exist on three different institutional levels. First, commercial banks, microfinance institutions (MFI) or credit institutions usually offer, at the most basic level, individual products such as savings and loans.14 Second, non- governmental organizations (NGOs) and other youth development providers combine financial products with additional services such as financial education or business training to create holistic programs.15 Finally, governments can set broad policies enforced by law to achieve a national social goal.16 See Table 1 in the Appendix for examples of different types of youth financial services that could be provided at each institutional level.
A REVIEW OF THE LITERATURE: TWO CASE STUDIES
There are two known studies that have been completed concerning financial access issues among youth in Indonesia. A 2006 study by Micra Indonesia for the World Bank revealed some basic findings about Indonesian MFI youth clients.17 The key finding of this study was that there is a very high unmet need for financial services among the youth. Youth turn to their own savings and families and do not turn to formal financial institutions (including MFIs) to meet their needs.18 In 2010, Plan Indonesia, with the assistance of MicroSave, conducted market research on female youth in Central Java.19 This study found that: 1) youth are not financially literate (i.e. they do not understand and practice basic financial concepts of saving, borrowing and budget); 2) youth are more inclined towards savings than credit and community-based savings; 3) credit practices were highly predominant; and 4) education and religious/community events were a main reason for financial pressure on youth. While these studies offer some important findings about youth preferences and behaviors regarding formal mechanisms, they do not provide much insight into why these trends occur. Consequently, an in- depth interview methodology – in which the unit of analysis is the individual – has the advantage of describing and understanding youth preferences and behaviors and thus explaining previous findings.
METHODOLOGY
An in-depth interview guide was developed with a total of 37 items, not counting probing questions. After three test interviews were conducted, transcribed and analyzed, minor modifications were made, including re- wording some questions and phrases for greater clarity, deleting questions that were repetitive, and adding a few new prompts to help interviewers handle potentially difficult interview topics. The modified guide was used in subsequent in-depth interviews with 15 respondents in April 2011 in Kupang District, West Timor and with 16 respondents in June 2011 in Mantang District, Central Lombok. The objectives of the interview guide were 1) to understand the context of youths’ lives (their daily routine, aspirations, financial hardships, social and economic behaviors), 2) understand the effect, if any, of a financial product, program or policy, 3) understand the financial services that are useful for youth who own their own businesses, 4) understand youth’s financial behaviors and their motivations for using them, and 5) identify, through targeted market research questions which products and features youth want.
The most useful questions for understanding youths’ preferences and practices as they relate to using financial services were: how they dealt with financial difficulties (objective 4) and the market research questions that aimed to identify the products and features they wanted as well as why they wanted them (objective 5). Finally, the interviews were transcribed and coded for relevant themes. The limitations to the research were the lack of full disclosure in the responses due to the presence of family members and neighbors during interviews, issues of poor rapport that are associated with the socio-economic differential between interviewer and respondent, and the low level of fluency in Indonesian of some of the respondents with low education attainment.
YOUTH CONTEXT
This study is based on in-depth structured interviews20 with 31 rural youth in two sites in Eastern Indonesia: Kupang district in West Timor and Manteng district in Lombok, Indonesia. The author chose Eastern Indonesia as a focal point for this study because of its disproportionately high rates of youth poverty in comparison to the rest of Indonesia.
Youth in these two sites lived in rural areas where the local economy was dependent on agriculture. The villages were ethnically homogenous (all Muslim Sasak people in Lombok and all Protestant Tutum people in West Timor). Despite the availability of public institutions for secondary and tertiary education, several youth identified that they lacked the money and transportation to continue schooling. Transportation for school was a particularly pertinent problem in Lombok, where some villagers could not access a junior high school by foot until 2009. This transportation issue explained why many of the youth only had primary education. Youth cooked with firewood unless they owned a food production business, in which case they cooked with propane. They accessed drinking water through a local well, pump or a sumber (mountain spring water source).21 All except for two respondents reported that they ate at least twice per day and had access to clean water. If they did not already have access to electricity or a toilet, they could borrow these services from a neighbor.
However, there were some differences between the sites. While about half of the youth lived in traditional houses made of lontar (bark), bamboo walls and earthen floors, another half lived in cement houses with cement floors (an indication of asset wealth). Additionally, not all youth owned a motorbike or lived in a household that owned a motorbike, which was usually valued at about 10 to 15 million Rp (also an indicator of asset wealth). In the absence of a motorbike, youth hired ojek (motorbike taxis) or bemo (minibuses) for transportation to nearby towns and the capital city, which was about 30 to 45 minutes away.
Aspirations
When asked about their plan for the next five years, a common theme among the youth was the desire to earn more income and find work. For example, 21-year-old Hilmiyah, when asked about her goals for the next five years said, “I would like things to be better than they are right now. So that my husband is not unemployed, so that my father-in-law is also not unemployed. Now there is not yet work. We just collect grass [to feed the cows].”
Other common aspirations included owning a motorbike, finishing school (if they had the option of doing so), owning a business such as a kios (village convenience store), or expanding their existing business. Yana, despite having a younger brother who attends high school, shifted her goals from finishing school to starting a business because her family could not afford to keep her in school. Her dream was “to become a teacher, but I never went to school. So in that case, I want to sell things for weddings, cosmetics, clothes, because people here like to buy those sorts of things.”
Influences
When asked who influenced their decisions and to whom they turned to for advice, “parents” was the response for all the respondents except for two respondents. These two respondents did not enjoy good relationships with their parents. For example, one youth’s parent had permanently settled far away and did not approve of the youth’s marriage. Married youth sought additional advice and decision-making help from their spouse. Through observation, youth may also be influenced by popular culture as they all had access to television and radio. They also respected the opinions of their local leaders, such as religious and village leaders and teachers.
Responsibilities
Most youth interviewed spent their time going to school, doing household chores, playing, and doing some kind of casual or menial labor in agriculture or informal business. Social obligations to attend regular religious and village activities were common. In Lombok, this was often performing sholat (prayers) for Muslims and attending church for Catholics or Protestants in West Timor. Some of them were involved in activities such as teaching Yasinanan (Quran) lessons at the mosque, martial arts, and teaching Sunday school to younger children. Both groups identified that social obligations, such as attending funerals and village meetings, competed with their productive activities, suggesting that they lived in very close-knit communities.
In regards to financial responsibilities, youth, who were still dependent on their parents to some extent, spent money differently from those who were known as the ‘breadwinner youth’ – those responsible for several family members. Dependent youth lived with their parents and spent between 5000Rp and 20,000Rp on personal expenses such as cigarettes, cell phone minutes, clothes or inputs for their business. Several dependent youth mentioned that their parents occasionally asked them to contribute to the household. These monetary contributions were small amounts, usually 5000 Rp, towards basic necessities such as rice, vegetables, fuel, or for an unexpected financial hardship.
‘Breadwinner youth,’ on the other hand, earned the majority of income in their family because they were expected to support several family members. Breadwinner youth earned more income than dependent youth and spent more on a daily basis. They were often held responsible for giving their mother money to buy food, pay for younger siblings’ school fees, fuel, and other major expenses. As one would assume, marriage is a common reason for becoming a breadwinner. Married female youth tended to care for their husband’s family and their husband and child, although two of the six married women in this study mentioned the need to contribute to their parents and siblings’ households as well. Another common reason for assuming a breadwinner role was the death of a traditional breadwinner, most commonly the father. For example, when she was just 14 years old, Yesi worked as a maid in a more prosperous capital city in Eastern Indonesia because her father died. When her contract ended, her older sister became the breadwinner. Likewise, 23- year-old Donal decided to become a motorbike taxi driver to help out his mother and two younger siblings after his father passed away. At that point, two of his brothers had already migrated to Malaysia for work. Nazri immigrated with his uncle to Malaysia for the first time when he was only sixteen years old because, as the oldest child in his household, he was expected to support his mother and brothers when his father passed away.
DISCUSSION OF MAJOR THEMES
The author found two main themes that help to describe and lend meaning to the financial preferences and behaviors among youth in rural Eastern Indonesia. The first theme is that youth use a variety of informal financial services, and the second theme is that youth do not use formal mechanisms for a number of reasons. What follows is a detailed discussion of these themes and the reasons that lead an individual to have certain opinions and decisions over others.22
Theme 1: Youth use informal financial services
Youth used a variety of informal methods to accommodate their daily needs: saving with a teacher, saving and borrowing with a cooperative, arisan (lottery-based village savings and loan mechanism), buying animals or other physical assets such as motorbikes, 0% loans from friends and family, or interest loans from a money-lending neighbor. This study finds that, of the two sites that were studied, the most common informal method of personal savings occurred at home. Usually the youth saved cash, between 5000-20000 Rp per day, in a bamboo box called a celengan. A second common informal service was saving with parents or with a teacher. In Lombok, youth saved with a teacher because the teacher had asked everybody in the class to save; the savings could be used for any purpose, and they could withdraw any amount at any time. A third common informal service was borrowing from friends and family.
Youth most often used informal methods that were available in their communities because they perceive these informal methods as being fast, easy, convenient, enjoyable and trusted. When asked about his financial difficulties, 18-year-old Edi explained that borrowing from his family was a fast and easy way to pay for a sudden emergency that cost him about 1 million Rp. When asked if it was convenient and why, Edi responded, “Yes, it’s convenient if the family has it. I can borrow when the family has the money whenever. Apart from that, it’s convenient because I can get it right away.” Fourth, many of the Lombok youth used a lottery-based village savings and loan mechanism called arisan. Members of an arisan club gather each month to socialize and share a meal. Each member contributes about an equal amount, usually 1000-5000 Rp. Names are drawn from a pot so that one person wins. The arisan ends when all members have won one time. When asked what she likes about the monthly arisan she participated in with other village women, 23-year old Iwar mentioned she enjoyed the socializing aspect:
“If our arisan falls, and if we need it, yes, we are happy for sure. Just that. For example… also it’s fun because friends like to go to the arisan…It’s fast to get a loan…Yeah we just relax-relax (laughs). The profits are the advice that we friends give each other.”
Youth explained that they guarded their money with people they trusted, such as parents and teachers. While village-based and other informal borrowing mechanisms were popular, using informal methods lacked confidentiality and did not provide sufficient security. The most commonly perceived disadvantage of borrowing from others was the risk of gossip and losing one’s reputation. 20-year-old Delfi’s grandmother died and the family was forced to “borrow” a pig from a neighbor. They are now repaying the neighbor in small amounts. When asked why she wouldn’t borrow from a neighbor again, she answered, “It’s hard to take out a loan for us…. If we borrow from people around here, they don’t really believe in us.”
The biggest disadvantage associated with saving in the home was theft. When asked about what sort of financial difficulties she experienced, Yana mentioned that her father had started to use bank services after he was robbed of 14 million Rp on his way back from Malaysia. She mentioned that her parents now save in the local cooperative, suggesting that the negative experience was a learning experience.
Several youth also used formal mechanisms, including microfinance savings and loans, Bank Rakyat Indonesia (BRI)23 savings and remittance services that are available through a small number of national banks. In Indonesia, several financial products are widely available to rural populations, including BRI savings and loans, BPR loans, local financial cooperatives and government-subsidized credit schemes, such as Program Nasional Pemberdayaan Masyarakat (PNPM).24
Theme 2: Youth perceive several disadvantages to using formal mechanisms
The author found that youth had several reasons for not using formal mechanisms due to a variety of systemic and personal perceptions about banks such as: youth felt uncomfortable using banks, they only saved in banks if they had enough money to warrant opening an account, they had negative experiences with banks, and they perceived that banks lacked convenience due to location and paperwork.
Barrier 1: Discomfort with and Distrust of Financial Institutions
The study found that one challenge in reaching a youth market was discomfort with using formal financial services, in particular going into a bank. First, youth indentified themselves as people who are not meant to use banks. These unbanked youth perceived themselves as ‘masyarakat’ (common people) or ‘farmers’ and therefore different from wage earners who receive a regular salary. Donal explained, “People are unwilling to go because people only know that civil servants go there, whereas maybe ordinary people could go there, too.”
Second, youth were reluctant to save, borrow or lend to people whom they did not know. The respondents in West Timor had the choice to either save with a BPR called Tanaoba Lais Manekat Foundation (TLM) or with a local financial cooperative. Jeni, who saved about 30,000Rp every week this way, said she preferred this method to the local financial cooperative: “I choose TLM just because…. I am happier [with] them. Many people here choose TLM.” She mentioned that she trusted TLM because she knew TLM was involved with the church.
Third, youth felt uncomfortable going to a bank because they had no prior experience with using banks. When asked why she preferred borrowing from TLM over borrowing from a bank, Delfi explained, “I have no courage to go there, I don’t even think about it….I mean I never have been to the bank before, so I am afraid of taking a loan in the bank.”
Barrier 2: Not having enough money to warrant an account
The banked youth (Maria, Hilmiyah, Sanap, Jeni, Yanti, So) tended to have BRI savings accounts or a door-to-door microfinance savings account in which the loan officer collected their savings during home visits. When asked why they kept their savings in the bank, all of the banked youth explained that 1 million Rp (about 100USD) in savings – enough to warrant an account. Maria, one of the married homemaker youths, mentioned that visiting the bank was something she did when she went to the city. On such visits to the city, she would run other errands and enjoyed the trip out of her village. While the average threshold amount is difficult to gauge without a larger sample, this practice shows that youth saved in small amounts until they felt they had a large enough amount of savings to warrant opening an account or making a visit to the bank.
Barrier 3: Negative experience with financial institution Although rare, some youth had negative experiences using financial services. For example, when asked why they used microfinance loans, Deki Hotias and Delfi mentioned that the capital was used for both their business inputs and consumption expenses. They mentioned feeling harassed by their loan officers for repayment during times when they could not afford to pay the weekly repayment.
Barrier 4: The challenge of the paperwork involved in opening an account
Several youth were wary about the paperwork that was involved in opening a bank account. Youth under the age of 18 also could not open accounts because they were not old enough to get an identification card, which is required to open an account or take out a loan from a formal institution. When asked about his opinion for why more people did not use banks, he replied, “In the bank they told us to do this and do that – that’s why people are unwilling to go. The most important is the affairs. The TLM loan officers do not take long to give out a loan. People who take out loans need them fast.” In one of the more rare examples of using money guarding, Sanap mentioned she kept 6 million Rp in a friend’s BRI account. When asked why she did not open her own account, she mentioned that it was too complicated to open her own account and that it was easier to hand over the money to a friend who had an existing account.
Barrier 5: Lack of convenience in using financial institutions due to locations
Several youth perceived that financial institutions were too far away. They lived only about a half hour from the capital city and many of them also lived off secondary roads that turned muddy in the rain. Youth said they did not want to “waste money on transport.” It cost about 3,000-15,000 Rp fare for a shared transit to travel to and from the city, and gasoline for one tank cost between 5,000-6,000 Rp per liter.
SUMMARY
The two main themes that emerge in this study are that 1) youth have access to and use a range of informal financial services in their communities and 2) youth encounter a range of barriers that prevent them from using banks, which include: discomfort with or distrust of financial institutions, not having enough money to warrant an account, the challenge of the paperwork involved in opening an account, negative experience with financial institution, and lack of convenience in using financial institutions due to location.
These findings confirm and explain savings and borrowing behavior that was found among similar populations in previous studies. For example, the barriers to financial inclusion described in this paper help to explain why youth would not consider applying for financing from an MFI or commercial bank – a finding in the 2006 Micra study.25 Moreover, the finding that youth use a range of informal financial services is consistent with “Portfolios of the Poor” by Collins, Morduch, Rutherford, and Ruthven, who describe how the poor use a wide range of both formal and informal financial instruments to manager their money.26
IMPLICATIONS
The author recommends further qualitative research into the factors that motivate rural youths’ behaviors and preferences for financial products. In particular, the finding about youth discomfort with and distrust of financial institutions due to a perception that banks as middle-class institutions warrants further study. Possible research questions are: What socio-economic differences exist between rural populations and the financial institutions that serve them but fail? How do rural hierarchies, class dynamics and self-perceptions of poverty in rural populations affect an individual’s decision to participate in the formal banking sector? What interventions work best to reduce rural youths’ discomfort with using banks?
Moreover, policymakers and practitioners who are concerned about providing financial access to youth in Indonesia can use these findings to design and deliver relevant, profitable, demand-driven financial products and services. This requires a clear understanding of youths’ aspirations, influences, and responsibilities as well as an understanding of youths’ perceptions about the advantages and disadvantages of both informal and formal mechanisms.
Evidence shows that youth need savings services to help regulate inconsistent incomes and build assets. Best practice suggests that account fees and minimum balance should be offered at low or no cost. While some withdrawal limits may be acceptable, the terms of savings products would need to be highly liquid so that the saver can access the funds in the event of a family emergency.27 Additionally, collections should be localized and weekly to accommodate youths’ small and unsteady incomes.
Acknowledgements: The author would like to thank Payal Pathak, Dr. Johnny Kim, and Andrew Thornley for providing feedback on the interview protocol; Dewa Keta and Yusi for conducting the interviews in the field; Dewa Keta and Hatib Abdul for transcribing the interviews; Lutfi Kadir, Dr. Caroline Mangowal, Lisa Skowron for their help in reaching the respondents; and Dr. Manuel Orozco for reviewing a draft of this paper.
Endnotes
1 Indonesian National Statistical Agency (Badan Pusat Statistik), 2009 estimate, accessed July 19, 2011, Accessible at http://www.bps.go.id/
2 Indonesian National Statistical Agency (Badan Pusat Statistik), 2002 estimate, accessed July 19, 2011, Accessible at http://www.bps.go.id/
3 L. Storm-Swire, “Exploring Youth Financial Services: The Case of Pro Mujer in Bolivia,” in Youth-Inclusive Financial Services Case Study Series (2009), accessed July 19, 2011, Accessible at: http://www.makingcents.com/products_services/resources.php
4 Yoko Doi, “Improving Access to Financial Services in Indonesia,” World Bank Jakarta, accessed September 18, 2011, Accessible at www.worldbank.org/id/fpd. 5 Yoko Doi, “Total Financial Inclusion: A Better Tomorrow for All Indonesians”, World Bank Jakarta, accessed September 18, 2011, Accessible at: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFI CEXT/INDONESIAEXTN/0,,contentMDK:22806456~pagePK:1497618~piPK:217854~theSitePK:226309,00.html
6 Robin Burgess and Rohindi Pande, “Do Rural Banks Matter?: Evidence from the Indian Social Banking Experiment”, American Economic Review, 95 (3), (2005), 780-795; Karlan, Dean and Jonathan Zinman Karlan, "Expanding microenterprise credit access: Using Randomized Supply Decisions to Estimate the Impacts in Manila", (New Haven, CT: Yale University, Dartmouth College, and Innovations in Poverty Action Working Paper, 2009); A. Banerjee, Duflo, E., Glennerster, R., Kinnan, C.,"The Miracle of Microfinance? Evidence from a Randomized Evaluation", (Cambridge, MA: MIT Department of Economics and Abdul Latif Jameel Poverty Action Lab, 2009).
7 Sherraden, Michael, Assets and the Poor: A New American Welfare Policy, (Armonk, NY: M.E. Sharpe, 1991).
8 Gina Chowa, D. Ansong, and Rainier Masa. “Assets and Child Well-being in Developing Countries”, Children and Youth Services Review, (forthcoming); T. W. Shanks, Y. Kim, V. Loke, and M. Destin. “Assets and Child Well-being in Economically Developed Countries”, Children and Youth Services Review, (forthcoming).
9 J. Curley, F.M. Ssewamala, C.K. Han, “Assets and educational outcomes: Child Development Accounts (CDAs) for Orphaned Children in Uganda”, Children and Youth Services Review (forthcoming); M. Destin and D. Oyserman, “From Assets to School Outcomes: How Finances Shape Children’s Perceived Possibilities and Planned Effort.” Psychological Science 20 (2009); W. Elliott, and S. Beverly, “Staying on course: The effects of savings and assets on the college progress of young adults” (Working Paper, St. Louis, MO: Washington University, Center for Social Development, 2010), 10-12.
10 A. Erulkar, and E. Chong, “Evaluation of a Savings and Microcredit Program for Vulnerable Young Women in Nairobi”, (Nairobi: Population Council, 2005); F.M. Ssewamala, S. Alicea, W. Bannon, and L. Ismayilova, “A Novel Economic Intervention to Reduce HIV Risks among School-going AIDS Orphaned Children in Rural Uganda”, Journal of Adolescent Health, 42(1), (2008).
11 F. M. Ssewamala, C.K. Han, and T. Neilands, “Asset Ownership and Health and Mental Health Functioning among AIDS-Orphaned Adolescents: Findings from a Randomized Clinical Trial in Rural Uganda”, Social Science and Medicine, 69(2), (2009).
12 Catholic Relief Services, “Increasing Savings and Solidarity among Households with Orphans and Vulnerable Children in Rwanda”, (Microfinance Learning Paper Series No. 3., 2010), accessed September 22 2010, Accessible at http://www.crsprogramquality.org/publications/tag/microfinance.
13 Kumar, Anjali, “Brazil: Access to Financial Services”, (Report No. 27773-BR., Washington, DC: World Bank, 2004).
14 Zimmerman and Deshpande,“Youth Savings in Developing Countries: Trends in Practice, Gaps in Knowledge”, (Washington, DC: New America Foundation, 2010), 5.
15 Zimmerman and Deshpande,“Youth Savings in Developing Countries: Trends in Practice, Gaps in Knowledge”, (Washington, DC: New America Foundation, 2010), 5.
16 Meyer, Jeff, Jamie Zimmerman and Rainer Masa, “Child Savings Accounts”, (Working Paper, St. Louis, MO: Washington University, Center for Social Development, 2009), 6.
17Leesa Shrader, Nagwa Kamal, Wahyu Aris Darmono & Don Johnston, “Youth and Access to Microfinance in Indonesia: Outreach and Options. Jakarta, Indonesia: Global Partnership for Youth Investment”, (Jakarta, Indonesia: Global Partnership for Youth Investment, 2006), 28. Between May 15 and June 30, 2006, the Mercy Corps MICRA program conducted an original study on behalf of World Bank to examine existing supply of MFI services to youth in Indonesia, as well as demand for financial services among youth. The study covered five regions, with a mix of urban, peri-urban and rural locations both on and off-Java. The study included interviews with nearly 900 youth and on-site appraisals of 21 MFIs, as well as desk reviews of hundreds of other MFIs.
18 Shrader et al., “Youth and Access to Microfinance in Indonesia: Outreach and Options”, 29.
19 Premasis Mukherjee, Sonmani Choudhary and Neeraj Lal, “Understanding the Demand for Financial Products among the Female Youth of Central Java”, (Paper by Plan Indonesia with MicroSave, 2010), 4. In June and July 2010, Micro Save carried out its product development cycle concept that employs qualitative methods. A product concept is developed into a prototype through process mapping, costing and pricing according to Plan’s costing and pricing specifications. Qualitative methods included focus group discussions and participatory rapid appraisal sessions.
20 Qualitative methods are better able to explore attitudes, behaviors and experiences of people, and therefore to develop programs that respond to their needs. An in-depth interview methodology allows researchers to understand the broader context the individual-level life circumstances that motivate such preferences and behaviors.
21 Mountain spring sources were available to some houses in Kupang district. They are common sources of drinking water in rural hill areas in Indonesia.
22 The author implies that education level and occupation can serve as a proxy for skills. 23 Bank Rakyat Indonesia, or BRI, was the first commercial bank to promote micro financing and has successfully launched a rural savings and credit scheme known as SIMPEDES and KUPEDES. BRI has an excellent reputation in terms of number of clients, high repayment rates, and profitability. Despite being the largest MFI in the world, there is little solid evidence that BRI contributes in any significant way to improving the welfare of the poorest of the poor and has served only the near poor and non-poor households. Bank Perkreditan Rakyat (BPR), regulated bank that was developed by Indonesia’s largest NGO Yayasan Bina Swadaya (YBS), offers a commercialized microcredit scheme that is distinct in that it explicitly seeks to help the poor move out of poverty. No collateral is required in its credit scheme, and it provides clients with smaller loans at a competitive interest rate (30% per year). Since 2007, the government has introduced an innovative credit scheme to provide a government guarantee called Credit for the People (KUR – Kredit Usaha Rakyat), which is executed through commercial banks. Also since 2007, government PNPM loans are offered through at the village level as low-interest, no collateral business loan but repayments rates are very low. Local financial cooperatives that are regulated by a cooperative ministry, but that are uncompetitive due to high interest rates, also serve the rural poor. 24 David Hulme and Paul Mosley, “Fight Against Poverty”, Psychology Press, (Volume 2, 1996); Don Johnston and Jonathan Morduch, “The Unbanked: Evidence from Indonesia”, (2007).
25 Mukherjee et al., “Understanding the Demand for Financial Products among the Female Youth of Central Java”, 28.
26 Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven, Portfolios of the Poor. (Princeton, NJ: Princeton University Press, 2009)
27 Madeline Hirschland and Allyn Moushey, “Youth Savings Accounts: A Financial Service Perspective, (microReport #163, Washington, DC: USAID, 2009), 12.