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Small Loans Can Have Enormous Impact

Indonesia, July 29, 2008

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Neal Keny-Guyer

Statesman Journal
July, 2008

The microfinance revolution has helped millions of people out of poverty. The idea of offering small loans to help poor people start businesses has become extremely popular. In 2006, the eyes of the world focused on microfinance when Mohammad Yunus won a Nobel Peace Prize for his work to make loans accessible to the poor in Bangladesh.

Mercy Corps is an international relief and development organization based in Portland. We have been working in the area of microfinance since 1997, and have helped establish a network of a dozen microfinance institutions (MFIs) all over the world.

As of May 2008, MFIs founded or co-founded by Mercy Corps had distributed more than 1 million loans totaling more than $1 billion.

Microfinance has become an essential element of our integrated approach to help people build secure, productive and just communities. Here in Oregon, Mercy Corps Northwest provides small business development services to under-served populations in the Portland-Vancouver metro area. In countries like Afghanistan and Mongolia, we've seen our microfinance programs help people bounce back from conflicts, natural disasters and extreme poverty.

But what's next in the evolution of microfinance? Mercy Corps has an idea: to make microfinance bigger and more targeted to the needs of the poor. We're doing this in Indonesia by infusing the sector with the capital, services and discipline of commercial banking.

Indonesia has one of the largest microfinance markets in the world yet the sector is fractured and poverty remains rampant, with nearly half of the population living on less than $2 a day. There are still 40 million low-income Indonesians without any access to financial services.

With a $19.4 million grant from the Bill and Melinda Gates Foundation, Mercy Corps has purchased a retail commercial bank which will become a wholesale bank exclusively devoted to building the capacity and scale of Indonesian MFIs.

This new bank, nicknamed "bank of banks," works only with MFIs to help them gain access to capital to expand their clientele. The bank will also boost these institutions' efforts to use innovations like mobile banking, and offer diverse products like savings, loans and insurance to help the poor determine their own financial futures.

The bank will work in strategic partnership with the Microfinance Innovation Center for Resources and Alternatives (MICRA), the Mercy Corps-founded Indonesian foundation that provides technical assistance, product development assistance, and research and ratings to MFIs.

The bank and supporting institutions aim to reach 16 million people in Indonesia by 2011, and, if successful, could ultimately assist 45 million people in Indonesia and the Philippines to move permanently out of poverty over the next ten years. With this new bank and other initiatives, Mercy Corps is working to ensure that the microfinance revolution continues for years to come.

Neal Keny-Guyer is the CEO of Mercy Corps, Portland. Learn more at www.mercycorps.org