Excerpts from tKeynote Speech at the Microcredit Summit by President Susilo Bambang Yudhoyono
President of the Republic of Indonesia

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

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

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

Yet, some 40 million Indonesians still lack access to any financial services; we refer to them as the "un-banked majority." They exist in every province, and they badly need the sevices of microfinance outlets. These mom-and-pop enterprises lack collateral, and without it, they often cannot access more formal sources of finance, such as state loans. The desperate turn to unscrupulous money lenders who charge them sky-high interest rates and lead them into endless indebtedness.

Why do these millions not have access to microfinance?
First, because many of them live in remote areas with no access to financial institutions, even microcredit institutions. We are constrained by geography and infrastructure.

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

The Indonesian government takes this problem very seriously. One of the top priorities of my administration is rural development, as rural growth eases urban congestion and unemployment. Therefore, we need to focus on microcredit in the rural sector.

That is why microcredit has been at the heard of my government's policy in combatting poverty and promoting the welfare of rural areas. Because of its importance, I have personally led my government's national efforts to expand microcredit programs to reach as many poor families in the shortest time possible.

....We have seen encouraging progress in recent years. Many commercial banks are now actively venturing into microfinance. Bank Rakyat Indonesia, Bank Mandiri, and BNI have been at the forefront of finding innovative ways to reach the poor through microcredit. For example, Bank Mandiri now offers loans of only a few hundred dollars, and they are reducing transaction costs through technological developments such as the use of ATMs and mobile electronic collection devices.

... Today some 30 commercial banks are linked with some thousands of microfinance institutions. Indeed, Indonesia was one of the first countries in the world to foster these types of linkages. We hope these relationships will only strengthen in the future.

Various programs are also designed to help empower microbusinesses. In late 2007, we launched a program called "Credit for the People," or Kredit Usaha Rakyat. It is basically a subsidized guarantee scheme, so that the government guarantees some 70% of the looan. The average loan size is small, only some 9 million rupiah, or one thousand U.S. dollars. We are very proud to report that more than 900,000 small enterprises have benefitted from this program. This year alone, we hope to disburse some 14 trillion Rupiah for this pro-poor program.

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

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