RI needs microcredit regulator

Friday, August 10, 2007
The Jakarta Post, Jakarta

Indonesia needs to establish an independent regulatory body to govern and supervise its microcredit sector if it is to grow in line with its potential, Nobel laureate and microcredit pioneer Muhammad Yunus said Thursday.

Speaking before members of the Indonesian Chamber of Commerce and Industry (Kadin), Yunus said an independent body for the microcredit sector was very important due to the specific and unique nature of the business.

"Rather than leave it to the central bank, it should instead be done by an independent regulatory body created for microcredit. It can't be just pushed into one of the corners of the central bank," said Yunus.

He said he had always promoted the idea of an independent regulatory authority, but it took decades for the Bangladeshi government to eventually agree to the establishment of such a body.

"As a bank, the Grameen Bank was regulated by the central bank, but it was not a very happy experience because we (central bank and microcredit providers) speak different languages," said Yunus who founded the Grameen Bank in 1983.

He said the ultimate solution for the microcredit sector was legal reform that would allow any financial-sector organization to become a microcredit provider.

When asked why Indonesia's microcredit experience had not been so successful, Yunus said the microcredit sector in any country should keep itself as far away as possible from the government.

He said that preventing the government from getting involved in the microcredit banking sector had been a continuous struggle for him since he first became involved in microcredit in 1976, especially in the 1990s when the microcredit concept in Bangladesh became very popular.

"The more the government is involved, the messier the business. We always make it very clear to the government that microcredit and the government is bad chemistry."

"We always told them to stay away from it, help us in the policy-making field, don't give us money directly," he said, adding that what the government could do was provide a revolving fund to provide start-up capital that would later be managed and used by the sector.

Also, he said, in order to secure more money for microcredit, all financial institutions should be allowed to create deposits for extending loans to the poor.

Grameen Bank had arranged a core deposit derived in part from the World Bank and the Bangladeshi government.

"The government's money has been paid back, the World Bank's money is about to be paid back. But the bank still has a lot of money on its own. So now, they lend the money out and recycle the money themselves," Yunus told the meeting. (02)