Analysis of Potential Demand for Microfinance Services in West-Java by District Areas

Indonesia has long history of microfinance services in both rural and urban areas. However, financial inclusion in Indonesia currently is quite low compared to other developing countries. One of the strategies is to establish microfinance instituions (MFI). The MFI is believed to be an important tool to reach the low-income people. Access to financial services has allowed many low-income families to make a significant progress in their own efforts to escape from poverty. The government supports the growth of microfinance services through many instruments, such as regulations, subsidy, and directed credit policies. The government aware that such policies have not been effective in providing the poor with a sustainable access to the MFIs services. Assessing potential demand is one aspect to ensure that the microfinance is feasible and hence the sustainabilty of the services is assured. This study is aimed to analyze the potential demand for microfinance services in West Java by district areas. The approach used in this study is to employ the rich information about household and household members in the National Socio- Economic Survey (Susenas) data. Data from Bank of Indonesia on the size of depositor funds or credit disbursed in rural banks (BPR) are also used to supplement the previous data sources. The result shows that potential demand for microfinance services in West Java are almost 2 million people who are self-employed and self-employed with no paid workers. The potential demand for saving is estimated at Rp 1,902 billion, micro credit is estimated at Rp 16,669 billion, and the need for microfinance institution in terms of BPR is about 513 units, which is far above the existing number of BPR in West Java.