The Unbanked: Evidence from Indonesia

Posted: 31 Dec 2008

See all articles by Don Johnston

Don Johnston

affiliation not provided to SSRN

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; New York University (NYU) - Department of Economics

Date Written: 2008

Abstract

To analyze the prospects for expanding financial access to the poor, bank professionals assessed 1,438 households in six provinces in Indonesia to judge their creditworthiness. About 40 percent of poor households were judged creditworthy according to the criteria of Indonesia's largest microfinance bank, but fewer than 10 percent had recently borrowed from a microbank or formal lender. Possessing collateral appeared as a minor determinant of creditworthiness, in keeping with microfinance innovations. Although these households were judged able to service loans reliably, most desired small loans. Calculations show that the bank, given its current fee structure and banking practices, would lose money when lending at the scales desired. So, while innovations have helped to extend financial access, it remains difficult to lend in small amounts and cover costs.

Keywords: G21, O16

Suggested Citation

Johnston, Don and Morduch, Jonathan, The Unbanked: Evidence from Indonesia (2008). The World Bank Economic Review, Vol. 22, No. 3, pp. 517-537, 2008, Available at SSRN: https://ssrn.com/abstract=1318108 or http://dx.doi.org/lhn016

Don Johnston

affiliation not provided to SSRN

Jonathan Morduch (Contact Author)

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
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(212) 998-7515 (Phone)

New York University (NYU) - Department of Economics ( email )

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New York, NY 10011
United States

HOME PAGE: http://www.nyu.edu/projects/morduch

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