Indonesia's Ultra Microcredit Programme: Financing Micro Businesses, Empowering the Poor

Abstract:This paper examines the Indonesian government's new microcredit programme, the Ultra Microcredit (UMi) scheme, designed to provide cheap, hassle-free loans to micro businesses (MBs) owned by the poor and vulnerable. Based on UMi's loan disbursement, the number of participating non-bank financial institutions (NBFIs), the number of borrowers and its impact on the borrowers' business performance, this paper shows that the programme has so far been significantly promising in supporting the development of MBs. This study not only highlights the ways in which UMi has addressed various problems that MBs face, but also details the scheme's limitations in achieving its large-scale anti-poverty objectives. The results show that UMi's main policy challenges can be overcome by: first, shifting its distribution away from Jakarta and towards the less prosperous provinces of the country; second, improving business facilitation services; and third, complementing the scheme with other non-financial programmes.