World Bank Documentdocuments.worldbank.org/curated/en/205611468260675137/pdf/multi-page.pdf · document of the world bank for offlcial usie only repwt no. 12973 project completion

Document of

The World Bank

FOR OFFlCIAL USIE ONLY

Repwt No. 12973

PROJECT COMPLETION REPORT

INDONESIA

BRI/KUPEDES SMALL CREDIT PROJECT(LOAN 2800-IND)

APRIL 18, 1994

Industry and Energy Operations DivisionCountry Department IIIEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed witbout World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Indonesia Rupiah (Rp)

At Loan Appraisal in October 1986 - US$1.00 = Rp 1,630At the closing date for Loan

Disbursement In April, 1993 - US$1.00 = Rp 2,074

FISCAL YEAR

Government of Indonesia - April 1 - March 31Bank Rakyat Indonesia - January 1 - December 31

ABBREVIATIONS

ADB - Asian Development BankASKRINDO - PT Asuransi Kredit Indonesia (Credit Insurance Company of

Indonesia)BAPINDO - Bank Pembangunan Indonesia (Development Bank of Indonesia)BBD - Bank Bumi DayaBDN - Bank Dagang NegaraBEII - Bank Ekspor Import IndonesiaBI - Bank IndonesiaBIMAS - Bimbingan Massal (an integrated program for crop intensification)BKK - Badan Kredit Kecamatan (Rural Credit Institutions)BNI - Bank Negara Indonesia 1946BPKP - Agency for Financial and Development SupervisionBRI - Bank Rakyat IndonesiaBULOG - Board of Logistic AffairsCPIS - Center for Policy and Implementation StudiesGDP - Gross Domestic ProductGOI - Government of IndonesiaHB - Handling BankKIK - Kredit Investasi Kecil (Small Investment Credit Program)KMKP - Kredit Modal Kerja Permanen (Small Permanent Working Capital

Program)KTN - Cooperatives, Farmers and Fishermen Credit DepartmentKUPEDES - Kredit Umum Pedesan (General Village Credit Program)MOF - Ministry of Finance of the Government of IndonesiaPCR - Project Completion ReportPDFCI - Private Development Finance Company of IndonesiaPPAR - Project Performance Audit ReportPUD - Village Unit Development DivisionRDB - Regional Development BankSEDP - Small Enterprise Development ProjectSIMPEDES - Simpanan Pedesan (Village Saving Program)SOE - Statement of ExpendituresSSE - Small-Scale EnterprisesTABANAS - Tabungan Nasional (Small Saving Program)USAID - United States Agency for International Development

FOR OMCIAL USE ONLYTHE WORLD BANK

Washington, D.C. 20433U.SA

Offloe of Diretor-G.ralOperaton Evaluatlon

April 18, 1994

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on INDONESIA -BRI/KUPEDES Small Credit Project (Loan 28004-ND)

Attached is the Project Completion Report on Indonesia - BRIKUPEDES Small CreditProject (Loan 2800-IND) prepared by the Asia and Pacific Regional Office, with Part II contributedby the Borrower.

The BRI/KUPEDES Small Credit Project supported three specific objectives: (i) to supportBank Rakyat Indonesia (BRI)'s efforts to develop a viable subbranch network (otherwise knownas KUPEDES) that would provide credit to small borrowers, mobilize savings, and extend bankingservices; (ii) to assist BRI in mobilizing funds so that it could eventually fund KUPEDES; and (iii)to improve institutional capacity within BRI overall as well as for the KUPEDES program. TheIBRD loan financed a credit component for general purpose financing and a technical assistancecomponent to strengthen BRI's institutional capability to implement the KUPEDES program.

This Project is rated highly satisfactory. The technical assistance component, which wassupplemented by a reallocation from the credit component, was completed as planned. The conceptof providing unsubsiized credit to small borrowers proved viable. Resource mobilization exceededinitial expectations. The developmental impact, especially in rural areas was high. About 25percent of small borrowers were women. The institutional capacity within the BRI and thesubbranch network was strengthened. The project appears sustainable.

The PCR provides a sound analysis of the reasons for the success of the program. Theproject was well focused, with simple objectives, and the Borrower demonstrated high commitmentto the program. Part A in particular, provides useful insights. It gives a historical perspective andexplains why earlier World Bank small credit projects had not succeeded as well as the KUPEDES.

An audit of this operation is planned.

Attachment

lSik docuthu a reaice dird and my be und by rcwpieas only in dh* pefxnmac of thr official Ada. It coateatmay aca odiwm. be dAcboed wto Wold Bank sudzatn.

FOR OFFICIAL USE ONLY


INDONESIA

BRI/KUPEDES SMALL CREDIT PROJECT

(LOAN 2800-IND)

CONTENTS

Page No.

Preface ............................................... iEvaluation Summary .ii

PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity ......................................... 12. Background ............................................ 13. Project Objectives and Description ............................. 24. Project Design and Organization ............................... 25. Project Implementation .................................... 46. Project Results .......................................... 77. Project Sustainability ...................................... 128. Bank Performance ....................................... 149. Borrower Performance ..................................... 1510. Project Relationship .1611. Consulting Services ................. , . .......... 1612. Project Documentation and Data .17

PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

I. Overall Assessment of the Project Performance .18II. Overview of the Credit Component .22III. Overview of the Technical Assistance Component .24IV. Bank's Performance During the Project .26V. Borrower's Performance During the Project .28VI. Relationship between the Bank and the Borrower During the Project 32

PART III - STATISTICAL INFORMATION

1. Related Bank Loans and/or Credits ............................. 332. Project Timetables ....................................... 333. Loan Disbursements ...................................... 344. Project Cost and Financing .................................. 345. Project Results ........................................... 356. Status of Covenants ............... .................... 367. Use of Bank Resources .................................... 37

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

ANNEXES

1. BRI's Audit Income Statement, 1987-1992 ........................ 382. BRI's Audit Balance Sheet, 1987-1992 ........................... 393. Indicators of BRI's Financial Performance, 1987-1992 ................. 404. Summary of BRI Lending and Borrowing Operations, 1987-1992 .... ...... 415. Unit Desa System Income Statements, 1984-1992 .................... 426. Unit Desa System Balance Sheets, 1984-1992 ...................... 437. Indicators of Unit Desa System Financial Performance, 1984-1992 .... ..... 448. Actual KUPEDES Lending Operations, 1984-1992 ................... 459. Analysis of Unit Desa System Loan Portfolio, 1984-1992 ............... 4610. Sectoral Distribution of KUPEDES Loans .4711. Comparison of the Unit Desas with Total BRI .4812. Status of Technical Assistance Component .4913. Organization Structure of BRI Unit Desa Department .50

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INDONESIA


(LOAN 2800-IND)

PREFACE

This is the Project Completion Report (PCR) for the BRI/KUPEDES Small Credit Project inIndonesia, for which Loan 2800-IND in the amount of US$101.5 million was approved on April 28,1987. The Loan Account was closed on April 8, 1993, and an outstanding balance of US$65,834.57was canceled.

The PCR was jointly prepared by the Industry and Energy Operations Division, CountryDepartment III, East Asia and Pacific Region (Preface, Evaluation Summary, Parts I and III), and theBorrower (Part II).

Preparation of this PCR was started in July 1993, and is based, inter alia, on the StaffAppraisal Reports; the Loan and Project Agreements; supervision reports; correspondence betweenthe Bank and the Borrower; and internal Bank memoranda.

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INDONESIA


EVALUATION SUMMARY

Project Obiectives and Description

1. The BRI/KUPEDES Small Credit Project (the Project) had the specific objectives of: (a)supporting BRI's efforts to develop the Unit Desa system into a financially viable subbranch networkthat would be able to provide credit on a nonsubsidized basis to creditworthy small borrowers, tomobilize savings and to provide other banking services; (b) encouraging BRI to improve its resourcemobilization so that it could eventually fund KUPEDES !' loans from the deposits that it raises, thusreducing its reliance on BI liquidity credits for the KUPEDES program; and (c) improving theinstitutional capability of BRI overall as well as for the KUPEDES program.

2. To achieve these objectives, two components were included under the Project: (a) a creditcomponent for general purpose financing; and (b) a technical assistance component to strengthenBRI's institutional capability in implementing the KUPEDES program.

Implementation Experience

3. The Project was approved on April 28, 1987, and became effective on June 11, 1987. TheProject implementation has been smooth and satisfactory. The credit component was fully disbursedby the third quarter of 1989, almost three years before the originally estimated completion date (June30, 1992). The implementation of the TA component was completed as originally planned. TheProject was completed according to the original schedule, and the Loan account was closed on April8, 1993, the date on which the final disbursement was made. An undisbursed balance of aboutUS$65,000 under the TA component was cancelled.

4. There was little departure from the original Project design. The only variance was thereallocation of US$3.3 million from the credit component to the technical assistance component, tostrengthen BRI's institutional capability as well as to finance related studies.

Proiect Results and Sustainabilitv

5. The primary objectives of the Project have been successfully achieved and the Project issustainable.

Y' KUPEDES is a small credit program operated by BRI through the Unit Desa system.

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6. Financial Viability: The financial viability of the Unit Desa system can best be measured byits profitability over time. The net profit far exceeded the appraisal estimates, rising steadily eachyear and more than tripling between 1987 and 1992, from Rp. 22.5 billion to Rp. 69.3 billion.

7. Resource Mobilization: The Unit Desas' resource mobilization also far exceeded theappraisal expectations. Total deposits increased from Rp. 287.5 billion in 1987 to Rp. 3,399 billionin 1992; and the number of depositors increased from 4 million to 10 million during the same period.The market share of the Unit Desas deposits also increased, from 0.79% of total domestic bankdeposits in Indonesia in 1986 to 3.16% in 1992.

8. Institutional Development: BRI's Unit Desa Policy and Unit Desa Strategy Statementsadopted by BRI's Board of Managing Directors in June 1990 outline the overall goals and operationalobjectives of the Unit Desa system. As the Unit Desa operations have grown, its organizationalstructure has expanded from a Section to a Desk to a full Division within BRI. The Business UnitDesa Division at BRI headquarters, provides general leadership and overall control. Sections at eachRegional Office and Branch are responsible for direction in the field. Immediate supervision is fromthe Branches, with a full time cadre of Unit Business Managers assisting the Unit Desas in theiroperations. BRI's internal auditors audit the Unit Desas when they audit the responsible branch.

9. Credit Provision to Small Borrowers: Unit Desa borrowers are small enterprises withaverage capital investment of about US$650 equivalent, and less than five workers. Unit Desaslending to these small borrowers increased substantially. Total loans outstanding increased from Rp.429.6 billion in 1987 to Rp. 1,648.5 billion in 1992.

10. Developmental Impact: KUPEDES loans are made for productive activities. Trade andretailing have dominated, representing over 60% of the identified borrowing enterprises. Smallindustry loans come next, accounting for about 13% of the total. Direct agricultural production loansare less frequent, making up about 8% of the total. However, total funds going to support agricultureshould be higher than this figure, given that part of the trade and industry loans are used to financethe production and marketing of agricultural products.

11. Women represented at least 25% of the borrowers. A survey done by BRI in 1990 showsthat the Unit Desa borrowing enterprises are growing rapidly and are making substantial contributionsto improved income and employment generation in the rural and small scale business sectors.

12. The Unit Desas as a Part of BRI: The Unit Desas make a very important contribution to BRIas a whole. For the three years from 1990 to 1992, the Unit Desas' loans outstanding were stable atabout 9.4% of BRI's total portfolio, the Unit Desas' contribution to total BRI deposits rose from17.5% to 28.8% and the Unit Desas profit in 1992 accounted for more than two-thirds of BRI's totalearnings.

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Findings and Lessons Learned

13. Overall, through Loan 2800-IND, the Bank has made a very positive contribution to thesuccessful development of the BRI Unit Desa system. The following conclusions and lessons can bedrawn from the success of this Project regarding financial intermediary lending operations:

(a) A project is more likely to be successful if it is clearly focused and has simpleobjectives. These objectives should be thoroughly discussed by the Bank with, andunderstood and agreed by, the Borrower to ensure high commitment and ownership;

(b) The design of the project should be directly linked to the project objectives. Inparticular, the credit component should be designed to encourage and support theinstitution's own resource mobilization efforts, rather than to compensate for a lack ofit;

(c) Continuity of Bank and implementation agency staff throughout project design andimplementation is an advantage in ensuring smooth and successful project preparationand implementation;

(d) A well-designed and maintained information system/data base is important to thesuccessful implementation of the Project, as is congruence between the Bank'sreporting requirements and the implementation agency's existing reporting system;

(e) It has become evident that in Indonesia rural small and micro enterprises are willingand able to pay an interest rate which fully covers lending costs; assured access tolending, convenience of location and prompt credit decisions are more important tosmall borrowers than getting a lower interest rate;

(f) On the deposit side, there is large potential for mobilizing rural savings in Indonesia,provided that the needs of the potential depositors are satisfied. These needs, in orderof importance, are: safety, accessibility (immediate and unlimited withdrawal),convenience of service location, and acceptable interest rate;

(g) Consultant services can play an important role in ensuring successful projectimplementation, provided that the consultants have clearly defined terms of reference,are able to work closely with their counterparts, and have direct access to seniormanagement; and

(h) Making provisions already at the design stage for training of additional staff to avoidshortages in case business activities develop more dynamically than expected.

a


INDONESIA


PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE

1. Project Identity

Project Name : BRI/KUPEDES Small Credit ProjectLoan Number 2800-INDLoan Amount US$ 101.5 millionRegional Unit East Asia & Pacific Region - Country Department IIICountry : IndonesiaSector : Industry and FinanceSubsector : Financial Intermediary

2. Background

2.1 In 1970, upon establishment of BIMAS Z' as a national program, Bank Rakyat Indonesia (BRI)was asked by the Government of Indonesia (GOI) to establish a Unit Desa (village sub-branch) systemto administer BIMAS credit. GOI provided an administrative subsidy and later covered theoperational losses of the Unit Desas. By 1983, GOI recognized that the BIMAS credit program hadoutlived its usefulness. Costs far exceeded possible benefits. With the discontinuation of BIMAS,BRI faced the choice of either abandoning the Unit Desas (since their operations was no longersubsidized by GOI) or changing their role and function to make them profitable. BRI chose the lattercourse for various reasons. First, the Kredit Mini and Kredit Midi programs 1' had shown that therewas large demand for all kinds of village entrepreneurial activities. Second, Unit Desa staff hadalready learned how to administer small credit programs; disbanding the system completely wouldtherefore be wasteful and result in substantial staff layoffs.

2.2 Thus, with the close assistance of the Ministry of Finance (MOF), BRI initiated in 1984 theKredit Umuim Pedesan (KUPEDES), a new general purpose credit program, as the main activity of

The BIMAS program was aimed at improving agricultural production and practices through theprovision of physical inputs, technical assistance and short-term credit through BRI Unit Desasat an interest rate substantially below market rates. BI/GOI bore up to 75 % of the credit risk andprovided an administrative subsidy to BRI to cover the operating costs of the Unit Desas.

Established in 1973 and 1979 respectively, these programs extended credit to small borrowersoutside of the BIMAS program, primarily for off-farm economic activities.

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the Unit Desas. KUPEDES was designed to provide credit to creditworthy small borrowers forgeneral purposes to cover investment, working capital and trade needs.

2.3 BRI's long-term goal was to develop the Unit Desa system into a nationwide sub-branchsystem, integrated within the overall BRI structure, which would be profitable. Each Unit Desawould operate as a profit center, making loans and raising deposits, with staff being paid a bonus,based on annual financial results, to encourage good performance. BRI's goal was in line with GOI'spolicy reforms to deregulate the financial system, spur resource mobilization, restrict the scope of BIliquidity credit programs and enhance the access of creditworthy small borrowers to credit. Thesereforms were supported by the Bank in the form of policy advice, institutional support and financialresources. The Bank report entitled "Indonesia - Policies and Prospects for Long-Term FinancialDevelopment" in 1985, clearly identified the need to limit the scope of the then existing prioritycredit programs and to reduce the credit subsidies associated with those programs. The reduction ofthe subsidy and its effect on the budget was an important objective of the Bank's dialogue with GOI,particularly given the country's difficult economic situation at that time. The KUPEDES programrepresented a dramatic and successful departure from the heavily subsidized and directed creditprograms. In the first two years of its operations, with assets growing at 68.1% in 1985 and 38.8%in 1986, KUPEDES rapidly developed into the country's largest and most widespread source of creditfor small borrowers. Losses declined steadily during these two years, and the Unit Desas registered aprofit in 1986.

2.4 In order to support and strengthen the Unit Desa system, which was clearly economically andfinancially viable, the Bank prepared the BRI/KUPEDES Small Credit Project (the Project) in 1986.

3. Proiect Objectives and Description

3.1 The Project's objectives included: (a) supporting BRI's efforts to develop the Unit Desa (sub-branch) system into a financially viable network that is able to provide credit on a nonsubsidized basisto all creditworthy small borrowers, to mobilize savings and to provide other banking services; (b)encouraging BRI to improve its resource mobilization efforts so that it could eventually fundKUPEDES loans out of the deposits that it raises; (c) reducing its reliance on BI liquidity credits forthe KUPEDES program; and (d) improving the institutional capability of BRI overall as well as forthe KUPEDES program.

3.2 To achieve these objectives, the Project consisted of two components: (a) a credit componentfor general purpose financing. This was expected to meet BRI's requirements for funds forKUPEDES lending, other than those which it could raise through savings mobilization, and was equalto the amount of BI liquidity credits that BRI would otherwise require for the period. The componentwould finance small-scale enterprises in all sectors including manufacturing, agriculture, trade andservices; and (b) a technical assistance component to assist BRI in improving its institutionalcapability relating to the implementation and strengthening of the KUPEDES program.

4. Proiect Design and Organization

4.1 Project Design: As mentioned above, the Project was designed to comprise twocomponents: one credit component and one technical assistance component. While this design is

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fairly typical for a financial intermediary lending operation, the particular design of the Project hadseveral strengths which have contributed to success.

4.2 One major strength of the Project's design was the emphasis on building an institution capableof providing banking services on a sustained basis, rather than just moving Bank funds to supportKUPEDES disbursements. Under the Project, drawdown of Bank funds was based on the growth inbanking services, i.e., increase in the Unit Desa loan portfolio and deposits mobilization. Thus, Bankfunds were not used to refinance other funds already committed. The maximum percentage of theincrease in the portfolio that could be financed by the Bank was set at 65% for the first year and 60%for the second year. This disbursement formula created an incentive for BRI to mobilize otherresources. BRI was thereby compelled to raise part of the expansion funds from deposits, which, asnoted above, was one of the institution building objectives of the Project. Another aspect ofinstitution building was the support for strengthening through technical assistance the audit andsupervision functions of BRI related to the Unit Desa operations.

4.3 A second strength of the Project's design was the emphasis placed by the Bank and BRI ongoals and strategies for achieving these goals. The Unit Desa Policy and Strategy Statements werejointly prepared by the Bank and BRI and became part of the Project documentation. The PolicyStatement listed the basic concepts on which the Unit Desa system was based:

(a) credit available for any productive purposes, nontargeted, with decisions based onsound banking considerations;

(b) interest rates sufficient to cover all costs, including loan losses, and to provide a profitmargin;

(c) deposit mobilization to be encouraged by paying positive real rates of interest;

(d) additional services to be introduced according to customer needs, with costs fullycovered;

(e) emphasis on Unit Desa location close to Unit customers, to reduce transaction costand provide genuine access; and

(f) environmental impact to be considered in making loan decisions.

4.4 Ways of implementing and achieving these policies were elaborated in the Unit Desa StrategyStatement. These commitments were taken seriously by BRI management. For example, early in thelife of Project implementation, Japanese balance of payments support was made available to BRI bythe Government, specifically to finance the portion of KUPEDES expansion (40% by the Bank'sdisbursement formula) not covered by the Bank. Even with this additional financing available, BRIdid not relax its mobilization efforts and continued with its emphasis on developing the Unit Desas'independent funding sources.

4.5 Thirdly, the Project objectives were clearly stated and were realistic. They coincided withplans and goals that were already accepted and being implemented by BR!, and were supported by theGovernment. Thus, the decision had been taken in 1983 to convert the Unit Desas into a viable rural

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financial network. By 1987, KUPEDES loans were expanding rapidly, and the Unit Desa system wasprofitable. Deposits mobilization was moving ahead, although deposits still covered a minority ofloans outstanding. The Project was therefore timely and provided important outside support for thepolicies and goals that were in place, and strengthened BRI's resolve to continue on the same path.

4.6 Since deposits were still far below loan funding requirements at that time, the Unit Desaswere partially dependent on a line of credit from Bank Indonesia. This line could be reduced orcancelled at the discretion of Bank Indonesia. The Bank funds removed the Unit Desas' dependenceon Government or Bank Indonesia funding for additional growth and helped to ensure that KUPEDESloans would continue to be available to creditworthy enterprises at all times.

4.7 Finally, the Project also provided support for the Government's financial sector policyreforms. In 1983, the Government had partially deregulated the banking sector. This firstderegulation was incomplete, and many subsidized credit programs were still in place. The Bank'sLoan for KUPEDES provided a clear signal of the Bank's support for further moves away from thesubsidized credit programs. The successful development of the Unit Desas as unsubsidized suppliersof credit in the rural areas encouraged the Government to consider ending most subsidized creditprograms other than those for cooperatives. Bank Indonesia withdrew from most of the subsidizedcredit programns in 1990.

4.8 Project Organization: BRI's Board of Managing Directors is the main authority for theestablishment of policy regarding Unit Desa activities. Policy directives (in the form of operationalcirculars) are communicated from the Board through the regional offices and branches to theirrespective Unit Desas. BRI's Unit Desa Policy and Unit Desa Strategy Statements adopted by BRI'sBoard of Managing Directors in June 1990, as mentioned previously, outline the overall goals andoperational objectives of the Unit Desa system. In late 1988, in recognition of the growingimportance of the Unit Desas as a major service and profit center within BRI, a full division knownas Business Unit Desa Division was established.

4.9 While the regional offices oversee the operations of the branches, branches have the primaryresponsibility for the day-to-day supervision of Unit Desa activities. Each branch has at least oneUnit Desa Business Manager who routinely visits and monitors Unit Desa operations, cash balancesand financial controls; in those branches where there are more than ten Unit Desas, a Unit DesaOfficer is assigned to oversee the Unit Desa Managers.

4.10 The standard Unit Desa comprises a manager, a loan officer, a bookkeeper and a cashier.Standardized workload coefficients (based on number of loans, number of savings accounts andaverage daily cash transactions) have been developed that determine the number of additional UnitDesa staff needed in order to operate efficiently a Unit Desa. "Posts", comprising two-person teams,are attached to those Unit Desas where there is significant business activity in outlying areas butinsufficient transactions to justify the creation of a fully-staffed Unit Desa.

5. Project Implementation

5.1 General Status: The Project was approved on April 28, 1987, and became effective on June11, 1987. The implementation of the Project was smooth and satisfactory. The credit component

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was fully disbursed by the third quarter of 1989, almost three years before the originally estimatedcompletion date (June 30, 1992). The implementation of the TA component was completed asoriginally scheduled.

5.2 There was little departure from the original Project design. The only variance was thereallocation of US$3.3 million from the credit component to the technical assistance component tostrengthen BRI's institutional capability as well as to finance related studies.

5.3 With the exception above, the Project proceeded in line with its original design. On theoutput side, the results, particularly for deposits mobilization, far exceeded the levels forecast at theProject appraisal. This will be discussed under the section on project results.

5.4 Procurement: Under the Project, subloans have been very small (with an average size of lessthan US$250 equivalent) and have no direct foreign exchange component; competitive biddingprocedures would have been impractical. Therefore, goods and services procured with subloanproceeds have been acquired through normal commercial channels available to the borrowers.However, the consultant services financed under the Project were provided in accordance with theBank's guidelines on the use of consultants.

5.5 Project Cost: Funds available to the Unit Desas for extending KUPEDES loans came fromseveral sources:

(a) Equity: consisted of the proceeds of the Government grant to BRI for the Kredit Miniprogram which, in 1984, was reallocated for funding the KUPEDES loans. BRIdistributed this grant among the Unit Desas as an "equity contribution";

(b) Liguiditv Credit from Bank Indonesia: consisted of: (i) the conversion of the liquiditycredit originally provided by Bank Indonesia for the purpose of funding the KreditMidi program; and (ii) an initial liquidity credit made available to BRI for KUPEDESlending. It was agreed under the Project that BRI would pay a single consolidatedrate of 12 percent per annum on these liquidity funds, and that they would be repaidon a quarterly basis over seven years, beginning in the first quarter of 1989;

(c) Official Loan: consisted of the Bank line of credit; and

(d) Deposits Mobilization by the Unit Desas: The Unit Desas provided two majorsavings instruments: TABANAS and SIMPEDES. TABANAS (small savingsprogram) was a national savings scheme sponsored by Bank Indonesia and available todepositors in all banks, both state and private. SIMPEDES (village savings prograrn)was introduced by BRI in 1985 as a Unit Desa savings instrument. In addition, theUnit Desas also offered time deposits with maturities ranging from three months toone year and checking accounts, which were held primarily by local governmentagencies.

In addition, funds were also provided by the United States Agency for International Development(USAID) and the Bank to finance technical assistance programs to strengthen the Unit Desa system.

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5.6 Actual Project cost compared to the appraisal estimate is shown in Part III. The originalProject cost was estimated at US$ 1,125 million, but the actual Project cost was about US$ 4,726million equivalent. This large increase was due to the extremely successful incremental Unit Desadeposit mobilization and also to the repayment of previous KUPEDES loans, which was not expectedat the time of Project appraisal.

5.7 Disbursements: Actual disbursements compared to the estimates at appraisal are shown inPart III. The credit line was fully disbursed by end of 1989, three years before the closing date,much faster than the appraisal estimate. The disbursement under TA component followed the originalplan. The Project was completed according to the original schedule, and the Loan account was closedon April 8, 1993, the date on which the final disbursement was made. An undisbursed balance ofabout US$65,000 under the TA component was cancelled.

5.8 Project Risks: Two potential risks were identified under the Project: portfolio deteriorationand "bureaucratization" of the Unit Desa system.

5.9 The first risk identified, portfolio deterioration, is a principal risk in the support of anylending program. While the experience with KUPEDES lending up to the approval of the Project wasvery positive, with low delinquencies and losses, there was concern that as the portfolio expanded,quality might suffer. There were in fact two periods of portfolio deterioration, but they resulted fromexternal economic factors, rather than from the growth of the portfolio. In 1988, loan qualitydeclined as drought affected the rural economy. This decline was moderate and brief, with loanquality restored within one year. The second period of declining portfolio quality, in 1991-1992, alsoreflected drought condition in eastern Java, more severe and prolonged than in 1988. This time, theproblems of drought coincided with a period of tight money policy. BRI made strong efforts toimprove portfolio quality which showed good results by the end of 1992. Improvement has continuedin 1993.

5.10 Under the Project, the principal indicator of the portfolio quality was the Portfolio Status,which measures the total of overdue installments to the total of loans outstanding. Conceptually, thisis an imperfect measure, since at a time when portfolio growth declines, or the size of the portfolioreduces, this measure will automatically increase, which may or may not reflect a real decline inportfolio quality and repayment probability. The KUPEDES portfolio quality did decline in 1991,and the Portfolio Status exceeded the level of 8% for a six month period, above which levelperformance was considered unsatisfactory under the Project. As required by the Bank under theProject, BRI prepared an action plan to reduce arrears, which was the basis for a concerted collectioneffort. BRI's concentration on collections was at the expense of seeking new and good loans, so thatloans outstanding actually declined for several months in 1991 and 1992. Because of the nature of thePortfolio Status indicator, as mentioned above, the portfolio decline exaggerated the apparent declinein quality. The second measure of loan quality specified under the Project was the percentage ofloans more than three months past their due date, to the total loans outstanding. The "trigger" levelfor this indicator was set at 6%, but the actual percentage never approached this level.

5.11 In retrospect, a more useful indicator of loan quality under the Project would have been anarrears ratio, i.e., percentage of the amounts not collected to the total that has come due. The use ofa 12 month arrears ratio would have picked up the portfolio problem earlier, and would have signaledthe subsequent improvement in a more timely fashion.

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5.12 The second risk identified under the Project was that the KUPEDES credit process mightrevert from the agreed straightforward market based approach to a bureaucratically determinedtargeted and subsidized lending strategy which had previously typified Government supported lendingin Indonesia. Such a development could stifle the program and distort the basis for makingKUPEDES loans, as well as give scope for increased irregularities by Unit Desa staff. There hadbeen some pressures to move back to the targeted and subsidized lending approach. The assurance ofcontinued Bank support for BRI's implementation of the agreed Policy and Strategy for the operationof the Unit Desa system, has helped BRI management to withstand these pressures.

6. Project Results

6.1 Achievement of Project Objectives: The primary objectives of the Project have beensuccessfully achieved. Detailed projections for lending, deposits mobilization and Unit Desas profitswere made in the Staff Appraisal Report (SAR) for the Project for the period 1987 through 1990. Acomparison of these projections with actual results is shown below for the four years from 1987 to1990, plus actuals for the years 1991 and 1992.

In Rupiah (billion)

KUPEDES Outstanding Total Deposits Unit Desas ProfitsYear Estimate Actual Estimate Actual Estimate Actual

1987 460.2 429.6 197.7 287.5 8.9 22.5

1988 578.1 542.3 241.4 493.0 14.3 30.6

1989 695.3 846.5 290.2 959.1 26.5 36.9

1990 810.3 1,381.8 344.2 1,694.8 36.2 65.2

1991 - 1,455.7 - 2,540.5 - 66.1

1992 1,648.5 - 3,399.1 69.3

6.2 KUPEDES Growth: The Loan objective of safely expanding non-targeted and non-subsidizedcredit was clearly achieved. From the end of 1987 to the close of 1990, KUPEDES loans outstandingrose by a factor of 3.2, compared with a forecast of 1.8 at Project appraisal. The number of loans onthe books rose from 1.3 million to 1.9 million. As a result of the dramatic rise in loans outstanding,Bank funds were fully drawn in the third quarter of 1989 rather than in the fourth quarter of 1992 asoriginally forecasted. '[he portfolio quality was well controlled. The Portfolio Status was lower atthe end of 1990 than at the close of 1987.

6.3 KUPEDES growth slowed during 1991 for the reasons discussed earlier and recoveredmoderately in 1992. The annual growth rates in Rupiah terms for the two years were 5% and 13%respectively. The number of active borrowers dropped by 3 % in 1991 and was stable in 1992. Thefailure to add new borrowers reflected a concern with loan quality, the diversion of manpower to

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collecting arrears rather than looking for new loans, and over-selective loan approvals. In 1993, thenumber of borrowers shows a modest but steady increase.

6.4 The average outstanding loan size rose from Rp. 330,000 at the end of 1987, to Rp. 730,000at the end of 1990, and to Rp. 896,000 at the end of 1992. Part of the increase in average loan sizereflects the slowdown in lending in 1991. When loans outstanding decline, fewer new borrowers areadded, and the proportion of repeat borrowers rises, so does the average outstanding loan size. BRIis currently emphasizing adding customers with credit needs at the small end of the KUPEDES range,which should bring down the average loan size in the future.

6.5 Deposit Growth: The Project objective of deposit mobilization was fulfilled. Unit Desadeposits increased from Rp. 287.5 billion in 1987 to Rp. 3.4 trillion in 1992, far beyond theexpectations of both BRI and the Bank at the time of Project appraisal. There were several reasonsfor the dramatic rise in deposits.

(a) BRI's Unit Desas represent the only banking system that operates in virtually all ofthe nation's sub-district towns and small cities. This geographic coverage, whencoupled with attractive savings instruments and a sustained program of fundsmobilization, has gave BRI a powerful advantage in attracting deposits;

(b) The SIMPEDES savings account was extended from a pilot basis to nationwideavailability in the second half of 1986. This account was designed to meet customerdesires based on field research. It offers unlimited withdrawals, carries a strongpositive real rate of interest, and includes periodic lottery prizes at the local level. Ithas proved to be a very attractive instrument, and its growth has exceededexpectations. By the end of 1986, SIMPEDES balances at the Unit Desas exceededthose of the TABANAS, the national savings program. SIMPEDES remains the mostimportant deposit instrument at the Unit Desas. SIMPEDES balances alone covered72% of the KUPEDES loans outstanding at the end of 1990, and exceeded theKUPEDES loans outstanding in 1991 and 1992; and

(c) The continuing deregulation of the banking sector in Indonesia led to the rapidproliferation of private banks following the liberalization of entry requirements in late1988. The expansion of banks, while most were in urban areas, represented strongpotential competition for the Unit Desas, and BRI anticipated that such competitionwould occur. In some areas it did, but there was an even stronger effect in theopposite direction. Weaknesses in the private banking sector led to the well-publicized failure of one large private bank. BRI, as a wholly state owned bank witha perceived implicit government guarantee of deposits, was widely seen as a safeplace for savings, and as fears of banking sector weakness rose, so did Unit Desasdeposits.

6.6 Financial Viability: The Unit Desas broke even on a monthly basis in August 1985, andhave been profitable each month since then. Net profit, after full costing of direct Unit Desaexpenses, supervision, training and conservative provision for debt losses, rose each year and morethan tripled between 1987 and 1992, from Rp. 22.5 billion to Rp. 69.3 billion. The Unit Desaoperations continue to be profitable in 1993, with profits for the first five months of Rp. 33.6 billion

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compared with Rp. 30.8 billion during the same period in 1992. Profits for the full year of 1993 areexpected to rise substantially from those earned in 1992.

6.7 Profitable operations have helped to ensure the continued availability of credit, which is basicto the creation of a sustainable financial system. The Unit Desas' record of sustained profits, togetherwith control of portfolio quality are the clearest indicators that the Project objective of financialviability has been achieved.

6.8 Institutional Capabilitv: The management of the Unit Desas has been successfully integratedinto BRI's overall organization. As the size of Unit Desa operations has increased, its organizationalstructure has expanded from a Section to a Desk to a full Division within BRI. The Unit DesaDivision at headquarters, under a Managing Director, provides general leadership and overall control.Sections at each regional office and branch are responsible for direction in the field. Immediatesupervision is from the branches, with a full time cadre of Unit Business Managers assisting the UnitDesas in their operations. BRI's internal auditors audit the Unit Desas when they audit theresponsible branch. Part of the Project funds under the TA Component was used for the training ofsome 125 auditors who specialize in audit of the Unit Desas.

6.9 BRI is presently reorganizing its Branch and Regional offices. Two aspects of the Unit Desaexperience have influenced the planning for this reorganization. First, the successful experience oftreating the Unit Desas as a profit center within BRI, and making each Unit Desa a fully accountableaccounting center, will be applied throughout BRI. Branch lending, and international/large corporatelending will be set up on a profit center basis, with the necessary changes in organization andaccounting to permit identification of results by operating unit. Second, the successful use of profit-sharing at individual Unit Desas has led to the serious consideration of incentive systems to linkreward with performance at the Branches.

6.10 Intermediation of Deposits: Since the Unit Desas are part of BRI, a Unit Desa canintermediate funds by depositing excess cash with its Branch, or by borrowing from the Branch ifloan demand exceeds available internal funding. The Unit Desa receives or pays interest on thesefunds at an internally determined transfer price. By raising or lowering the transfer price in relationto the deposit rates, BRI sends signals to the Unit Desas as to the appropriate division of their effortsbetween funds mobilization and seeking additional lending. Such transfer price has been kept abovethe rate paid on savings, in order to encourage the Unit Desas to mobilize funds. For the Unit Desasystem as a whole, funds are intermediated from areas of deficient demand to areas of surplusdemand.

6.11 Starting in October 1989, Unit Desa deposits have exceeded Unit Desa lending, as shown inthe table above. This net surplus goes to BRI's branches. Since the bulk of branch lending is also inrural and small town areas, the excess Unit Desa deposits are used to support small and mediumbusinesses in KABUPATEN locations, essentially the same rural economy served by the Unit Desas.Since 1989, BRI has also operated Unit Desas in major urban areas. These urban Units haveconsistently had an excess of deposits over loans, so their excess deposits have also beenintermediated into the Branch network, for lending to small and medium size businesses.

6.12 Thus, the Unit Desas' funds intermediation efforts have played an important and successfulrole in BRI's overall development of a rural financial system.

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6.13 The Unit Desas as a Part of BRI The Unit Desas make a very important contribution to BRIas a whole. As shown in the following table, for the three years from 1990 to 1992, the Unit Desas'loans outstanding were stable at about 9.4% of BRI's total portfolio, the Unit Desas' contribution tototal BRI deposits rose from 17.5% to 28.8% during the same period, and the Unit Desas profitsrepresented an increasing share of BRI total profits (before tax), from 36.5% in 1990 to 92.3% in1992. 4/

(Rp. billion)

Loans Deposits Profits (before tax)

Year Units as Units as Units asBRI Units % of BRI BRI Units % of BRI BRI Units % of BRI

1990 14,335 1,382 9.6% 9,667 1,695 17.5% 179 65 36.5%

1991 15,648 1,456 9.3% 11,626 2,540 21.9% 92 66 72.1%

1992 17,811 1,649 9.3% 11,821 3,399 28.8% 75 69 92.3%

6.14 The Project also provided technical assistance to strengthen the Unit Desa system, consistingof training and study programs. Under the training program, 125 new auditors were trained withspecialization in auditing of the Unit Desas. Training was also provided to implement a newoperating system in the Unit Desas which both increased safety checks and balanced the workload ofthe staff members.

6.15 Under the study program, several studies were conducted with help of consultants. Thesestudies, including a study of the reasons why KUPEDES lending for investment was lower thananticipated, a study of the extent of market penetration and of the potential for additional KUPEDESlending, and a study of loan arrears, were important to the effective management of the Unit Desas.

6.16 KUPEDES Investment Credit Study: The findings of this study led to a number of importantdecisions by BRI. It was clear that the lower interest rate on investment credit than on workingcapital was not considered important by the KUPEDES borrowers. Instead, they were much moreconcerned with the extra requirements for securing an investment credit as described below.

6.17 With concerns about the possibility of corrupt negotiations between the KUPEDES borrowersand the loan officer to obtain a lower-cost investment credit, BRI inspectors insisted on pre- and post-purchase proof of equipment procured, something not in any instructions from the BRI Business UnitDesa Division. They even insisted on construction drawings for small buildings. As a result, manyborrowers were taking working capital loans at the higher interest rate for investment purposes toavoid the extra hurdles in obtaining cheaper investment loans.

The high percentage in 1992 was due to large loan loss provisions being made by BRI onaccount of its classified assets as required by Bank Indonesia prudential regulations.

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6.18 In view of these findings, BRI and the Bank decided to consolidate interest rates into a singleinterest rate for all KUPEDES loans and also to eliminate the barriers for obtaining investmentcredits. The possibility of corrupt negotiations as mentioned above was thus also minimized. Withthese changes, the main difference between investment and working capital loans was in the loanmaturity: three years for investment loans and two years for working capital credits.

6.19 Market Potential Survey: This survey indicated that there is still a large potential forKUPEDES lending. The competition introduced by new branches and sub-branches of large privatebanks in Indonesia caters mainly for people who are in the top 10% of the village income distribution.Below this top 10% there is a large group of creditworthy entrepreneurs, many of whom are savingscustomers at the Unit Desas but have not yet borrowed. The competition from the new small privatebanks (BPRs) is largely in the city suburbs, except in Bali, and is not significant for most Unit Desas.

6.20 There is strong competition from BPRs for deposits in some areas such as Bali, where depositcollectors of BPRs go door to door every day to collect very small amounts from each depositor.This system is far too labor intensive and expensive for the Unit Desas to attempt. However, thiscompetition does not seem to affect the total deposits mobilized by the Unit Desas, partly becausethere is a general perception of greater safety in the Unit Desas and depositors move their savingsfrom BPRs to the Unit Desas when their savings balances build up to a significant amount.

6.21 KUPEDES Arrears Study: This study examined the causes of the decline in KUPEDESrepayment performance beginning in late 1990 and continuing through 1991 (the KUPEDESrepayment record began to turn around in early 1992 and improved steadily throughout the year).The study concluded that two factors, adverse weather conditions (drought followed by heavy rainsand flooding throughout much of Indonesia) and the Government's tight money policy, were the mostimportant determinants of deteriorating performance.

6.22 Although the majority of KUPEDES loans are not directly for agricultural purposes,KUPEDES arrears are very sensitive to harvest failure because borrower households often haveagricultural enterprises (about half of the borrower households surveyed had at least one agriculturalenterprise) or trade agricultural goods. In addition, farmers comprise a very large part of thecustomer base of the Unit Desa borrowers.

6.23 The effects of the tight money policy were felt in several ways by KUPEDES borrowers.The general tightening of bank credit caused suppliers and marketing intermediaries to drasticallyreduce cash advances and trade credit to KUPEDES borrowers. In addition, many marketingintermediaries delayed payments or only accepted goods on consignment. The disruption of traderelationships caused by the tightening of credit and general slowdown in the rural economy persistedwell after monetary policy had begun to ease.

6.24 The severity of and uncertainty surrounding the tight money policy caused BRI to place tightrestrictions on credit expansion. In effect, KUPEDES was no longer demand driven: credit wasrationed even to good repeat borrowers which weakened the connection between repaymentperformance and subsequent access to credit, while routine refusal of potentially good new borrowershurt the Unit Desas' reputation as an institution where creditworthy borrowers had consistent accessto credit. The credit restrictions also concentrated final loan approval decisions at the branch level,often weakening the ability of Unit Desa staff to make independent credit judgements. Finally, staff

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shortages meant that field officers were often overloaded with borrowers and were frequently divertedto serving customers in the Unit Desas rather than collecting arrears and checking on borrowers withpotential repayment problems.

6.25 Overall, the studies carried out under the TA component of the Project have been of greathelp to the policy makers within BRI responsible for the Unit Desas. Moreover, many researchersfrom the BRI's Research Division obtained experience in survey techniques which should prove to beof value in conducting future studies. However, it should be noted that further in-depth studiesregarding Unit Desa operations are not on the current research agenda of the Research Division,which is now focusing on BRI's large portfolio problems.

6.26 In addition to the above, part of the TA funds was used to strengthen BRI's institutionalcapability. As a result, the Unit Desa system was changed to strengthen cross-checks and safety, aswell as to improve efficiency by achieving a better balance in workload among the Unit Desa staff.

7. Project Sustainabilitv

7.1 The Project is sustainable, as described below.

7.2 Financial Viability: The financial viability of the Unit Desa system can best be measured byits profitability over time. Long-term sustainability would be doubtful without healthy net earnings.As mentioned previously, the net profit, after full costing of direct Unit Desa expenses, supervision,training and conservative provision for bad debts, far exceeded the appraisal estimates, rose steadilyeach year and more than tripled between 1987 and 1992, from Rp. 22.5 billion to Rp. 69.3 billion.The Unit Desa operations continue to be profitable in 1993, and it is expected that 1993 profits willrise substantially from those earned in 1992. Additionally, the average earning assets of the UnitDesas increased ten-fold during the Project life, from Rp. 309 billion in 1987, to Rp. 3,086 billion in1992.

7.3 Resource Mobilization: A sustainable credit system should be able to mobilize sufficientfunds to finance its loan portfolio. The Unit Desas have certainly achieved this and the mobilizationof deposits far exceeded appraisal expectations. By June 1987, when the Bank Loan becameeffective, savings in the Unit Desas was Rp. 210 billion. By September 1989, when the lastdisbursement was made under the Bank Loan, total savings in the Unit Desas had increased to Rp.748 billion, greatly exceeding the 40% of KUPEDES loans outstanding as required under thedisbursement formula of the Bank Loan.

7.4 The market share of Unit Desa deposits also increased. At the end of 1986, when the Projectwas appraised, total Unit Desa deposits of Rp. 175.8 billion represented 0.79% of the total domesticbank deposits in Indonesia. At the end of 1992, when the Project was completed, total Unit Desadeposits of Rp. 3.4 trillion accounted for 3.16% of the total domestic bank deposits in the country.

7.5 The growth of Unit Desa deposits and their relationship to the KUPEDES loans outstandingduring the period 1987 through 1992 are shown in the following table.

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Total Deposits Deposits as % of Number ofYear (Rp. billion) Loan Outstanding Depositors

1987 287.5 66.9 4,183,9831988 493.0 90.0 4,998,0381989 959.1 113.9 6,261,9881990 1,694.8 122.7 7,262,5091991 2,540.5 174.5 8,587,8721992 3,399.1 206.2 9,953,294

7.6 Institutional Development: As mentioned earlier, the management of the Unit Desas hasbeen successfully integrated into BRI's overall organization. As the size of Unit Desa operations hasincreased, its organizational structure has expanded from a Section to a Desk to a full Division withinBRI. The Business Unit Desa Division at headquarters, under a Managing Director, provides generalleadership and overall control. Sections at each regional office and branch are responsible fordirection in the field. Immediate supervision is from the branches, with a full time cadre of UnitBusiness Managers assisting the Unit Desas in their operations. BRI's internal auditors audit the UnitDesas when they audit the responsible branch.

7.7 The Unit Desa Policy and Unit Desa Strategy Statements adopted by BRI in 1990 outline theoverall goals and operational objectives of the Unit Desa system. Detailed operational procedures arealso in place.

7.8 Developmental Im2act: KUPEDES loans are available for any productive activities. Statedloan purposes show that retailing and trading dominate, representing over 60% of the total. Smallindustry loans come next, accounting for about 13% of the total. Direct agricultural production loansare less frequent, making up about 8% of the total. However, total funds going to support agricultureshould be higher than this figure, given that part of the trade and industry loans are used to financethe production and marketing of agricultural products.

7.9 The Unit Desa borrowers are truly small enterprises, with average capital investment of aboutUS$650 equivalent and less than five workers including family members. Women make up at least25% of the borrowers. The amount of funds going to enterprises headed by women, however, shouldbe higher than that, because husbands often sign the note (they are predominantly the title holders toland) when the funds are actually used by their wives. Even when the husband is the borrower, partof the proceeds is often used in the wife's business activities.

7.10 It is clear that the Unit Desa borrowing enterprises are growing rapidly and makingsubstantial contributions to improved incomes and employment generation in the rural and small scalebusiness sectors. A field survey done in 1990 gathered income and employment information fromUnit Desa borrowers over a three-year period of borrowing. After three years of borrowing(typically three loans), Unit Desa customers experienced substantial increases in enterprise and total

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family income. Average enterprise income rose about 93% and average family income rose by 76%,both in real terms. Average number of workers of borrowing enterprise increased from 3.4 to 5.6.

8. Bank Performance

8.1 Overall, through Loan 2800-IND, the Bank has made a very positive contribution to thesuccessful development of the BRI Unit Desa system. The Bank's performance in the various stagesof the Project cycle was satisfactory, as described below.

8.2 There was continuity of Bank staff during the entire life of the Project, which obviouslyfacilitated the smooth preparation, appraisal and subsequent successful implementation of the Project.The members of the Bank task team were well-informed and thorough. They had previous experiencewith the banking sector in Indonesia and therefore understood the background of previous BRI andGovernment decisions on the BRI Unit Desa system. They worked closely and harmoniously withtheir BRI counterparts, so that the Project was a joint effort, with strong commitment on both sides.The Bank staff impressed BRI management with their ability and dedication during the Projectpreparation and appraisal, and therefore enjoyed a high level of trust and confidence during Projectimplementation.

8.3 The Bank's reporting requirements from BRI were set up based on BRI's existing regularmanagement reports. No extra surveys or reports were required solely for the Bank's purposes.When administering a system with a very large branchlsubbranch network, preparation of one extrareport can be very time consuming. This was avoided under the Project so that BRI staff andconsultants could concentrate more on Project implementation.

8.4 Bank staff provided substantial assistance to BRI in developing the Unit Desas PolicyStatement and Unit Desas Strategy Statement, which were formally adopted by BRI and incorporatedby reference in the Project documents. These agreed statements set up clearly the policy, principlesand strategies for Unit Desa operations, which were followed during Project implementation.

8.5 During Project implementation, the Bank went beyond focussing on investments on a case-by-case basis, and looked at all aspects of the Unit Desa system (including organization, policy andprocedures). Conditionality was used to promote the strengthening of the institutional framework,with a clear emphasis on long-term sustainability and financial viability. This approach has provensuccessful, as demonstrated by the Unit Desa system's impressive growth and profitability on acontinuing basis.

8.6 The Bank conducted field supervision missions on a regular basis, which is consideredadequate.

8.7 Some useful conclusions and lessons can be drawn from this successful operation:

(a) A project is more likely to be successful if it is clearly focused and has simpleobjectives. These objectives should be thoroughly discussed by the Bank with, andunderstood and agreed by the Borrower, to ensure high commitment and ownership;

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(b) Design of the project should be directly linked to the project objectives. In particular,the credit component should be designed to encourage and support the institution'sown resource mobilization efforts, rather than to compensate for a lack of it;

(c) Continuity of Bank and implementation agency staff throughout project design andimplementation is an advantage in ensuring smooth and successful project preparationand implementation; and

(d) The Bank's reporting requirements should be in line with the implementation agency'sexisting reporting system; any extra reporting requirement solely for Bank purposesshould be minimized, so that the implementation agency can focus more on projectimplementation.

9. Borrower Performance

9.1 BRI's performance during the Project cycle was generally of high quality. There wascontinuity at the top management level. At the operating level, the Business Unit Desa Division wascreated in June 1988, in recognition of the growing importance of the Unit Desas to BRI.Management of the Division changed periodically, in accordance with BRI's management rotationpolicies, but there was reasonable continuity at the Section head level.

9.2 There was also strong and continuing consultant support throughout the Project life. Theresearch and planning consultant, financed under the Project, was in place for the entire period ofProject implementation. The bulk of the consultant services for the Project was provided by USAIDthrough a contract with the Harvard Institute for International Development (HIID). The USAID-contracted consultants worked in close cooperation with BRI and the Bank. Several of the consultantswho worked in the Project development stage continued to provide services throughout the period ofimplementation. USAID financed the HIID consultants from 1987 to 1991, when the financing wasassumed by the Bank under the Second BRI/KUPEDES Small Credit Project (Loan 3249-IND) for thebalance of the implementation period, and continuing to the present.

9.3 An implementation problem has been assuring adequate staffing at the Unit Desas to supportthe rapid growth that has taken place. Because of the lengthy training periods required, as well as thegeographic dispersion of the Unit Desas, staffing needs should be addressed on a flow rather than astock basis. The tendency at BRI has been to solve staffing needs in an ad hoc manner, responding toactual vacancies rather than anticipating future needs and preparing to meet them smoothly. During1988 and 1989, a system was developed to forecast staffing needs in the Unit Desas by estimating forthe Unit Desas attached to each branch the planned expansion, growth of business, attrition, requiredreserve staff, etc. This system was accepted and worked effectively for the year 1990. In 1991, as aresult of difficult monetary conditions and financial sector problems, BRI undertook a staff reductionprogram at the Branches and regional offices. It was difficult to continue recruiting for the UnitDesas while retrenching in the rest of BRI. The Unit Desa recruitment process was a casualty of thisperiod, and BRI reverted to ad hoc recruiting during the last two years of Project implementation.The staffing shortage problem is being addressed, and there is agreement on the resumption of orderlyrecruitment starting with 1994, but ensuring that there will be adequate staff to support continuinggrowth of Unit Desa operations remains somewhat of a concern.

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9.4 Among the conclusions that can be drawn from the Unit Desa operation are:

(a) It has become evident that, in Indonesia, rural small and micro enterprises are willingand able to pay an interest rate which fully covers lending costs; assured access tolending, convenience of location and prompt credit decisions are more important tosmall borrowers than getting a lower interest rate;

(b) On the deposit side, there is large potential for mobilizing rural savings in Indonesia,provided that the needs of the potential depositors are satisfied. These needs, in orderof importance, are: safety, accessibility (immediate and unlimited withdrawal),convenience of service location, and acceptable interest rate; and

(c) Making provisions already at the design stage for training of additional staff to avoidshortages in case business activities develop more dynamically than expected.

10. Project Relationship

10.1 The Bank relationship with the GOI agencies concerned and BRI on the Project has been verysatisfactory. Both parties worked very closely during the various stages of the Project cycle, buildingup a relationship based on mutual trust and confidence. The successful Project preparation, appraisaland implementation was really a joint effort by all the parties involved.

11. Consulting Services

11.1 Several consultants (both expatriate and local) were hired under the Project to provideadvisory services and conduct studies. These consultants worked closely with BRI staff, and theirservices were considered of high quality. Their recommendation and suggestions were well taken byBRI management to formulate policies for the improvement of Unit Desa operations.

11.2 First funded by USAID and then by the Bank under the Second BRI/KUPEDES Small CreditProject (Loan 3249-IND), HIID has been providing technical assistance to BRI on Unit Desaoperations for many years now. Their assistance has been considered both by BRI and the Bank to bevery satisfactory. The strengthening of the Unit Desa operations, at a time when the rest of BRI isnot performing well, can be attributed in part to the sensible advice given by HIID advisors on issuessuch as arrears reduction. HIID has also assisted BRI in implementing MIS and computerization ofthe Unit Desas, which has resulted in improved productivity, cost savings and good quality ofinformation and data on Unit Desa operations.

11.3 Among the conclusions and lessons that may be drawn in connection with the consultingservices are: (a) clearly defined terms of reference are essential to the successful implementation ofthe assignment; and the consultant should be selected on the grounds of technical qualifications; (b)the consultants should work very closely with their counterparts, and should be able to have directaccess to senior management in order that their expertise can be fully utilized; (c) an action planshould be developed to ensure that knowledge is transferred and the activities currently undertaken bythe consultants are continued after the consultant assignment terminates.

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12. Proiect Documentation and Data

12.1 The legal documents and Staff Appraisal Report for the Project were adequate, and provided auseful reference and framework for Project implementation. The Project files are generally completeand adequate.

12.2 The quarterly progress reports prepared by BRI were found especially useful, with detailedinformation on the Unit Desas' general status, organization and procedures, staffing and training,lending operations, deposit mobilization, financial condition and performance, loan portfolio qualityand analysis, problems and issues, and other related activities. The reports also provided monthlyfinancial statements and performance indicators (ratios) of the Unit Desa system.

12.3 One conclusion or lesson learned would be: a well designed and maintained informationsystem/data base is very important to the successful implementation of the Project, to provide bothearly warning signals and the basis for timely corrective actions.

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INDONESIA


(LOAN 2800-IND)

PART II - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE

The BRI/KUPEDES Small Credit Project (Loan 2800 -IND), called KUPEDES I in thisreport, started in August 1987. The completion date was December 31, 1992. The project providedsupport to Bank Rakyat Indonesia in converting its Unit Desas into a financially viable and thereforesustainable basic rural banking system. This conversion of the Units placed special emphasis onproviding the banking services required by low income borrowers and savers throughout the country.

I. Overall Assessment of the Proiect's Performance

1. Development of BRI Units Prior to KUPEDES I.

The development of the Unit system at BRI during KUPEDES I was associated with adramatic shift in the nature of BRI's rural banking activities from the form they had taken in the1970s and early 1980s. This shift commenced before the start of KUPEDES I, but the Bank's supportwas a positive factor is accomplishing the purposes of the revised system of rural banking. Anappraisal of the Project's performance requires an understanding of this background.

Before 1984, the Unit Desas were essentially administrative offices designed to deliversubsidized credit as part of the Government's agriculture development program, BIMAS. Interestrates were set by Government and there was no attempt to balance operating expenses, loan losses,and cost of funds against income. Government shared the risk and subsidized operating expenses.The choice of borrowers was essentially made by the agriculture extension service, though the Unitstaff theoretically could veto credit to an individual borrower.

There was no real attempt to mobilize savings, though at Government instruction the Unitsreceived savings under TABANAS, the national savings scheme designed by Bank Indonesia. TheUnits paid the TABANAS interest to the saver and passed the savings to the BRI branches for branchuse. As a result, the "profit and loss" statement of a Unit showed an increased loss if a Unitincreased savings, providing a strong incentive not to mobilize savings.

By the end of the 1970s, the BIMAS credit program had fulfilled its agriculture extensionpurposes. Indonesian rice farmers had converted to use of fertilizer-responsive rice varieties and themuch larger fertilizer dosages appropriate to those varieties. The BIMAS credit program was servingfewer farmers and suffering a higher percentage of arrears each year, leaving the Units dependent on

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a steadily increasing government subsidy to continue in operation. A decision by Government toabandon the BIMAS credit program and the subsidies involved would mean that BRI could not sustainthe Units unless their operating methods, pricing of banking products, and even their basicbookkeeping system were drastically changed.

From the standpoint of Government, the closing of the Units would have meant withdrawal ofall banking services in about 95% of the locations in Indonesia which had such services. In additionto urging the BRI to convert the Unit Desas to commercially viable banks, the Government offered tosubsidize BRI's losses on the Units until the whole system began to break even (a "subsidy to endsubsidies").

Government provided seed money for the new credit system by allowing BRI to utilize the Rp66.7 billion grant given for Kredit Mini, an earlier credit program which was to be discontinued, asthe Units' "capital". Bank Indonesia converted Rp 43 billion of liquidity credit which had beenprovided for the Kredit MIDI to liquidity credit for KUPEDES, the new credit program of the Units.They also made available an additional Rp 100 billion of liquidity credit. The interest rates for thesenew liquidity credits were set at 15% for KUPEDES working capital loans and 3% for KUPEDESinvestment loans. The 15% was the rate paid by all banks for TABANAS savings; the intent was toavoid inhibiting BRI from mobilizing savings. The 3% rate was at the insistence of Bank Indonesiawhich still felt that they should subsidize investment credit.

The Ministry of Finance estimated that the BRI Unit system should be able to begin breakingeven by the end of two years. Lending under KUPEDES began in February 1984. By August 1985,the Unit Desa System had begun to break even on a monthly basis. The subsidy required from theMinistry of Finance was Rp 25 billion in 1984 and 0.9 billion in 1985. The BRI Unit system hasbeen profitable in each year from 1986 on and has required no further subsidy from Government.

In 1985/86 the World Bank was reviewing the results of its two step loan operations inIndonesia. The progress of the BRI Units in providing credit to low income people in the rural areason an unsubsidized, commercially sustainable basis presented an alternative to the subsidized creditprograms which the World Bank had previously supported, in fact had helped to conceive. Thedecision to provide a loan to BRI for increased lending in KUPEDES was intended as an endorsementof a shift in Indonesian Government policy toward liberalization in the financial sector and eventualabandonment of subsidized credit.

By the beginning of 1986, the Units had an outstanding KUPEDES portfolio of Rp 229billion. They had fully utilized the Rp 210 billion of seed capital and liquidity credit made availableby Government and Bank Indonesia. Savings mobilized by the Units had increased from Rp 26.6billion at the end of 1983 to Rp 84.9 at the end of 1985, but the new BRI-designed savingsinstruments were still under test and not yet ready to be offered nationwide.

At the speed that KUPEDES outstanding was increasing, BRI was facing the possibility ofhaving to restrict KUPEDES lending because of a shortage of funds. This would have violated one ofthe basic principles on which the banking relationship between the Units and their borrowers wasbeing established, i.e. that credit would be available to any creditworthy borrower. It had alreadybeen found that the assurance of additional credit for any borrower who paid back a previous loan ontime was basic to maintaining a high repayment rate.

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2. Start of KUPEDES I

Credit from the World Bank was considered crucial in enabling the Units to keep the creditwindow open for any creditworthy borrower who applied for a loan. Contact with the World Bankon the possibilities of securing a loan to support the Units lending began in 1986. The final loanagreement was signed in August 1987, with expenditures in the July/September quarter eligible forreimbursement.

The World Bank originally provided $100 million dollars for onlending in KUPEDES, $1million for Technical Assistance, and $500 thousand for training to strengthen the capacity inaccounting and auditing related to the Units. Later, $3.3 million was diverted from KUPEDESonlending to finance an ongoing technical assistance contract originally financed under KIK/KMKP.Most of this contract did not concem the BRI Units; only the work which did concem the Units isevaluated in this completion report. The $96.7 million remaining for onlending equalled Rp 166billion with the changing exchange rates over the period of drawing the funds.

The basis for calculating the amount which would be reimnbursed by the World Bank was setat 10% of the amount disbursed or 50% of the increment in KUPEDES outstanding during a quarter,whichever was greater. If the 10% of disbursements was the applicable measure, the amount to bereimbursed had an upper limit of 65 % of the increment in amount outstanding in the first year and60% in the second year. The purpose of this provision was specifically stated to be to push BRI toraise savings or otherwise provide a major part of the resources required for lending. Success inraising savings was not to be punished by withdrawing the loan if savings mobilized amounted tomore than enough to finance the rest of KUPEDES lending.

By the end of June 1987, when World Bank loan funds became available, KUPEDESoutstanding had increased to Rp 403 billion and savings mobilized by the Units had increased to Rp210 billion. While the World Bank loan appraisal and negotiations were in process, BRI coveredtemporary shortages in Unit funding from its own resources plus a 90 day call money loan fromBAPINDO. Bank Indonesia made available an additional Rp 50 billion of liquidity credit before theBAPINDO loan was due.

3. Growth of KUPEDES

KUPEDES lending increased more rapidly than had been projected in the World Bank'sAppraisal Report. The outstanding portfolio increased from Rp 403 billion at the end of June, 1987,to Rp 763 billion at the end of September, 1989, when the last of the funds available from the WorldBank loan was drawn. The World Bank funds were thus fully utilized in 29 months, rather than the60 months originally projected in the Appraisal Report.

The growth in lending during the Project period is summarized as follows.

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Amount Outstanding

Year-End Billions of. Rupiahs Number of Loans

1986 334.3 1,231,7231987 429.6 1,314,7801988 542.3 1,386,0351989 846.5 1,643,9801990 1,381.8 1,893,1381991 1,455.7 1,837,5391992 1,648.5 1,831,723

4. Growth of Deposits

The mobilization of savings also exceeded expectations. The rapid rise in savings mobilizedbegan in 1986, when the SIMPEDES savings instrument, designed by BRI to meet the needs of ruralsavers, was made available at all BRI Units. By June 1987, when the World Bank Loan fundsbecame available, savings in the Units stood at Rp 210 billion. By September 1989, when the last ofthe World Bank funds for onlending in KUPEDES were drawn, total savings in the Units hadincreased to Rp 748 billion, thus greatly exceeding the 40% of KUPEDES outstanding which BRI hadto raise under the disbursement formula in the World Bank loan agreement.

At the close of 1986, total Unit deposits of Rp. 175.8 billion represented 0.79% oftotal Indonesian banking deposits. They rose each year, both in Rupiah and market share. At theclose of 1992, total Unit deposits were Rp.3.4 trillion, or 3.16% of total Indonesian bank deposits.By October of 1989, total deposits exceeded total Kupedes outstanding. The growth in deposits andtheir relations to KUPEDES outstanding is summarized as follows:

Total DepositsYear (Billions of RD) % Loan Outst. # of Depositors

1986 175.8 52.6% n.a.1987 287.5 66.9 4,183,9831988 493.0 90.0 4,998,0381989 959.1 113.9 6,261,9881990 1,694.8 122.7 7,262,5091991 2,540.5 174.5 8,587,8721992 3,399.1 206.2 9,953,294

5. Other Project Activities

The original US$ 1 million in the Loan Agreement for Technical Assistance provided advisorsto help build up the capability of the Research Division of BRI to undertake research useful to themanagement of the BRI Units in Business Unit Desa Division. (More general technical assistance tothe BUD Division was provided under USAID grant funding.) All but $65 thousand of the Technical

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Assistance funds under the World Bank Loan were expended by the closing date of December 31,1992. The Technical Assistance provided is evaluated in Section III below.

The US$ 500 thousand of training funds enabled BRI to train 125 new auditors specializing inauditing of Units. It also assisted in the training required to implement a new operating system in theUnits which both increased safety checks and balanced the workloads of the staff members. Thetraining funds were utilized except for a remainder of $616 by the closing date of December 31,1992.

6. Assessment of Performance

It is clear from this summary that the purposes of KUPEDES I were successfully achieved bythe end of 1992. The Unit system provides the basic banking facilities of the rural areas of Indonesia.Loan totals showed sustained and rapid growth. Deposit mobilization exceeded all expectations. TheUnit operations covered costs and returned an attractive profit, so that sustainability was clearlyaccomplished. BRI's demonstration of the existence of a market for unsubsidized banking services inrural areas encouraged the Government to open up bank license procedures for setting up smallprivate banks (BPRs) in kecamatan towns in competition with the Units. In the May 1993 World BankReport "Indonesia Sustaining Development", the Unit experience is cited as a successful example ofwhat can be done in financial restructuring and provision of banking services.

II. Overview of the Credit Component

The growth of KUPEDES lending is summarized above. This section looks briefly at loanquality, loan purposes, customer profiles, and the impact of KUPEDES loans on customer businessactivities.

1. Loan Ouality

BRI uses several measures of loan quality. The Portfolio Status indicates the percentage ofoverdue installments to total outstanding. The Long term loss ratio shows the percentage of paymentsthat have come due that have not been paid since the start of KUPEDES lending. Short term andmoving average loss ratios show similar percentages for the change in the most recent month, and forthe last 12 months. Together, these measures provide good basic information on loan quality.

Delinquencies and bad debt losses have been well controlled. The long term loss ratio rangedfrom 2.5% to 3.5 % during KUPEDES I. The percent of overdue installments to outstanding rangedfrom 4.1% to 9.6%. The latter measure rose during 1991 and 1992 reflecting regional drought, someslowing in the rural economy and the effects of tight money policies in 1991. It has since declined.These measures of delinquency and loss are very good, compared with small loan finance programs indeveloped and in developing countries.

Incentives for repayment are built into the program. Each Unit receives 10% of its profits asa bonus, divided among the Unit staff. Borrowers' monthly payments include a prepaid penalty forlate payment, which is returned if all payments are on time for a six month period. Perhaps moreimportant, the borrower knows that if the repayment record is good, he or she is assured of getting

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another loan for an increased amount when it is needed, with minimal additional investigation. Thelarge majority of borrowers re-borrow. They have recurrent credit needs and will work hard toprotect their credit status.

2. Loan Purposes

KUPEDES loans are available for any productive activity. Indonesian families, particularly inrural areas, operate several activities. On average, the households of Unit borrowers are engaged in3.6 separate enterprises. Each loan application must identify one activity as the source of repayment,and present a convincing picture of that activity's ability to meet the payments. In reality, proceedsare frequently shared by several activities, and moved from one to another during the course of theloan. BRI does not attempt to police the use of loan proceeds, trusting that the borrower knowsbetter than the bank where funds are needed.

Stated loan purposes show that retailing and trading dominate, representing over 60% of theidentified borrowing enterprises. Small industry loans come next, representing about 13% of thetotal. Direct agricultural production loans are less frequent, making up about 8% of the total. Totalfunds going to support agriculture is higher than that figure, since part of "trade" loans are used inagriculture, and many of the trade and industry loans are to support the production and marketing ofagricultural production.

3. Customer Profiles

Unit borrowers are truly small enterprises. The average capital investment in the borrowingactivity is about $650. The average borrowing enterprise has less than five workers, including familymembers. Women make up about 25% of nominal borrowers. The amount of funding going tofemale headed enterprises is higher than that, because husbands frequently sign the note (they arepredominantly the title holders to land) when the funds are used by their wives. Even when thehusband is the borrower, part of the proceeds is often used in the wife's activities.

4. Loan ImDact

A field study done in 1990 gathered income and employment information from Unitborrowers over a three year period of borrowing. After three years of borrowing (typically threeloans), Unit customers experienced substantial increases in enterprise and total family income.Average enterprise income rose 93% in real terms and average family income rose by an inflationadjusted 76%. A Bank estimate placed the increase in real rural per capita income at about 12% forthe three year period 1984-87.

As recall data, the income growth figures in the survey should be treated with some care, butthe growth in enterprise employment, which is probably less subject to recall error, is also consistentwith strong enterprise growth. At the time of first borrowing, the customers surveyed employed anaverage of 3.4 workers in the borrowing enterprise. Three years later, the average stood at 5.6workers per enterprise.

These figures do not indicate causality. The Units may simply be successful in identifyingborrowers whose abilities will cause them to prosper. However, it is clear that the enterprises that

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borrow from the Units are growing rapidly and making substantial contributions to improved incomesand employment in the rural and small-scale business sectors.

III. Overview of the Technical Assistance Component

During the time that consultants financed under the KUPEDES I Loan were in the ResearchDivision of BRI, several studies important to the management of the Unit Desas were conducted.These included a study of the reasons why there was apparently less KUPEDES lending forinvestment than anticipated, a study of the extent of market penetration and of the potential foradditional KUPEDES lending, and a study of loan arrears.

1. KuDedes Investment Credit Studv

The findings of the first study, on KUPEDES investment credit, led to a number of importantdecisions by BRI. It was clear that the lower interest rate on investment credit than on workingcapital was of very little interest to borrowers. They were much more concerned with the extrarequirements for securing an investment credit. These had grown up in response to the BRIinspectors' concern that no one secure a 21% "investment" credit for an activity which should havebeen financed by a 32% working capital credit.

The possibility of corrupt negotiations between the borrower and the loan officer to obtain alower cost credit made the inspectors nervous. They therefore insisted on pre- and post- purchaseproof of equipment purchased, something not in any instructions from the BUD Division. They eveninsisted on construction drawings for small buildings. As a result, many borrowers were takingworking capital loans at the higher interest rate and using the funds for investments to avoid the extrahurdles in the way of the cheaper loans.

BRI therefore decided to consolidate interests rates into a single interest rate for allKUPEDES loans and simultaneously to eliminate the barriers to obtaining investment credit. Themain remaining difference was in the maximum term available: three years for investment loanscompared with two years for working capital credit.

2. Market Potential Survey

The market potential survey indicated that there is still a large potential for KUPEDESlending. The competition introduced by new branches and sub-branches of the large private bankscaters mainly to the people who are in the top 10% of the village income distribution. Below this top10% there is a large group of credit worthy entrepreneurs, many of whom are savings customers atthe Units but have not yet borrowed. The competition from the new small private banks (BPRs) islargely in the city suburbs, except in Bali, and is not yet significant for most Units. Where they docompete, many BPRs do so by making "permanent" loans, i.e. loans in which the principal stays withthe borrower so long as he pays interest. This type of loan has been responsible for the collapse ofsome of the BPRs when depositors want to withdraw their deposits.

There is strong competition for savings in some areas, such as Bali, where savings collectorsgo door to door every day collecting very small amounts from each saver. The system is far too

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labor intensive and expensive for BRI to attempt. However, this competition does not seem to affectthe total savings mobilized by the BRI Units, partly because there is a general perception of greatersafety in the Units and savers move their savings from the daily collector banks when their balancesbuild up to a significant sum.

3. Kup2edes Arrears Study

The Kupedes Arrears Study examined the causes of the decline in Kupedes repaymentperformance beginning in late 1990 and continuing through 1991 (Kupedes performance began to turnaround in early 1992 and improved steadily throughout the year). The study found that two factors,adverse weather conditions (drought followed by heavy rains and flooding throughout much ofIndonesia) and the government's Tight Money Policy, were the most important determinants ofdeteriorating performance.

Although the large majority of Kupedes loans are not directly for agriculture, Kupedes arrearsare very sensitive to harvest failure because borrower households often have agricultural enterprises(about half of the borrower households surveyed had at least one agricultural enterprise) or tradeagricultural goods. In addition, farmers comprise a large part of the customer base of Unit Desaborrowers.

The effects of the Tight Money Policy were felt in several ways by Kupedes borrowers. Thegeneral tightening of bank credit caused suppliers and marketing intermediaries to drastically reducecash advances and trade credit to unit borrowers. In addition, many marketing intermediaries delayedpayments or only accepted goods on consignment. The disruption of trade relationships caused by thetightening of credit and the general slowdown in the rural economy persisted well after monetarypolicy had begun to ease.

The severity of and uncertainty surrounding the Tight Money Policy caused BRI to place tightrestrictions on credit expansion. In effect, Kupedes was no longer demand-driven: credit rationing togood repeat borrowers weakened the connection between repayment performance and subsequentaccess to credit, while routine refusal of potentially good new borrowers hurt the BRI Units'reputation as an institution where creditworthy borrowers had consistent access to credit. The creditrestrictions also concentrated final loan approval decisions at the branch level, often weakening theability of Unit personnel to make independent credit judgements. Finally, the chronic shortage ofstaff meant that field officers were often overloaded with borrowers and were frequently diverted toserving customers in the units rather than collecting arrears and checking on borrowers with potentialrepayment problems.

4. Other Aspects

Overall, the studies conducted with assistance from consultants financed by the Bank loanhave been of great help to the policy makers responsible for the BRI Units. While many researchersobtained experience in survey techniques, it is not clear that there has been any realinstitutionalization of the idea that the Research Division should make in-depth studies helpful to theBusiness Unit Desa Division. The attention of the Research Division is now focused mainly onresearch connected with the recapitalization of the State Banks and the reorganizations which are a

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condition of the World Bank loan for recapitalization. It appears that studies of use to the BusinessUnit Desa Division will in future have to be made by BUD personnel.

Part of the funds diverted to Technical Assistance after the original loan was made, went tosupport a Booz Allen Hamilton study of the BRI Unit structure and the supervising structure at higherlevels. One result of this study was a change in operating system at the Unit to strengthen crosschecks and safety, as well as to improve efficiency by achieving a better balance in workloads amongUnit staff. Most of the rest of Booz Allen's technical assistance financed by the diversion of fundsfrom onlending in KUPEDES did not concern the Units.

IV. Bank's Performance During the Project

Support of the KUPEDES I project represented a change in direction from previous loanprojects which the World Bank had supported. Previously, World Bank had supported creditprograms such as the KIKIKMKP which had the following problems:

1. The primary objective was to push out a certain amount of credit, not to buildfinancially viable banking institutions capable of making the type of loan targeted inthe program.

2. The programs made loans at rates which would have been impossible if the source offunds were savings mobilized within Indonesia or funds borrowed at commercialrates. This made the programs dependent on government budget funds, BankIndonesia liquidity at subsidized rates, or donor funds. As a result they wereunsustainable in the long run. While they lasted they weakened the incentive to thebanks to mobilize savings.

3. The programs contained risk sharing or subsidized credit insurance provisionsintended to cause the handling banks to make loans which they would not have madeon the basis of their own commercial banking judgement. This not only produced badloans, it weakened the incentive to the banks to pursue collection of overdue loans.

4. The programs did not even succeed in locating a group of reliable customers whowere potential repeat borrowers on a commercial basis after the programs themselvescollapsed, as illustrated by the experience of KIK/KMKP.

In contrast, KUPEDES, as the credit instrument used in the development of the BRI Unitsinto a commercially viable banking system, was designed to avoid most of the problems of "programcredits":

1. The primary objective was to build a banking institution capable of making smallloans throughout the rural areas of the country, not to push out a certain amount ofcredit. Narrow targeting of eligible borrowers was dropped; KUPEDES loans wereavailable to any creditworthy enterprise.

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2. Interest rates on KUPEDES loans were set to cover cost of funds raised as savings,plus credit risk, plus all operating costs, at a loan level which could be reached inabout two years. If savings could be mobilized at the savings interest rates used inthe calculation, the Units would eventually be free from reliance on the governmentbudget, Bank Indonesia liquidity credits or donor funds.

3. To facilitate savings mobilization, the Units' basic savings instrument, SIMPEDES,was designed to meet the desires of savers as identified through field studies. Savingsinterest rates were set at levels that provided a positive real rate of return todepositors.

4. Bank Indonesia seed money for KUPEDES working capital loans was priced at 15%,rather than the 3 % used for previous liquidity credits. In 1984 this was the same asthe rate paid on TABANAS. By 1986 it was 3 % higher than the top rate paid forSIMPEDES. The rate was intended to be high enough to encourage the Units tomobilize savings. (Liquidity credit at 3 % for KUPEDES investment credit was adeviation from the general principle and was later dropped.) Seed money was neededbecause it had to be proven that the Units could find a market for credit and couldmake and collect loans successfully before savings mobilization by the Units could beencouraged responsibly.

5. All credit insurance, risk sharing, and other mechanisms for distorting the bankingjudgement of the responsible loan officers were dropped. To encourage the loanofficers to keep the quality of lending high, the Unit staff were given an incentivebased on the profit of their own Unit.

The BRI Units have concentrated on building up a financially viable institution capable ofmaking credit and savings services available to a broad range of enterprises through the use ofappropriate credit and savings instruments. The record suggests the clear superiority of this approachover the previous model of narrowly targeted credit programs which concentrated on pushing out acertain amount of money quickly.

It is not clear what lessons have been learned by the World Bank from the BRI Unitexperience. An internal team of the World Bank has recommended that the Bank stop supportingnarrowly focused institutions such as industrial or agricultural banks in favor of broadly diversifiedbanks. This is now being interpreted by the Bank to mean that a Bank loan should not go to just onebank, even if it is a bank which is in the process of diversifying assets over different sectors. Underthis interpretation, the Bank would probably not have supported the buildup of the BRI Units.

Other lessons which the World Bank may have learned have to do with the nature of marketsfor banking services, both savings and credit services, among relatively low income people in ruralareas, the design of instruments to serve potential customers in these markets, and the possibleapplication of the Indonesian experience to other countries. Since these are lessons also learned byBRI, these are covered in more detail in V below.

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Finally, the World Bank may have found the experience with this loan useful as anotherillustration of the economic development consultant's formula for success, "Find something that ismoving and push on it."

V. Borrower's Rerformance During the Proiect

The lessons for BRI in the development of the Units before and during the period that theWorld Bank KUPEDES I Loan was being utilized can be sunmmarized under the following headings:

- The effect of broad versus narrow targeting in the development of a financially viablebanking institution.

- The design of appropriate credit instruments for the people of the rural areas ofIndonesia.

- The design of appropriate savings instruments for the people of the rural areas ofIndonesia.

- The importance of incentives to achieve the response desired from staff, supervisors,borrowers, and savers.

- The market for savings and credit services in rural Indonesia.

1. Broad versus Narrow Targeting

Analysis of the banking needs of rural low-income people indicated clearly that access on acontinuing basis was critical. The need was not for a program which loaned money for a fewseasons, but a banking institution which could provide access to credit and access to savings serviceswhenever the borrower or saver needed these services. This continuity of services can only bedelivered by a financially viable banking institution with offices within fairly easy reach of theborrowers and savers.

The problem is how to develop a financially viable institution as close to the customers as isrequired. Once a minimum staff is put in place to provide banking services, limiting credit to onlypart of the market in the area makes it difficult to achieve full utilization of staff, which in turn makesit difficult to cover costs at a reasonable interest rate. For example, it does not make sense to loanonly to rice farmers or to women. Rice farmers are not helped by excluding credit to the traders whopurchase rice and move it to an urban market. Women are not helped by excluding credit to thelarger traders to whom they sell or by excluding credit to other members of the family.

The BRI chose to make credit available at the Units to any productive enterprise in the ruralareas. Later, loans to wage earners were added; many of these loans are used for home improvementor education, which are valuable investments, but not immediately income producing. As a resultmost Unit staff is fully utilized and over 80% of the Units are profitable in any year. Many of the

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unprofitable Units are new; it takes between one and two years to build up sufficient business to makea new Unit profitable.

2. The design of appropriate credit instruments

BRI has found that to design credit instruments that meet the needs of people in the ruralareas of Indonesia a financial institution must consider availability, dependability, convenience, andsimplicity.

A. Availability

Credit must be available for the enterprise of the borrower. The borrower should not be toldby the bank that he should change his enterprise because someone in the bank thinks only certainenterprises should receive credit. The loan terms available should fit the needs of the enterprise.This is mainly based on the cash flow. For example, if the loan is to be repaid from harvest of aseasonal crop, the repayment should be a single payment after harvest with time to sell. If theenterprise has a relatively steady cash flow, weekly or monthly payments should be required. (It ismuch safer if the bank sees the borrower every month and can automatically check on loaninstallments which are late and may indicate that the borrower is in trouble.

The loan decision must be prompt. It is no use lending for fertilizer after the crop is in theground - the normal fate of most subsidized agricultural credit programs. The borrower should alsobe able to talk with the person who will make the decision on the loan. In some cases, larger loansmay need to go to higher authority for approval (however uninformed such approval may be). If so,this should be done in such a way that the direct relationship of loan officer and borrower is notdestroyed.

B. Dependability

The borrower should know that another credit will be available if the previous credit is repaidaccording to the loan agreement. This is the main reason for repaying. The need for dependabilityhas implications both for the development of a stable institution rather than a program and for theavailability of funding to meet the demand for repeat loans.

C. Convenience

The location of transactions should be close enough to the borrower's place of work or homethat borrower's transaction costs are low. Otherwise, borrower's transaction costs on small loans canoften be more than the interest charged. However, if this principle is stretched to mean that the bankofficial has to go to the borrower's residence to make a loan or collect payment, the bank'stransaction costs will be extremely high and the interest rate required will also have to be very high.

D. Simplicitv

The loan system must be simple, both for the borrower and for the loan officer. An exampleof the simplification in the BRI Unit loan system is the preparation of a set of tables which show theamount to be paid each month for a loan of a particular amount and a particular length of payment

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and timing of installments. This table can be shown to the borrower, which assists understanding. Italso means that the teller and bookkeeper do not have to make calculations of interest and principaleach time an installment is paid.

3. The design of appropriate savings instruments

Before the start of SIMPEDES, a careful field survey was conducted to ascertain thecharacteristics of a savings instrument which would meet the needs of people in the rural areas ofIndonesia. This study found that people would place their savings in a bank if they were sure ofsafety, convenience, protection from inflation, and availability - unlimited withdrawals.

A. Safety

The saver needs to be able to rely on the honesty of the staff. Procedures have to be suchthat the institution takes full responsibility for safeguarding the savings in case of any fraud by anemployee. Another aspect of safety is that the saver must know that the institution itself is not likelyto go bankrupt. Deposit insurance by the government is a partial substitute, but it is better if thesaver can see that he is putting his funds with a relatively conservative, profitable institution.

B. Convenience

The location of the office at which savings can be deposited and withdrawn must be closeenough to the work place or home of the saver that transaction costs are not too great. Savings maybe somewhat more sensitive to convenience than is credit because the arnounts saved are usuallysmaller than loans and therefore the cost of transport can amount to a much higher percentage of theamount saved in an individual transaction than the amount borrowed or installment to be repaid.

C. Protection from Inflation

The saver should receive a positive real interest rate on savings so that the value when thesavings are withdrawn is at least equal to the value when they were placed in the institution. It is notclear that the rate needs to be strongly positive to serve the purpose. The difference in a one or fivepercent positive rate appears to be less significant for household savings than for business savings.

D. Availability - Unlimited Withdrawals

The saver must be able to get to the savings at any time. Savings which are not freelyavailable to the saver do not meet the savings needs of people, at least in rural Indonesia. Forcedsavings, which are often a part of credit programs or cooperatives, should not really be consideredsavings; they are thinly designed costs of borrowing or receiving cooperative benefits.

4. The importance of incentives

BRI has found by experience that it is not sufficient to just issue instructions and assume thatstaff, supervisors, and even borrowers and savers, will perform as BRI desires. It is important thatincentives be carefully designed and publicized ahead of time to get the response desired from each ofthe participants in the banking activity.

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A system of incentives was thought out before lending under KUPEDES began in 1984:

The Directors of BRI were faced with the possible alternatives of running a loss of $15million a year for the foreseeable future or firing 13,500 Unit staff. As a result, there was a strongincentive for the Directors to avoid these two alternatives by successfully reorganizing and redirectingthe Units.

The Unit staff is paid an annual bonus of 10% of the profit of their particular Unit up to amaximum of one and a half months total salary and allowances. Profit was chosen as theperformance measure to be utilized in determining the bonus because it sums up the effects of manydecisions and actions by the staff. When a special effort such as a drive on savings mobilization isneeded, the staff can also earn additional bonuses based on performance in that effort.

An incentive to the borrowers for prompt payment was built into the KUPEDES instrument.The rate of 1.5 % per month flat (on the original balance) is the rate which borrowers pay if theymake all payments on time. The rate charged is 2% per month flat with 0.5% returned if allinstallments are paid on time.

Savers not only receive a positive real interest rate on their savings, they are automaticparticipants in a lottery based on the amount they have saved. The lottery in SIMPEDES gives prizesat the local level, in contrast to prizes only at the national level in the previous Bank Indonesiadesigned national savings scheme.

Incentives tied to performance for the Unit supervisors at branch and above have not beenwell developed. The quality of supervision is recognized as being in need of improvement.

5. The market for savings and credit services

In the process of developing the Units, BRI has learned a great deal more about the need ofrural people for savings services. This need for a safe place to keep their savings turns out to bemore important to the majority of people than is access to credit. Thus when both savings and creditwindows are kept open and the savings and credit instruments are appropriate, the number of saversgreatly exceeds the number of borrowers. At the end of 1992, the BRI Units had 9,953,294 savingsaccounts (including time deposits and giro) and 1,831,732 KUPEDES loans outstanding.

If an institution offers only credit services, many people will borrow for the liquidity neededfor household operations. If both savings and credit services are offered, most people will save toaccumulate the liquidity they need for emergencies, for school fees, etc. The demand for credit isthen more concentrated on the need for working capital for enterprise. The savings and creditoperations of the bank reflect the more normal situation of the economy as a whole in whichhouseholds save and business borrows and invests. The bank is mainly an intermediary betweendomestic borrowers and savers, rather than between government and borrowers or foreign savers anddomestic borrowers.

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VI. Relationship between the Bank and the Borrower During the Project

The relationship of the World Bank and the BRI has been excellent throughout the entire loanprocess from the original appraisal to the final closing date of the loan. Part of this good relationshipcan be attributed to the continuity of World Bank personnel assigned to work on the loan. Theoriginal appraisal for KUPEDES I was done by World Bank staff who were already knowledgeableabout Indonesia and Indonesian banking, as were their immediate superiors. These same people wereresponsible for negotiations and then for supervising the implementation of the loan agreement.

The reporting requirements from BRI to the World Bank were set up so that the reports couldbe prepared from data available in the regular management reports from the field to headquarters. Noextra survey or set of reports was necessary just for the World Bank's purposes. When administeringa system of over 3200 individual Units, the time consumed by one extra reporting requirement isenormous. This waste of time has been completely avoided in reporting for the KUPEDES I loan.

An additional major contribution of the World Bank Appraisal Team was to assist BRI in theformalizing of two draft statements, the BRI Policy Statement and the BRI Unit Strategy Statement.These were formally adopted by BRI and incorporated by reference in the Project Agreement. Theseformal statements were useful in clarifying the thinking of the management of BRI about thedevelopment of the Units. They were also useful in explaining to government officials and othersinterested in the Units why some of the policies and strategies should not be changed.

As a result of the initial agreement of the World Bank and BRI on purpose and strategy forthe BRI Unit Desa development and the continuity of supervising Bank staff, there was a minimum ofdisruptive reinterpretation of understandings already reached. The supervisory teams did not alwaysagree with each action of the BRI, but the World Bank staff always stated their objections clearly andhelped BRI to understand their position. Most helpful has been the availability of the World Banksupervisory staff for discussion whenever the BRI needed to ask for guidance or interpretation of theBank procedures, even if this was after working hours Washington time.

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INDONESIA

BRI/KUPEDES SMALL CREDIT PROJECTS

(LOAN 2800-IND)

PART III - STATISTICAL INFORMATION

1. Related Bank Loans and/or Credits

[ | Year of[ Loan Title | Purpose | Approval | Status | Comment

Second To promote BRI's ongoing July 31, The Project is underBRI/KUPEDES efforts to strengthen and 1990 satisfactorySmall Credit expand its Unit Desa implementation. ItsProject system as a financially objectives have been

viable subbranch network. successfully achieved.

2. Proiect Timetable

Item J Date Planned | Date Revised | Date Actual

- Identification (EPS) | - | 05/86

- Preparation 05/86 06/30/86

- Appraisal 11/86 09/29/86 10/10/86

- Loan Negotiation 02/02/87 03/09/87 03/11/87

- Board Approval __04/28/87 04/28/87

- Loan Signature 05/27/87 05/27/87

- Loan Effectiveness 08/25/87 06/11/87 06/11/87

- Loan Closing 12/31/92 12/31/92

- Loan Account Closing _ 04/08/93

- Project Completion 06/30/92 06/30/92

^ 34 -

3. Loan Disbursements

Cumulative Estimated and Actual Disbursements (US$ million)

FY 1988 1989 _ _1990 _ _1991 _I 1992 _I 1993 Total

Appraisal Estimates 15.3 25.7 35.5 18.0 7.0 - 101.5

Actual 30.0 47.1 } 23.1 T 0.0 0.4 0.8 101.4

Actual as % of Est. 196.1 | 183.3 T 65.1 0.0 5.7 1 - T 99_9_|[ Date of Final Disbursement: April 8, 1993; $65,834.57 was cancelled.

4. Proiect Cost and Financing

A. Project Costs (US$ million)

Appraisal Estimates | Revised Estimates Actual CostsItem________ ____Local F F | Toreign Total | Local i Foreign i Total

KUPEDES Loan 1,006.2 L 0 1,106.2 1,006.2 96.7 1,102.9 4,608.1 96.7 4,704.8

|TA and Trauung | 8.2 L 15| 19.7 | 8.2 | 13.3 | 21.5 | 8.2 | 12.9 | 21.1

Total | 1,014.4 111.5 1,125.9 1,014.4 | 110.0 | 1,124.4 4,616.3 109.6 4,725.9

B. Proiect Financing (US$ million)

Revised | Actual

Source Planned CommentsAmount % Amount %

IBRD Loan 101.5 101.5 9.0 101.4 2.1

Incremental Unit Desa Savings 69.0 69.0 6.1 543.6 * 11.5

USAID TA Loan 10.0 8.5 0.8 8.2 0.2

GOI/BRI 19.7 19.7 1.8 19.7 0.4

Repayment of Previous Kupedes Loans 925.7 925.7 82 3 4,053.0 85.8

Total J 1,125.9 | 1,124.4 100.0 4,725.9 | 100.0

* Actual incremental Unit Desas savings, using Rp. 1,630/US$I, were US$ 1,722.3 million.

- 35 -

5. Proiect Results

Comparison of Appraisal Estimates with Actuals(during 1987-1992, the project life)

In Rupiah (billion)

_______I|KUPEDES Outstanding Unit Desas Deposits Unit Desas Profits

Year Estimate L Actual Estimate | Actual Estimate Actual |

1987 460.2 429.6 197.7 287.5 8.9 22.5

1988 578.1 542.3 241.4 493.0 14.3 30.6

1989 695.3 846.5 290.2 959.1 26.5 36.9

1990 810.3 1,381.8 344.2 1,694.8 36.2 65.2

1991 - 1,455.7 - 2,540.5 - 66.1

1992 - - 1,648.5 - 3,399.1 69.3

- 36 -

6. Status of Covenants

Deadline for ComplianceCovenant Subject Compliance Status

Loan AgreementSection 3.01(b) GOI Subsidiary Loan Agreement with BRI - CompliedSection 6.01(a) Subsidiary Loan Agreement executed - CompliedSection 6.01(b) BRI has adopted Unit Desa Policy Statement - Complied

and Strategy Statement

Project Aer.Section 2.02(a) BRI to make available part of loan to Unit - Complied

Desa for purposes of KUPEDES, ensuringonlending rate at least equal to highest interestrate payable by Unit Desa on customerdeposits

Section 2.02(b) BRI to allocate to Unit Desa development from 10/1/87 Partiallyfund an amount equal to at least 50% of every 3 mths compliedamount of margin between interest rate (every 6payable by BRI on subsidiary loan and BRI mths)onlending rate to Unit Desas

Section 2.03(a) BRI to adopt satisfactory Unit Desa policy Compliedstatement

Section 2.03(b) BRI to adopt satisfactory Unit Desa strategy - Compliedstatement

Section 2.06(b) BRI to employ research and planning advisor 10/31/87 Complied

Section 2.09(a) BRI to furnish results of study on credit 03/31/88 Complied indemand for KUPEDES 12/88

Section 2.09(b) BRI to prepare acceptable plan of action for 06/30/88 Reflected incarrying out results of demand study and newplans to improve BRI capacity for KUPEDES KUPEDES

policyparameterseffective05/01/90

Annual audit requirement (financial statements 09/30 of each Compliedand SOEs) year

- 37 -

7. Use of Bank Resources

Staff Inputs

Stage of Project Cycle Planned Revised Final Comments

Through Appraisal NA NA 14.5

Appraisal through Board Approval NA NA 55.9

Board Approval through Effectiveness NA NA

Supervision NA NA 24.1

TOTAL NA NA 94.5

Missions

PerformanceStage of Month/ No. of Days in Specialization Rating Type of

Project Cycle Year Persons Field Represented Status Problems

Through Appraisal 02/86 3 NA Fin. Analyst05/86 2 NA Fin. Analyst07/86 4 14 Fin. Analyst

Appraisal through Board 10/86 3 17 Fin. AnalystApproval

Board Approval through - -

Effectiveness

Supervision 8/88 1 10 Fin. Analyst I Shortage of staff

08/89 1 5 Fin. Analyst I Shortage of staff

03/90 a/ 3 2 Fin. Analyst I Non

11/90 b/ 1 5 Fin. Analyst I Non

11/92 b/ 1 4 Fin. Analyst I Shortage of staff, arrears

a/ Combined with appraisal mission for BRI/KUPEDES II.b/ Combined supervision missions for BRI/KUPEDES I and II.

- 38 -

ANNEX 1

PROJECT COMPLETION REPORTINDONESIA

BRI/KUPEDES SMALL CREDIT PROJECT (LOAN 2800-IND)

BRI AUDITED INCOME STATEMENTS. 1987-92(Rp. billion)

1987 1988 1989 1990 1991 1992

INCOMEInterestOn loans 706.7 1,002.3 1,403.2 2,144.8 3,079.7 a/On notes/securities/placements 52.8 106.9 157.3 128.0 211.6 a/Other 0.0 0.0 0.0 0.0 0.0 a/Subtotal Interest 759.5 1.109.2 1t5605 2.272.8 3.291.3 3 7

Commissions and fees 41.1 54.2 77.7 104.9 102.7 113.6Net Foreign exchange transactions 47.0 21.5 23.3 22.5 19.2 68.5Other operating income 59.4 57.4 36.8 226.0 132.7 127.0Subtotal operating income 907.0 1t242.3 1t698.3 2.626.2 3,545.9 3.670.8

Nonoperatina income 5.6 16.8 23.8 2.4 _ 12.6

TOTAL INCOME 912.6 1.259.1 1.722,1 2.628.6 35522 3683.4

EXPENSESInterest charges on borrowings 509.5 730.6 972.7 1,407.7 2,621.5 2,562.6Salaries and other personnel expenses 161.1 189.6 235.8 287.9 344.3 322.2Other operating and miscellaneous expenses 71.0 101.2 160.5 378.2 262.8 250.0Depreciation 12.9 17.6 23.7 49.1 61.8 70.0Provision for bad debts 87.4 119.1 204.9 324.9 158.2 397.9Nonoperating expenses 0.5 0.9 1.5 2.2 1.4 5.6

TOTAL EXPENSES 842.4 11590 1t599.1 2,450.0 3.450.0 3,608.3

Net Income Before Taxes 70.2 100.1 123.0 178.6 102.2 75.1Less: Provision for taxes 26.6 38.8 47.2 70.7 35.8 35.3

NET INCOME 43 61.3 75.8 107.9 66,4 39.8

a/ Breakdown not yet available.

- 39 -

ANNEX 2



BRI AUDITED BALANCE SHEETS. 1987-92(Rp. billion)

1987 1988 1989 1990 1991 1992 a/

CURRENT ASSETSCash on hand 217.7 213.9 251.6 318.8 367.0 386.5Due from Bank Indonesia 455.4 186.3 502.0 204.5 207.5 288.3Due from other banks 152.6 179.7 299.1 352.1 505.3 1,158.7NotesJSecunties/Short-term placements 640.6 1,756.5 2,090.1 3,835.4 2,596.2 3,710.3Short-term loans 4,569.1 5,207.7 10,351.7 9,984.0 15,648.1 17,810.6Less: Allowance for Doubtful Debts 141.4 b/ b/ b/ b/ blNet Short-Term Loans 4,427.7 5,207.7 10,351.7 9,984.0 15,648.1 17,810.6Other current assets 180.8 471.6 661.7 1,033.9 2,297.9 1,603.9Total Current Assets 6.074.8 8015.7 14.156.2 15.728.7 21.622.0 24.958.3

LONG-TERM ASEETSLong-term loans 1,464.7 2,560.3 N/A 4,578.9 c/ clLess: Allowance for Doubtful Debts 48.5 b/ b/ b/ b/ blNet Long-Term Loans 1,416.2 2,560.3 0.0 4,578.9 0.0 0.0Equity participation 3.7 4.0 4.0 13.2 43.3 73.8Other investments 0.0 0.0 0.0 0.0 0.0 0.0Total Lono-Term Portfolio 1.419.9 2.564.3 40 4,592.1 43.3 73.8Net fixed assets 85.6 108.0 147.0 241.5 324.0 421.0Other 0.0 0.0 0.0 0.0 0.0 0.0Total Long-Term Assets 1 505.7 2,672.3 151.0 4.833.6 367.3 494.8

TOTAL ASSETS 7.580.5 10,688.0 14.307.2 20.562.3 21,989.3 25.453.1

CURRENET LIABILITIESDemand deposits 1,241.7 1,630.9 2,261.6 2,539.0 2,996.1 2,591.2Time deposits 1,637.1 2,279.6 2,822.7 5,370.1 5,803.7 7,000.2Savings deposits 538.5 739.3 1,172.7 1,809.5 2,902.9 4,241.3Accounts payable 153.7 164.8 286.3 63.5 200.0 711.4Liquidity credits from BI 2,175.1 2,616.0 3,031.8 4,340.6 3,656.4 4,027.0Due to other banks 27.3 182.2 275.5 305.2 60.0 483.2Other current liabilities 332.9 568.8 1,272.0 2,183.6 2,038.6 1,623.8Total Current Liabilities 6,106.3 6181.6 11.122,6 16611.5 17.657.7 20,678.1

LONG-TERM LIABILITIESBI liquidity credits 972.4 1,293.5 1,588.3 d/ d/ dlLoans from Bl 47.9 51.5 79.6 dl d/ dlGovemment loans 156.6 312.5 544.6 624.8 812.0 915.5Time deposits 148.2 384.0 331.4 el el elOther 0.0 0.0 0.0 2,354.2 2,678.0 2,154.2TotIa Lono-Term Liabilities 1,325.1 2,041.5 2.543.9 2j9790 3,4900 3.069.7

EQUITYPaid-up Capital 0.3 0.3 0.3 0.3 0.3 600.0Reserves & Govemment Participation 105.2 133.6 167.7 273.0 322.4 289.7Allowance for Doubtful Debts b/ 268.5 396.2 590.6 452.5 787.3Retained eamings 43.6 62.5 76.5 107.9 66.4 28.3Total Eouitv - 149.1 464.9 640,7 971.8 841.6 1,705.3

TOTAL LIABILITIES AND EQUITY 7.580.5 10,688.0 14.307.2 20.562.3 21.989.3 25.453.1

Contingent Liabilities 1,081.6 1,837.4 2,220.6 7,620.5 10,990.6 13,214.8

al Breakdown between long & short term assets and liabilities not yet available.b/ Allowance for doubtful debts treated as equity effective March 25, 1989 (1988 accounts adjusted

correspondingly to reflect this policy).c/ Included in 'Short-term loans' above.d/ Included in current "Liquitity Credits from BI".e/ Included in current "nme Deposits'.

- 40 -

ANNEX 3



INDICATORS OF BRI'S FINANCIAL PERFORMANCE. 1987-92(Rp. billion)

1987 1988 1989 1990 1991 1992

Average Total Assets (Rp billion) 7,161.6 9,134.3 12,497.6 17,434.8 21,275.8 23,721.2

Average Loan Portfolio (Rp billion) 5,405.3 6,900.9 9,059.9 12,457.3 15,105.5 16,729.4

Average Borrowings (Rp billion) 6,503.0 8,217.2 10,798.9 14,725.8 18,126.3 20,160.9

Average Equity (Rp billion) 142.2 307.0 552.8 806.3 906.7 1,273.5

As a % of Average Assets(a) lncomefrom lending 10.44% 11.57% 11.85% 12.90% 14.96% 14.17%(b) Other income 2.30% 2.22% 1.93% 2.17% 1.74% 1.38%(c) Gross income 12.74% 13.78% 13.78% 15.08% 16.70% 15.55%(d) Financial expenses 7.11% 8.00% 7.78% 8.07% 12.32% 10.80%(e) Gross spread (c-d) 5.63% 5.79% 6.00% 7.00% 4.37% 4.75%(f) Salary and personnel expenses 2.25% 2.08% 1.89% 1.65% 1.62% 1.36%(g) Administrative expenses 1.18% 1.31% 1.49% 2.46% 1.53% 1.37%(h) Provision for bad debts 1.22% 1.30% 1.64% 1.86% 0.74% 1.68%(i) Profit before tax 0.98% 1.10% 0.98% 1.02% 0.48% 0.32%(j) Net profit 0.61% 0.67% 0.61% 0.62% 0.31% 0.17%

Retum on Average Equity (as a %) 30.67% 19.97% 13.71% 13.38% 7.32% 3.13%

Lending Margin(k) Income from lending as %

of Average Loan Portfolio 13.83% 15.31% 16.35% 18.06% 21.07% 20.09%(I) Financial expenses as %

of Average Borrowings 7.83% 8.89% 9.01% 9.56% 14.46% 12.71%(m) Spread on Lending (k-I) 6.00% 6.42% 7.34% 8.50% 6.61% 7.38%

Reserve for Bad Debts as %of Outstanding Loan Portfolio 3.15% 3.46% 3.83% 4.06% 2.89% 4.42%

- 41 -

ANNEX 4


BRIUKUPEDES SMALL CREDIT PROJECT (LOAN 2800-IND)

SUMMARY OF BRI'S LENDING AND BORROWING OPERATIONS. 1987-92(Rp. billion)

1987 1988 1989 1990 1991 1992

Total Assets 7,580.5 10,688.0 14,307.2 20,562.3 21,989.3 25,453.1

Total Loan Portfolio a/ 6,033.8 7,768.0 10,351.7 14,562.9 15,648.1 17,810.6Long-term 1,464.7 2,560.3 N/A 4,578.9Short-term 4,569.1 5,207.7 10,351.7 9,984.0 15,648.1 17,810.6

Total Borrowings 6,944.8 9,489.5 12,108.2 17,343.4 18,909.1 21,412.6Long-Term 1,325.1 2,041.5 2,543.9 2,979.0 3,490.0 3,069.7Time deposits 148.2 384.0 331.4Bi&othergov't loans 1,176.9 1,657.5 2,212.5 624.8 812.0 915.5Other 0.0 0.0 0.0 2,354.2 2,678.0 2,154.2

Short-Term 5,619.7 7,448.0 9,564.3 14,364.4 15,419.1 18,342.9B1 loans 2,175.1 2,616.0 3,031.8 4,340.6 3,656.4 4,027.0Customer deposits 3,417.3 4,649.8 6,257.0 9,718.6 11,702.7 13,832.7Demand 1,241.7 1,630.9 2,261.6 2,539.0 2,996.1 2,591.2Time 1,637.1 2,279.6 2,822.7 5,370.1 5,803.7 7,000.2Savings 538.5 739.3 1,172.7 1,809.5 2,902.9 4,241.3

Other 27.3 182.2 275.5 305.2 60.0 483.2

Total Eouity 149.1 464.9 640.7 971.8 841.6 1,705.3

RatiosEquity: Total assets 1.97% 4.35% 4.48% 4.73% 3.83% 6.70%Total loan portfolio: Total deposits 169.23% 154.32% 157.12% 149.85% 133.71% 128.76%Total loan portfolio less Bi/govemmentborrowings: Total deposits 75.22% 69.42% 77.52% 98.75% 95.53% 93.03%

Total loan portfolio: Total assets 79.60% 72.68% 72.35% 70.82% 71.16% 69.97%B/govemment loans: Total borrowings 48.27% 45.03% 43.31% 28.63% 23.63% 23.08%Debt: Equity (times) 49.84 21.99 21.33 20.16 25.13 13.93

a/ Before provision for bad debts.

- 42 -

ANNEX 5



BRI Unit Desa System

Income Statements, 1984-1992(Rp million)

For the year ending December 31 1984 1985 1966 1987 1968 1989 1990 1991 1992

RevenuesInterest Income

Unit Desa funds deposited in Cabang -7,639 8,840 12,675 18,366 41,445 88,832 203,250 299,489

CreditcUPmDhs - Investment ) 1,973 3,034 4,004 5,184 )262,992 421,734 564,398 636,116

KUPBDRS Working capital ) 59,458 108,411 150439 188,043Krrdit Midi 1 22,045 753 259 92 -Kredit Mini ) 341 162 55

Other ) 1,102 99 SO - - - - --

Subtotal credit interest 22.045 63,627 111,965 154,640 193,227 262.992 421.734 564.398 636,116

IPTII Forfeited na. n.a. n a 9,204 15,204 19,525 23,151 33.686 35,551Collection of previous write-offs n.a. n.a. n.e. na. n.a. 5,354 9,296 9,719 13,848Fees and co,ie±ions 165 91 70 67 87 61 26Other operating income 1,327 801 5,845 1,188 2,645 1,033 3,353 ) 5.791 7,801Nonoperating income 3,052 407 212 99 84 219 476

Total Revenues 26.589 72,565 126,932 177,873 229,613 330,629 546.868 816.844 992,805

-r!naecial BxDensesLoans 561 13,761 24,093 25,970 21,678 23,184 38,645 50,458 32,287Giro accounts 11 82 178 129 171 282 706TASRAJS ) 3,548 5,593 10,377 20,212 8,976 11,842 16,060SIMPROBS ) 23,388 47,532 89,219Tim deposits 61 216 434 1,389 4,446 13,429 33,071 ) 348,891 458,374SiMPBDBS and SIMASKOT Promotion - - - - - - 13,837Other 195 51 26 294 2,650 8.308

Subtotal financial expenses 4.376 19,703 35.108 47,994 61,309 96.269 199.918 399.349 490j661

IPTW reserves 3,974 13,971 26,032 38,865 48,695 66,484 107,237 141,802 158,957Insurance premium 18 36 44 72 91 2,249 6.385 5,971 9,067

Administrative and General RxoensesPersonnel

Salary and wages 1 26,170 26,661 30,923 33,365 44,789 54,845Allowances ) 30,434 4,367 4,726 6,179 6,794 11,280 16,652Payments in kind ) 2,583 2,404 2,427 3,427 4,217 4,835

Subtotal personnel 30,434 33.120 33,791 39,529 43,586 60,286 76.332 85.683 99. 3N9

Rent 361 406 593 393 822 2,614 3,598 4,858 5,799

ODeration and MaintenanceVehicles 1,710 1,605 1,276 1,257 1,661 1,400 1,841Buildings 284 546 562 1,332 2,806 4,611 )

Subtotal O0M 1,710 1,889 1,822 1,819 2,993 4,206 6,452 6.616 6,419

Depreciation 559 525 1,019 881 1,894 3,557 5,407Taxes 11S 219 174 138 170 240 215 8,651 19,505Provisions for bad debts 8,381 2,368 12,027 16,715 26,669 24,465 36,122 46,954 75,356

Other Operatina IxoensesOffice supplies and materials 921 1,038 1,334 1,919 2,761 3,766 7,145 13,376 13,161Training - - - - - 7,762 6,879 4,670 7,631

Supervision expenses 50 4,446 5,720 7,627 11,565 15,074 16,579 19,043Bonuses - 677 1,061 1,579 1,862 2,724 5,083 5,673Other 670 166 - 253 723 8,133 8,135 11,069 12,689

Subtotal other operating expenses 1,591 1,254 6.457 8.953 12J690 33,088 39,957 50.777 58.197

Nonoperating expenses 82 10 19 35 54 257 54 76 199

Total 8xpenses 51.601 73,501 117,086 155,394 198.973 293,715 481.677 750.737 923.4S9

NBT INCOMB (25.012) (936) 9,846 22,479 30.640 36,917 65.191 66,107 69 316

- -- ~~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~ ~~ ~~~ ~~ ~~~ ~~ ~ --- - -

- 43 -

ANNEX 6




Balance Sheets, 1984 - 1992(Rp million)

Sept.As of December 31 1984 1985 1986 1987 1988 1989 1990 1991 1992

ASS8TSMESK in Unit Degas 171 212 1,521 4,200 7,647 13,725 17,697 16,806 14,232

Cash in Cabang (branch) 47,563 62,595 95,728 93,014 208,013 438,834 750,297 1,434.123 2,079,405

Loano Outatanding110,698 229,029 334,402 429,033 538,820 845,613 1,381,816 1,455,603 1,648,481

Krrdit midi 15,900 7,098 4.697 45 - - - --Kredit mini 10,410 7,736 5,894 14 - - - - --Other - 1,609 1,368 1,885 1,227 1,181 2,326 Lb 890

Subtotal loans outstanding 137,941 245,472 346,361 430,977 540,047 846.794 1.384.142 1,455,199 1.649S371

Less: Provisions for losses 9,167 10,524 20,608 21,301/b 34,230 39,663 52,659 78,526 107,805

Net Loans Outstanding 128,784 234,948 325,753 409.676 505,817 807.131 1.331,483 1.378,673 1,541.566

Other ReceivablesInterina 820 829 918 1,308 1,933 1,859 1,273External 59 99 96 218 372 416 246

Subtotal other receivables 879 928 1,014 1,526 2.305 2,275 1,519 2.161 1,521

FirX dndA nd bildings 624 558 480 3,839 14,032 32.960Vehicles 405 2,500 1.708 1.851 2,825 3,018Machinery, furniture and other 110 141 105 4,269 6.333 11,570

Subtotal fixed assets 1,386 1,139 3,199 2,293 9.9S9 23,190 47,548 76,024 115.568

Other assets 65 649 665 1,243 2,475 6,010 9.951 12,333 15,663

TOTAL ASSETS 178,848 300,471 427,880 511,952 736,216 1.291.165 2,1580495 2,920,120 3,767,955

LIABILITIES AND 80UIT

iro *ccounts 2,006 13,830 10,930 12,458 16,635 26,831 41,383 55,221 80,723

iABlS 38,642 63,604 78,156 79,546 89,523 113,662 154,700 217,611 301,704SIMP DES - 5,134 82,601 182,637 341,954 693,011 1,007,316 1,334.129 1,921.994Time deposits 690 2,018 3.893 12.704 44,44 117,3605 360,5~96 646.304 6816Other 850 287 220 s186 388 2, 32 1 827889 992SIMASKOT - -- - 154,269 283,886 457,844

Subtotal savings 40.182 71,043 164,870 275,073 476,313 926.606 1,678,708 2.485,819 3,317,700

Managed funds - 1,609 1,368 1,885 1,227 1.181 2,326 1,9S6 890

ETVILnv Cabmnne 21,194 16,275 16,140 15,742 24,055 64,151 1.201Working capital 61,655 125,250 158,652 107 011 93 284 104,130 174,805Other 929 1,055 2.266 9,395 30,178 37,092

Subtotal loans 82,849 142,454 175,847 125,019 126,734 198.459 213,098 149,124 144,576

Reserves- 118,592 21,89S 30,142 49,737 43,007 41,472

TABANIAS interest 3,661 8,539 12,384 9 231 234 15SIMPEDES interestTime deposit interest 35 28 32 182 806 1,164 2,853 20,525 23,998Other - - 721 521 1,595 2,922 6,367

Subtotal reserves 3,696 8,567 13,137 19,304 24,527 34,462 58,972 63,532 65 470

Other liabilities 269 127 78 SS 2,162 24,784 27,702 S88U46

Total Liabilities 128,733 237.672 366.279 433,817 645,493 1,189,697 2,019.271 2.782.994 3.668.205

9fingrane 67,754 56,601 43,944 48,414 52,855 57,377 66,234 63,803 63,587Contributions for fixed assets 7,373 7,034 7,811 7,242 7,228 7,174 7,799 7,216 7,279Retained *arnings /a (25,012) (936) 9,846 22,479 30,640 36,917 65,191 66,107 69.316

Total Bquity 50,115 62,699 61,601 78 135 90.723 101,468 139,224 137.126 140.182

TOTAL LIABILITIES AND ROUITY 178.848 300,471 427,880 511,952 736,216 1,291,165 2,158.495 2,920.120 3J082L367

Retained earnings are appropriated by BRI at the end of each yearf Included in IKUPEDBS loans above.

- 44 -

ANNEX 7


INDONESIA

BRI/KUPEDES SMALL CREDIT PROJECTS (LOANS 2800-IND AND 3249-IND)


Indicators of Unit Desas' Financial Performance. 1984-1992 /a

1984 1985 1986 1987 1988 1989 1990 1991 1992

Average Total Assets

(Rp billion) 89.4 239.6 364.2 469.9 624.1 1,013.7 1,724.8 2,533.4 3,326.4

Average Loan Portfolio L(Rp billion) 69.0 191.7 295.9 388.7 485.5 693.4 1,115.5 1,419.9 1,552.1

Average Borrowings

(Rp billion) 62.5 176.2 289.5 382.1 516S 1 885.8 1,542.5 2,301.3 3,099.7

As a t of Average Assets

(a) Income from lending L 20.2 20.8 23.6 24.6 23.2 19.3 18.2 16.7 14.3

(b) IPTI Forfeited n.a. na. n.a. 2.0 2.4 1.9 1.3 1.3 1.1

(c) Other income S.1d 3.7d 4.1L 3.0 3.4 4.8 6.0 8.6 9.6

(d) Gross income 25.3 24.5 27.7 29.6 29.0 26.0 25.5 26.6 25.0

(e) Financial expenses 4.9 8.2 9.6 10.2 9.8 9.5 11.6 15.5L 14.4,S

(f) Groom spread (d-*) 20.4 16.3 19.1 19.4 19.2 16.5 13.91 11.1 10.6

(g) Salary and personnel

expenses /e 34.0 13.8 9.3 8.4 7.0 6.0 4.4 3.5 3.1

(h) Administrative expenses 5.0 1.9 2.8 2.6 3.0 4.5 3.6 3.0 3.6

(i) Provision for bad debt 9.4 1.0 3.3 3.6 4.3 2.4 2.1 1.9 2.3

(j) Profit/loss /i (28.0) (0.4) 2.7 4.8 4.9 3.6 3.8 2.7 2.1/h

Lending Margin

(k) Income from lending as I of

average loan portfolio 26.2 25.9 29.0 29.8 29.8 28.3 28.2 29.7 30.6

(1) Financial expenses as I of

average borrowings 7.0 11.2 12.1 12.6 11.9 10.9 12.1 17.1 15.5

(m) Spread on lending (k-i) 19.2 19.7 16.9 17.2 17.9 17.4 16.1 12.6 15.1

Reserve for Bad Debt as

of Outstandinq Loan Portfolio 6.6 4.3 5.9 4.9 6.3 4.7 3.8 5.4 6.5

Salary and Personnel Sxpenses Las S of Averaqe Loan Portfolio 44.1 17.3 11.4 10.2 9.0 8.7 6.8 6.2 6.6

/a With all percentages calculated on an annualized basis.

Lb Before provisions.

/c Income from lending excludes IPTW collected; likewise, IPTW collected (and which is set aside in a reserve)

is excluded as an expense in the expense computations below.

L Includes IPTW forfeited.

/a Excludes bonuses, which are included in administrative and other expenses, through 1990; includes bonuses from 1991 Onward.

/f Before taxes. Unit Desa annual profits (losses) are appropriated by BRI.

L Includes all promotional costs associated with SIMPEDES savings scheme.

Lb Based on Gabunane not telex figures.

ANNEX 8


INDONESIA

BRI/KUPEDES SMALL CREDIT PROJECT (LOAN 2800-INDI

BRI UNIT DESA SYSTEM

ACTUAL KUPEDES LENDING OPERATIONS. 1984-1992'Rp billion)

1984 1985 1986 1987 1988 1989 1990 1991 1992C:-

outstanding at beginning of period 111.0 229.3 334.2 429.2 538.7 845.6 1,381.8 1,455.7

Plus: disbursements 164.5 335.1 481.9 597.9 707.4 1,072.7 1,645.7 1,701.0 1,940.7

Less: repayments 53.5 217.1 376.7 497.5 585.4 745.6 1,084.7 1,608.1 1,706.1

Less: write-offs 5.5 12.5 20.2 24.8 19.0 41.8

Outstanding at end of period 111.0 229.0 334.5 429.1 538.7 845.6 1,381.8 1,455.7 1,648.5

New loans (in Rp '000) 639.4 991.9 1,150.1 1,136.7 1,137.3 1,379.4 1,529.7 1,416.5 1,490.8

Outstanding loans (in Rp '000) . 1,893.1 1,837.5 1,831.7

ANNEX 9


INDONES I



Analysis of KUPEDES Loan Portfolio, 1984 - 1992

(Rp billion)

1904 1905 1906 1967 Islas 1989 1990 1991 1992

Cua1lativ. amintloaned 164.S 499.6 961.5 1,579.4 2,287.1 3,359.8 S.005.S 6,706.5 6,907.0

Portfolio status

Total loansoutstandIng 110.7 229.0 334.4 429.0 530.0 645.6 1.381.5 1,455.7 1,648.5

Total principal inarrears 0.5 4.8 15.0 24.6 40.2 45.7 56.5 124.4 150.1

1964 196s 1966 1967 1986 1969 1990 1991 1992

As to kof As Sof kg otAA of Anto Asof As So e of As Iof As of

outstanding outstanding outstanding Outstanding outstanding outstanding 0utstanding touttandinkg wutstanding

Ant. PorttOlio Amt. Portfolio Ant. Portfolio Amt. Porttolio Ant. Portfolio Amt. Portfolio Amt. Portfolio Ant. Portfolio Amt. Portfolio

Total /a 0.5 0.5 4.6 2.1 19.0 4.9 24.6 5.7 40.2 7.5 45.7 5.4 58.5 4.2 124.4 6.5 150.1 9.1

Overdue heymid finaldue date less than3 nmths D.&. n.a. 0.9 0.4 1.9 0.6 4.S 1.0 7.6 1.4 7.5 0.9 1.9 0.6 17.6 1.2 24.5 1.5

Overdue more than3 months beyond finaldue date n.a. 0.5. 0.3 0.1 4.0 1.2 5.8 1.4 9 .3 1.L7 13.2 1.6 14.4 1.0 29.7 2.0 50.5 3.1

LiAny payment overdue by one day or more.

- 47 -

ANNEX 10


INDONESIA


SECTORAL DISTRIBUTION OF KUPEDES LOANS(1990-1 992)

SECTOR 1990 1991 1992

Trade 58.3% 58.9% 60.0%

Agriculture 23.7% 23.4% 23.2%

Industry 2.3% 2.3% 2.2%

Fixed Income 11.4% 11.0% 10.1%

Other 4.3% 4.4% 4.5%

Total 100.0% 100.0% 100.0%

ANNEX 11


INDONESIA


COMPARISON OF THE UNIT DESAS WITH TOTAL BRI. 1990-1992(Rp million)

1990 1991 1992AMOUNT NO. OF ACCTS. AMOUNT NO. OF ACCTS. AMOUNT NO. OF ACCTS.

Loa

BRI 14,334,797 3,396,938 15,648,100 3,072,350 17,810,608 3,107,909Unit Desas 1,381,800 1,893,138 1,455,700 1,837,549 1,648,500 1,831,732Units as % of BRI 9.6% 55.7% 9.3% 59.8% 9.3% 58.9%

Deposits

BRI 9,666,745 10,896,657 11,626,004 12,228,237 11,820,758 13,725,877Unit Desas 1,694,830 7,262,509 2,540,450 8,587,872 3,399,100 9,953,294Units as % of BRI 17.5% 66.6% 21.9% 70.2% 28.8% 72.5%

Profits

BRI (before tax) 178,559 91,673 75,127Unit Desas 65,191 66,107 69,316Units as % of BRI 36.5% 72.1% 92.3%

- 49 -ANNEX 12



STATUS OF TECHNICAL ASSISTANCE COMPONENTS (USS4.8 MILLION)(In USS)

DATE AMOUNT AMOUNT NET AMOUNT AMOUNTAUTHORIZED COMMITTED CANCELLED COMMITTED DISBURSED CANCELLED

Cateoorv 2 (US$4.3 m) - Contrects

(t) Rihdwd T. Monteverde 12t30/87 225.000.00 28,522.86 198,477.14 -(Research & Planning Advisor)

(2) Ann Dunham Sutoro 05/17/88 27,900.00 2,025.59 25,874.41

(Study on the demand for KUPEDESinvestnent loans on small-scale industries)

(3) Booz, Allen & Hanilton 08/01/88 1.555,674.00 0.00 1,555.874.00(Phase III work covering period of April-October 1988)

(4) Booz Allen & Harnilton 11/09/8 1.341,977.85 0.00 1.341,977.85 -

(Rerminder of the Phase IlIl work &incorporation d the MIR work coveringperiod of 11/1/88 - 4t30t89)

(5) Short-terrn sty tours 075/9 100,000.00 258.28 99,741.72(for BRI oMcers working with the UnitDesr)

(6) Booz Allen & Hamilton 128289 400,000.00 0.00 400,000.00

(portion of the contract work asociatedwith 'Unit Des Operons & Sprvision'

(7) Obaidullah Khan 0507/90 65,78t.00 41,617.38 24,170.62

(survey of present relationship betweenBRI and the KUDS and recommendationson futre BRI support of the KUDS)

(8) Ann Dunham Sutoro 06/11/90 274,400.00 0.00 274,400.00(Research Coordinator for Unit DossDevelopment Activities)

(9) Richard T. Monteverde 07/19/90 254,388.00 29,000.00 225,388.00(extension of Research and PlanningAdvisor contract)

(10) Warren Niles 12/26/90 75,000.00 26,498.89 48,501.11(Consultant on future role of BRI onsupporting BRIAJDES automaton)

(11) Warren Niles 0O/23/91 29000.00 4,235.42 24,764.58(Consultant on future role of SRI onsupporting BRIAUDES automation: 6months extension)

(12) Warren Niles 11/23/91 63,900.00 0.00 63,900.00(Consultant on future role of BRI onsupporting BRIAJDES automation: 9 mth of12 mth ext.)

Subtotal Cateaorv 2 4.413.005.85 132.158.42 4.280.847.43 4.235.299.3 45 547.80

Cateoory 3 (US$0.5 mt - Training

Intemal Training 02/06/90 500.00000 000 500,000.00 498,865.80 1,134.20(for strengthening the capacty of BRI inaccounting & auditing for activities relatedto Und Desas)

GRAND TOTAL (Catoories 2 & 3) 4.913.005.85 132.158.42 4,780J847.U4 4.734,165.43 46.882.00

- 50 -

ANNEX 13

ORGANIZATIONAL STRUCTUREUNIT DESA BUSINESS DEPARTMENT

BRI

DEPARTMENTHEAD

DEPUTYDEPARTMENT

HEAD

STAFF

ADMIN. AND AUTOMATION PRODUCT UNIT ANDREPORTS DIVISION MANAGEMENT CUSTOMER DEV.DIVISIONS DMSON DMSION

STAFF STAFF/ STAFF: STAFF:PROGRAMMERS _ _

- CREDIT - MARKET ANDADMIN. I MPLEMENTATION MARKETING CONSUMER

SECTION _ SECMON RESEARCH

- SAVINGS - ADVERTISINGMARKETING AND

REPORTS HARDWARE PROMOTIONI_SECTION J SECTION

SECTION_SECTION - OTHER BANK - UNIT LOCATIONSERVICES RESEARCHMARKETING

HADMIN. EMPLOYEES | ADMIN. EMPLOYEES

Documents

World Bank Documentdocuments.worldbank.org/curated/en/205611468260675137/pdf/multi-page.pdf · document of the world bank for offlcial usie only repwt no. 12973 project completion