Indonesia banks step up launch of microlending units

Lenders keen on seizing opportunity to expand market and boost profit by tapping the less affluent.

Top banks in Indonesia are rapidly rolling out hundreds of microlending branches across the archipelago in the latest push by financial institutions to expand their reach—and boost earnings—by serving the less affluent.

Microfinance services usually are handled through charitable groups, government programs and specialty-finance companies, such as Grameen Bank in Bangladesh.

But in Indonesia, the country's biggest banks, including Bank Mandiri and Bank Danamon, are powering growth in the market, which they say is under-served and lucrative.

"The potential in this market is huge," said Minhari Handikusuma, a director at Danamon who is spearheading its push into microlending. Danamon figures more than 60% of small businesses in Indonesia, or more than 50 million entrepreneurs, aren't served by the country's banking system.

Microlending has expanded too quickly in some places, such as India, triggering a backlash and debt crises. That hasn't snuffed out global enthusiasm for the business. The latest moves also point to a new driver of investment in Indonesia, one of the world's largest developing economies.

Despite Indonesia's impressive expansion for the last three years, the country's ratio of loans to gross domestic product, a measure of how widely cash circulates in the economy, remains below 30%. That is lower than any other country in Asia. Singapore, Malaysia, and China are all above 100%.

View the full story in The Wall Street Journal.