Financial Literacy for Villagers

Country Profile: Indonesia


249,866,000 (2013)

Official Language

Bahasa Indonesia

Other spoken languages

Javanese, Sundanese, Batak and Bugis

Poverty headcount ratio at 2 PPP$ a day (% of population)

43.3 (2013)

Access to Primary Education – Total Net Intake Rate (NIR)

96% (2006)

Total Youth Literacy Rate (15-24 years, 2015)
  • Men: 98.9%
  • Women: 99.1%
  • Total: 99%
Adult Literacy Rate (15 years and over, 2015)
  • Male: 96.3%
  • Female: 91.5%
  • Total: 93.9%


Programme Overview

Programme TitleMicrofinance Unit for the Community Learning Centre (CLC) “Harmoni”
Implementing OrganizationCentre for the Development of Non formal, Informal and Early Childhood Education Regional 2 Semarang
Language of InstructionLocal Languages and Bahasa Indonesia
Programme PartnersOfficial District of the Ministry Of Education Banyumas Central Java Indonesia
Community Learning Centre (Go)
Official District of the Ministry of Industry
Trade and Cooperatives Banyumas
Official District of the Ministry of Agriculture Banyumas
Islamic Financial Services Cooperatives "Maju Makmur" Banyumas.
Date of Inception2009–2013

Background and Overview

Poverty remains a core problem in Indonesia, with over 110 million people living on an income of 1–2 US$ a day and 37 percent of the population unemployed in 2006. However, there are as many as 38.5 million Indonesians who are self-employed and there are over 42 million small enterprises in Indonesia, composing over 40 percent of the workforce. However, few businesses and households in Indonesia have access to credit or funds from formal financial institutions, meaning there is a great demand for microfinance services. The regulated microfinance providers, known as BRI Units and BPRs, instead tend to mostly cover the upper levels of the microenterprise market in districts and towns. NGOs, cooperatives and village-based institutions reach a lower end of the market, but with inadequate outreach and a lack of awareness of microfinance in rural communities. The Microfinance Unit for the Community Learning Centre (CLC) “Harmoni” project is an example of a village addressing the implementation of microfinance and also the teaching of literacy within the context of finance. The programme imparts financial literacy skills to help villagers better manage their finances and to increase local business opportunities to improve the livelihoods of villagers.


Microcredit is the loaning of small amounts of money. It is characterised by group lending, rigorous monitoring and progressive lendings to lower the risks of default and the costs of monitoring and administration. Loan repayments are due fairly frequently in order to quickly establish the creditworthiness of clients.

Microfinance in Indonesia

In addition to microcredit, microfinance includes activities like savings, business and financial advice and insurance services. Savings are especially important, as they allow microfinance institutions to recycle what is saved from the community into loans, thereby making it sustainable. The Indonesian microfinance sector is one of the world’s largest, with over 50,000 institutions including community banks, rural banks, cooperatives and credit unions. However, despite the extent of this, there are still over 40 million people who lack access to financial services, mainly those living in rural areas and urban slums. The government has developed subsidized microfinance programmes. However, there is a general lack of awareness of sound principles within the organisations that have developed and provided microfinance initiatives in Indonesia and many do not realise the opportunities available to them. Due to these aspects, the integration of microfinance literacy is a crucial step towards increasing the community’s finance management and development.

Financial literacy

Financial literacy encourages villagers to use the abundant resources available to them and the opportunities that have not yet been exploited in the local market. It also aims to protect villagers from aggressive money lenders who may exploit the borrower’s lack of financial knowledge and literacy. The project is unique because of its combination of microfinance implementation, the teaching of business management and literacy in the context of finance, and its local relevance.

Financial literacy empowers consumers, making them knowledgeable about finance in a way that is relevant to their lives and allowing them to use this knowledge to evaluate products and make informed decisions. Those who are financially literate are more likely to save and engage in safe financial products. Consumers need a certain level of financial understanding in order to evaluate and compare financial products, such as bank accounts, savings products, credit and loan options.

Having more financially literate consumers increases the demand for and responsible use of financial services to help underpin financial market stability. There is widespread agreement that levels of financial literacy worldwide are low, especially in developing countries, and that consumers tend to overestimate their financial skills and knowledge.

Aims and Objectives of the Programme

Programme Implementation

Learning Strategy

Approach and Methodology

Coordination among the stakeholders, such as: the centre for the Development of NFE and ECE, District Official of Ministry of Education, Community Learning Centre, village leaders, and Islamic Financial Services Cooperatives “Maju Makmur” to ensure:

  1. Literacy learning is integrated with microfinance for learners. Selection and recruitment of the board of microfinance units.
  2. The establishment of microfinance business units and regulation of microfinance units is the overall aim.
  3. Socialisation of microfinance unit “Harmoni” for the villagers. Rights for learners: Borrow money in accordance with the applicable rules and the size of deposits; saving money / savings deposits with interest at 0.9% per month of the total deposits / savings; take deposits / savings according to the rules or regulations.
  4. Business development such as cleaning services, motorcycles and car wash, retail, gasoline sales, motorcycle workshops, the production of water pumps, barbers, and the development of local art and culture.


There has been a steady increase in participants and capital available for the microfinance unit, as the project has steadily grown since its inception in 2009.


The participants of this project no longer rely solely on the moneylender to interpret their requirements in a loan because they can proactively decide and write their own proposals. Furthermore, the learner may borrow the money from the microfinance unit instead to increase their capital. The project has motivated the villagers and made people aware that there are a lot of business opportunities that open through the use of microfinance.


Despite the opportunities of financial literacy, there are a number of problems the programme faces. Firstly, some villagers are dependent on the moneylenders, even for their day to day needs. This is because many of the villagers are rice and palm sugar cultivators, which are jobs that do not provide money every day, making them reliant on the moneylenders to finance their daily requirements. The Community Learning Centre “Harmoni” where teaching takes place is, like many microfinance units, initially reliant on government funding to finance the implementation of a non-formal education programme. However, it is now reliant on these sources, and when the funds have been exhausted it is possible that the programme will be postponed.


The concept of this programme model can be applied to other rural areas in Indonesia. However, government policies vary from region to region, which greatly impacts support of local governments in the implementation of NFE programmes. Some religious groups believe that lending money for business is against the rules of religion. Therefore, it is important to involve religious leaders in explaining the profit for the microfinance units. Collaboration between government and other stakeholders should be outlined in a national policy so that each village is able to establish and organize microfinance units.

Lessons Learnt

The microfinance activities in Indonesia show that, with proper incentives and good operating principles that adhere to market economy principles, financial services can be not only sustainable, but also profitable. They even performed better than the large commercial banks during the 1997 Asian economic crisis. The system has taught poor people the advantages of having proper credit history and good savings, especially during shocks and slow times. As an institution, microfinance has been successful in helping poorer communities maintain and grow their source of income and in increasing their living standards. Unfortunately, to be sustainable, certain conditions need to be met to in order to expand into rural and less populated areas. Subsidized programmes need to be nurtured and to grow until they become sustainable. Innovations are needed to assure that rural regions are served, such as mobile microfinance outlets. Government involvement is crucial in making sure the programmes are successful, as only they have the resources to provide the needed infrastructure, supervision and regulation. Better communication between various players and better understanding of the microfinance principle is needed and must be attained through microfinance literacy. Microfinance and financial literacy is not a cure – its strength lies in allowing the poor to take advantage of economic opportunities, not to create them.


Heru Priambodo and Team
Centre of Early childhood, Non Formal and Informal Education Region 2 (PP PAUDNI) Regional II
Jalan Diponegoro 250 Ungaran Semarang
Telp. (62-24) 6921187
Email: heruprima (at) or adekoesmiadi (at)