Banking by Boat Spells New Client Growth for Bank Rakyat

The absence of cash machines on many of Indonesia’s Spice Islands, where cloves and nutmeg once made sultans and European explorers wealthy, means banking is often done on boats that can carry automated teller machines.

PT Bank Rakyat Indonesia, the world’s largest microlender, is expanding to the edges of the archipelago’s 17,000 islands with over 500 new branches to develop local economies, President Director Sofyan Basir said in an interview. Bankers only reach some islands once a week in boats, he said.

The country’s most profitable bank is tapping island markets as it sees potential microlending growth of 20 percent this year, while corporate loan expansion may slow to 10 percent to 15 percent after interest rate rises, Basir said. That means more bankers roughing it out in places with no infrastructure and without much sanitation.

“I had to use outdoor bathrooms with no roof,” Basir said as he recalled trips to islands such as Talaud and Selaru, near the country’s maritime borders with the Philippines and Australia, to see the opportunities for himself. “In the past banks entered a place if there was economic activity, but for us, we’ll be there to create new business.”

Companies often avoid expanding into remote areas in eastern Indonesia because of a lack of power and roads, he said in the Jan. 28 interview in Jakarta. Potential customers include fisherman collecting stones, seaweed and lobsters from beaches for export, he said.

Before today, Rakyat had risen 15 percent this year, outstripping a 3.4 percent gain in the Jakarta Composite Index.

Infrastructure Challenge

State-controlled Rakyat plans to open 571 small and microlending sites, to add to its nearly 10,000 branches in the country. It expects 75 percent of total loans to come from micro finance to small and medium enterprises, Basir said.

Basir said the bank’s profit growth this year may match last year’s 14 percent.

He shrugged off growing competition in the microcredit industry from lenders such as PT Bank Danamon Indonesia and PT Bank Mandiri, saying Rakyat operated with smaller loans that can be as low as a million rupiah ($80) for a day.

“If other banks, including foreign banks, want to take our cake, it must be costly for them because it’s very difficult to reach these areas,” said Basir.

Bankers also rely on boats with cash machines to head up rivers in the forested areas of northern Kalimantan on Borneo island. When heading inland on foot, bankers carry bags full of cash, typically around 30 million rupiah, and handheld point-of-sale machines like those used in restaurants, so that customers can make deposits or transactions, Basir said.

Agricultural Economy

Indonesia’s eastern region, reaching from Bali and Borneo through a chain of islands to mountainous Papua, only accounted for about 18 percent of Indonesia’s economy in the third quarter last year, according to data from the country’s statistics office. Java, the most populous island, contributed about 58 percent.

The government of President Susilo Bambang Yudhoyono, who will step down this year after a second term, has made slow progress in building infrastructure across the country, with some new airports being built on islands such as Flores and many other areas still relying on boat travel and unpaved roads.

Basir is seeking growth from farmers by setting aside as much as 2 trillion rupiah to buy a mid-size lender to merge with unit PT Bank Rakyat Indonesia Agroniaga. Agriculture, forestry and fishing accounted for 15 percent of gross domestic product in the third quarter, the second-biggest contribution after manufacturing, according to the statistics office.

Quick Access

Rakyat’s total loan growth was 23.7 percent in 2013. Bank Indonesia has raised its key rate by 1.75 percentage points since early June in its most aggressive tightening cycle in eight years, to slow economic growth and narrow a current-account gap that has been hurting the rupiah.

The higher benchmark borrowing costs haven’t led Bank Rakyat to lift its lending rate for micro business from a current level of about 1.25 percent a month.

“Micro customers are not very sensitive to higher interest rates,” Basir said. “As long as they have access to banks and they can get money quickly, they will take it, as for them what’s important is access.”

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