Microfinance institutions (LKM) in Indonesia function to assist Micro, Small and Medium Enterprises (MSMEs) activities to be more advanced. MFIs help middle to lower entrepreneurs by providing banking services.

Microfinance institutions have a quite crucial role for the development of MSMEs. This is because MFIs can assist business development through loan services and capital financing. In addition, there are also MFIs that provide business development consulting services to investment or savings fund management.

However, what is the proper definition of a microfinance institution?

Check out the following article to find out the meaning, types, and role of microfinance institutions in Indonesia and examples of MFIs that have gone digital by utilizing BRIAPI from BRI bank.

Definition of Microfinance Institutions

A microfinance institution is an agency engaged in the financial sector by offering business development or community empowerment services. The definition of microfinance institutions in Indonesia is in accordance with statutory government regulations, namely Law number 1 of 2013 in article 1 concerning MFIs or popularly known as the MFI Law. The law also stipulates that in carrying out their duties, the focus of MFIs is not to seek profit, but to empower community businesses.

Also read: Get to know the Open API Framework in Open Banking Initiatives in Indonesia


Types of Microfinance Institutions (MFIs) in Indonesia

Statistik data lembaga keuangan mikro di Indonesia

In Indonesia, microfinance institutions in Indonesia are divided into three categories, namely formal, semi-formal and informal MFIs.

An example of a microfinance institution in Indonesia that is included in the formal category is an institution directly supervised by Bank Indonesia (BI), such as bank BRI.

Meanwhile, semi-formal financial institutions are regulated by banking regulators in their establishment and operation. However, supervision is carried out independently or from outside the banking regulator. An example is Perum Pawnshop.

The last category is non-formal, namely similar financial institutions that do not have a clear legal framework or basis. An example is a savings and loan cooperative.

Therefore, microfinance institutions in Indonesia also have quite diverse roles. One of the roles assigned is to provide assistance services to customers, both the general public and entrepreneurs. The main requirement for such assistance is a community-owned business entity that is classified as small or micro scale. The forms of MFI assistance vary, such as loans, MSME financing, and savings management.

The Potential of Microfinance Institutions in Indonesia to Go Digital

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Currently, market competition is very tight. Especially in the digital era where everything is instant and online, various businesses and microfinance institutions in Indonesia that previously operated conventionally inevitably have to adapt to the digital era in order to survive and be able to compete in market competition.

One way is through collaboration with financial technology (fintech).

If you look at the record number of MFIs from OJK that have business and institutional licenses, there are 228 MFIs in Indonesia, with 146 conventional MFIs and 82 MFIs based on sharia principles.

This amount could be an opportunity for Indonesia to grow its economy by expanding the accessibility of financing for MSMEs that are unbankable or have difficulty accessing financial service facilities (banks) in business development and continuity.

By working with digital financial innovation providers (IKD), businesses can grow and develop and survive in the disruptive era of revolution 4.0.

Meanwhile, OJK as the regulator in the financial services sector also supports MFIs and MSMEs' go digital actions through collaboration with fintech. In fact, OJK also organizes digital literacy to achieve inclusion targets.

This step can be useful for increasing utilization of the MFI's services. So that people can access financial services easily and cheaply.

Through this program, OJK has succeeded in reviewing the development of the digital MFI ecosystem, and has even managed to map out how far the readiness of MFIs in each region is to adapt information technology in their operations.

On the other hand, MFIs also need to continue to explore and improve their utilization. As a result, all parties can reach increasingly inclusive financial services.

Also read: What is Open Banking: The Most Complete Open Banking Guide


The Role of BRIAPI Open Banking to Optimize the Digital Ecosystem of Microfinance Institutions

A digital platform can be one of the media in increasing MFI productivity. For example, as a place for product information, marketing services, to a place to provide services such as open banking for MFIs.

Having a digital service center will certainly make all MFI matters easier, even in financial matters. One way is to create open banking which will greatly assist the public in terms of transacting through MFIs.

One of the products that MFIs can use is BRIAPI. BRIAPI (application programming interface from BRI), is open to facilitate integration between third party applications and BRI banking services. BRIAPI can also be implemented in MFI applications.

This allows customers to access various convenience transactions directly in the application. For example transfers between banks or between banks, checking account balances or mutations, and so on.

BRIAPI products

BRIAPI has two main products, namely transactional and informational types.

With this transactional service, third-party applications can be equipped with a payment system directly on the application. Examples of these products are BRI Direct Debit, BRIZZI, BRIVA, transfers between banks or fellow BRI banks, cardless cash withdrawals, and QRIS.

On the other hand, with informational services, users can also get complete information without having to leave the application. Examples are the mutation information API and account information.

Advantages of BRIAPI

By using BRIAPI, you can increase service flexibility, especially in financial transactions. As a result, you are more ready to change services to digital ones that are easy, fast and practical. BRIAPI can be used by anyone who belongs to the third party category. Examples of developers from startups, government, to MFIs.

BRIAPI's role in helping MFIs go digital can be seen from two sides. First, BRIAPI brings BRI as a financial institution that participates in developing the digital ecosystem through open banking contributions. On the other hand, BRIAPI can also be used by other MFIs as support services, especially those related to transactions.

BRIAPI has received permission from OJK (Financial Services Authority) as a financial services regulator. BRIAPI is also developed and implemented according to international standards, namely ISO 27001.

BRI not only develops APIs, but also has the mindset to assist partners in facing business challenges in the digital era. So, you can more easily develop your business through BRIAPI.


Apart from being part of the BRI digital strategy, BRIAPI also plays a role in helping microfinance institutions in Indonesia to transform to digital together. The method taken is through the development of a quality, capable, and safe digital ecosystem. BRIAPI helps microfinance institutions in Indonesia to maximize their services and make it easier for people to get assistance. Let's register now to start integrating BRIAPI in your MFI or application.