The existence of Micro Finance Institutions (LKM) is increasingly important, because the number of Micro, Small and Medium Enterprises (MSMEs) in Indonesia continues to increase. Referring to Katadata data, until 2019, there were more than 65.5 million MSMEs in Indonesia. This figure increased 1.98% from the previous year.

MSME data statistics 1997 -2019


Micro Finance Institutions play a role in helping the smooth operation of MSMEs as well as developing and managing funds. So, what is a Microfinance Institution? What are the benefits? What is an example of a Microfinance Institution like? How has BRIAPI's presence succeeded in helping the smooth running of MFIs and MSMEs as their users? Check out the full explanation below.

What is a Microfinance Institution?

Microfinance Institutions are bodies specifically established to support business development and community empowerment, especially owners of small business entities or MSMEs. Primarily, Micro Finance Institutions (LKM) are known as bodies that provide loans or financing in micro-scale businesses to members and the public.

Like financial institutions in general—central banks, commercial banks, and others of the same kind—MFIs collect funds, manage deposits, but primarily channel funds in the form of loans to MSME players and provide business development services through consulting. Loans provided have lighter terms and conditions, so they are not burdensome to MSMEs.

MFIs have a vital role as a driver of national economic recovery, namely as a channel of funding/capital for MSMEs, which are the backbone of the Indonesian economy. In addition, MFIs also play a role in upgrading MSMEs from ultra-micro businesses to micro businesses, micro businesses to develop into bigger businesses, and so on.

The government continues to encourage MFIs to go digital, both by developing applications and through collaboration with digital/fintech platforms. This is to improve the process of channeling financing, both in quantity and quality.

One form is by utilizing open banking services such as BRIAPI. Open banking can encourage MFI financial management to facilitate cash flow for MSME funding. What is the role of open banking in facilitating the goals and role of the MFI? Before we get into the discussion, let's first look at the legal basis for MFIs below.

Also read: Get to know the Open API Framework in the Indonesian Open Banking Initiative


Legal Basis: Law on Microfinance Institutions & Financial Services Authority

MFI business activities and operations are regulated in official regulations contained in the Law on Microfinance Institutions and Government Regulations. Furthermore, MFIs also receive supervision from the Financial Services Authority(OJK). The following is the legal basis for Microfinance Institutions:

  1. Law Number 1 of 2013 concerning Microfinance Institutions (LKM).
  2. Government Regulation number 89 of 2014 concerning loan interest rates or financing returns and the area of ​​business coverage of microfinance institutions.
  3. Financial Services Authority Circular Letter (SEOJK) number 29/SEOJK.05/2015 concerning Financial Reports of Microfinance Institutions.
  4. Financial Services Authority Regulation (POJK):
  1. POJK number 12/POJK.05/2014 concerning Business Licensing and Institutional Microfinance Institutions.
  2. POJK number 13/POJK.05/2014 concerning Business Conduct for Microfinance Institutions.
  3. POJK number 14/POJK.05/2014 concerning Development and Supervision of Microfinance Institutions.
  4. POJK number 61/POJK.05/2015 concerning Amendments to the Financial Services Authority Regulation Number 12/POJK.05/2014 concerning Business Licensing and Institutional Microfinance Institutions.
  5. POJK number 62/POJK.05/2015 concerning Amendments to the Financial Services Authority Regulation Number 13/POJK.05/2014 concerning Business Conduct for Microfinance Institutions.

The existence of OJK permits and supervision is a guarantee that can protect consumer interests. Thus, even though it has a unique business model, the MFI's security is maintained.

Based on data as of August 2022 released by OJK, there are 238 MFIs in Indonesia, with 81 of them having a Sharia MFI business model. This number has increased since 2020 (227 MFIs) from the previous year (204 in 2019), which is predicted to be due to the need for MSME loan distribution and incentives during the pandemic.

Also read: Three Things Your Business Must Do in the Digital Age


Purpose and Role of Microfinance Institutions

Discussing microfinance institutions

The purpose of the existence of Microfinance Institutions is to help turn the wheels of the MSME economy. Primarily, through a business model that is different from banking in general, MFIs can expand the accessibility of unbanked/underserved microfinance. The manifestation of these objectives is broadly realized in 3 types of MFI services:

1. Giving Loans

The main service provided by MFIs is increasing access to micro-scale funding for MSMEs. This is beneficial for people who do not have access to a bank account (unbanked) or who do not have collateral. Both of them can get access to financing through MFIs to continue their business and increase community productivity.

MFIs are encouraged to go digital in order to facilitate the process of channeling loans to MSMEs. In quantity, MFIs that have gone digital, either through their own applications or through collaboration with digital platforms, will be able to reach more MSMEs and channel more loans efficiently. Meanwhile, in terms of quality, digitalization will be able to improve the ability of MFIs to channel quality and effective loans using a good credit scoring system.

2. Providing Savings and Financial Management Services

MFIs also provide services for storing and managing funds in the form of savings and time deposits. Deposits are an investment product which has a higher rate of return when compared to savings. The refund period is 1, 3, 6 to 12 months.

The purpose of managing MSME savings is to increase people's income and welfare in order to help increase income and alternative business capital. Thus, MSMEs can upgrade their business, assist operational activities, and further become an empowered society.

3. Providing Business & Financial Consulting Services

The next service is business development consulting services related to managing business financial administration. This consultation is actually very important so that the use of funds can be operated optimally.

When viewed from the three functions of MFIs above, digitalization of MFIs can at least help business processes and MFI customers in carrying out two main activities, namely: making deposits and paying installments. For this reason, open banking is here to improve these processes, for example the ease of deposit systems and installment payments through BRIAPI products such as virtual accounts and QRIS.

Also read: 7 Benefits of Bank API for Businessmen and Developers


Examples of Microfinance Institutions in Indonesia

The number of Microfinance Institutions (MFIs) registered with the Financial Services Authority (OJK) continues to increase from year to year. There was an increase of 10.13% in the number of MFIs from 2019 as many as 204 MFIs reaching 227 MFIs in 2020 the number has reached 227. Until the third quarter of 2022, there were 238 MFIs in Indonesia.


MSME data statistics for 2019 and 2020.

From a business point of view, MFIs are divided into conventional and sharia, while from the form of legal entity, the types of Microfinance Institutions are divided into Cooperatives and Limited Liability Companies. What kinds of institutions are included in Microfinance Institutions? What are some examples?

1. Rural Credit Banks (BPR)

As regulated in Law no. 10 of 1998 concerning Banking, Rural Banks are banks that carry out their business both conventionally and sharia, but in their activities do not provide payment traffic services. Simply put, BPRs are similar to commercial banks, but their activities are much narrower.

The function of a BPR is to collect public funds in the form of savings deposits and time deposits, then channel them back in the form of loan loans, unsecured loans, business loans and so on. As an MFI, BPR is synonymous with providing services to MSMEs.

In fact, many of these BPRs are already using digital products from PT. USSI through the regional digitization ecosystem platform MoU. Thus, BPR users are more assisted by banking features, such as SMS Banking and IBS ATM.

2. Micro Waqf Bank (BWM)

Micro Waqf Bank (BWM) one of type of sharia MFI. BWM has a role in providing access to capital for people in low economic classes. It doesn't stop there, BWM also provides assistance for the management of these funds.

BWM is a fairly new body, because it was only official in 2017. The formation of BWM is the result of cooperation between the National Amil Zakat Institution and OJK. BWM management itself is given to Islamic boarding schools that have received permission from the OJK.

3. Village Credit Bank (BKD)

In contrast to BWM, which is still new, Village Credit Banks (BKD) have existed since before Indonesia's independence, namely in 1896. BKD is a financial management institution with an operational scope in village areas.

Some of the products and services available at BKD are credit, savings, time deposits, and many more. In addition, currently BKD also has an online application, namely BKD Mobile. So that customers can access it more easily.

BRI's Role in Microfinance Institutions in Indonesia

Judging from the explanation above, the existence of MFIs is important for Indonesia's social economy, especially for maintaining the sustainability of MSMEs after the crisis due to the pandemic. The government continues to boost the digitalization of MFIs to encourage effectiveness and efficiency in providing credit to MSMEs.

BRI also supports the digitization of MFIs, one of which is by providing financial services in the form of open APIs through BRIAPI. Through BRIAPI, MFIs can integrate BRI banking services into their applications, as well as into applications owned by digital platforms that collaborate.

For example, currently BRIAPI has been integrated into the platform owned by PT USSI, a digital-based product and service development company for microfinance institutions. PT USSI has become a collaborative partner for various MFIs, such as BPRs, cooperatives, and sharia MFIs.

Through integration with BRIAPI, PT USSI can further support various financial activities of MFI customers such as deposits and installment payments using the BRIVA (Virtual Account) API. BRIVA enables MFI customers to transact directly on mobile banking without having to come to the MFI. Thus, this integration makes it easier for customers' business activities.

More than BRIVA, BRIAPI also offers other BRI banking services that can support easy transactions such as Fund Transfers and QRIS, to support ease of financial governance through Mutation Info and Account Info.

Also read: API Key: Definition, Functions, and Benefits



Micro Finance Institutions (LKM) on Micro, Small and Medium Enterprises(MSMEs), do have a significant impact. MFIs play a role as a bridge that provides access to funding, management and consulting facilities for people with middle to lower economic status.

For those of you who work in the MFI sector and want to simplify payment methods for your MFIs and MSMEs, don't forget to register an account at BRIAPI so that it can be integrated with various services by utilizing API technology.