PUBLIC-PRIVATE PARTNERSHIP POLICY: SYSTEM APPROACH TO MICROFINANCING

More than 95 percents of business units in Indonesia are small and micro enterprises (SME). Problem facing by SME beside market and human resource is lack of investment support and less access to the banking sector. A closer investigation of the microfinancing problems reveals that rather than being technological, they are complex combinations of social, economic, cultural, psychological as well as legal and communications factors. This research using system approach, aims to analyze and design the public-private partnership policy to establish microfinancing for less developed regions. The system methodology is philosophically committed to serve as a guide to action and primarily concerned with providing information relevant to a policy decision. Case study and face validation was carried out in model building process using Houghton (2009) generalization principles. This research produced a conceptual framework (BSK model) related to the finding about the importance of institutional linkage between banking and Microfinance Institution (MFI) to set up sustainable SME financing. The linkage structure should be support by government budget for MFI empowerment and SME loan guarantee. Private companies roles is providing low interest credit for SME and CSR-fund to reduce its transaction cost appropriately. This linkage was found useful for smallholder’s farmers and work effectively to reduce rural poverty. The partnership policy must be planned and coordinated well by local government administration with local banks involvement. This study recommend independent MFI rating agency to facilitate capital formation of MFI by the bank. The BSK model was verified in the case of micro credit-KUR scheme linked to saving and loan cooperative units. In conclusion, microfinancing must be viewed as holistic efforts on system that can not be reduced to components that are separable.