Youth and Access to Microfinance in Indonesia Study

As one part of its mapping work in Indonesia and in order to better understand the context, ImagineNations initiated a study on Youth and Access to Microfinance in Indonesia. The study was conducted on behalf of ImagineNations by Mercy Corps Indonesia MICRA (Microfinance Innovation Center for Resources and Alternatives) and generously funded by the World Bank.

Some of the key findings of this study indicated that:

Youth borrowers (24 years of age) actually have equal to or slightly higher repayment rates than the total clientele in the majority of Indonesian microfinance institutions and generally receive loans that are of the same or even larger than the average loan size for all borrowers;
There is a direct correlation between availability of non-traditional, informal forms of guarantees and high outreach to youth;
There are approximately 4 million MSMEs are youth-founded and managed (by 15-24 years olds), employing more than 8 million workers — far more than anyone realized or had been previously documented;
The official overall unemployment rate in Indonesia is 12 percent, 60 percent of which are young people (15-24 years old). This population represents 42 million people. Unemployment for those under 29 is well over 70 percent; generally speaking, the unemployment problem of Indonesia is a "youth unemployment problem";
A high percentage of Indonesian youth (78 percent) in all regions examined see self-employment and entrepreneurship as their best employment option and strategy, preferred over formal employment in private and public sectors;
The main reason for interest in self-employment is desire for higher earning potential. In fact, youth entrepreneurs earned more than twice the average income of youth employees;
While many youth believe they have adequate skills and experience to start their own business, a very high percentage (98 percent) do not believe they have sufficient capital;
On average, 22 percent of Indonesian MFIs clients are youth (defined as under 30 years of age);
There is a significant supply gap in microfinance to youth. Based on additional findings of high quality of existing loans to youth and MFI management willingness to lend, it can be assumed that there is a significant untapped market that could be met by formal financial institutions, including MFIs.