DCA - Danamon

Background

USAID/Indonesia has designed a one-time revolving loan portfolio guarantee of USD $8.2 million (for a total guarantee of $16.4 million) that mobilizes financial services to micro and small enterprises nationwide and in tsunami affected areas.  The partial guarantee supports expanded economic growth and employment generation as well as revitalization of livelihoods as part of the Tsunami Relief.  Up to 40% of the overall facility will be lent within communities that were affected by the tsunami and earthquakes of December 2004 and March 2005.

The USAID/Washington Credit Review Board approved the guarantee facility on 24 June 2005, and USAID/Jakarta and Bank Danamon signed the Agreement on September 28, 2005.

Bank Danamon is a progressive commercial bank with a division that focuses on micro, small, and medium enterprises nationwide.  It is the fifth largest bank and second largest private bank in Indonesia, in terms of total assets and has an extensive branch network of nearly 800 offices.  Bank Danamon is an internationally rated commercial bank and is supervised by Indonesia’s Central Bank.

Project Objective

The guarantee will target micro and small borrowers through the Dana-mon Simpan Pinjam (DSP) microfi-nance arm of Bank Danamon.  The bank is committed to growing its DSP portfolio.  DSP targets viable businesses that have a monthly in-come of Rp. 500,000 to Rp. 5 million (roughly US$50-$530).  Bank Dana-mon’s DSP division makes loans from one to five years.  The average term over the DSP portfolio is two and a half years.  Loan sizes begin very small roughly Rp. 100,000 to Rp. 500,000 (US$ 11-53) until the borrower establishes consistent and timely repayment history.

Project Focus

Bank Danamon’s interest in the DCA guarantee is three-fold:  First, the guarantee will enable Danamon Simpan Pinjam (DSP) to enter new sectors and expand the types of clients served by building on existing experiences in related professions.  For example, DSP lends to fish traders and have found that they consistently outperform growth and profitability expectations.  DSP would build on this experience and with USAID’s guarantee begin targeting to fisherman.  DSP is also interested in expanding to small street vendors, farmers, and agro processors.  Second, Bank Danamon would also use the guarantee to facilitate its expansion of DSP nationwide.  And lastly, but importantly from USAID’s perspective, Bank Danamon will resume microfinance lending in tsunami affected areas in and around Banda Aceh.

Achievements & Program Highlights

Since implementation Bank Danamon has made over Rp 67 billion worth of small business loans under the guarantee.  There are approximately 3,800 loans outstanding; 60% of these loans have been made in tsunami-affected areas.

Initially just using the guarantee to cover short-term, unsecured loans, in May the bank decided to extend the guarantee’s coverage to two more loan products: Dana Pinjam 50 and Dana Siaga.  Both loan products offer larger amounts and longer terms, and target small traders who have been successful in establishing or reestablishing their businesses but need ad-ditional capital to grow.  Despite the inclusion of these two loan products, the average loan size remains relatively low at around Rp 18 million.

As of August 2006 there have been no claims made under the guarantee.

All Economic Growth activities