In February 2022, we launched our Impact Plan, a socially responsible pension plan that invests exclusively in companies addressing the world’s great social and environmental problems, whilst saving for your retirement. You can learn more about impact investing by watching the Impact Plan’s co-portfolio manager, Eric Rice, explain what it is, where the concept originated from and how BlackRock identify impact companies. One of the companies which feature in the plan’s top 10 holdings is Bank Rakyat Indonesia (BRI), an innovative business providing access to financial services in Indonesia.
BRI’s a pioneer of microfinance in Indonesia and one of the largest providers of microloans and financial services to micro, small and medium enterprises (MSMEs) and low-income households in Indonesia and Southeast Asia. Millions of people in the region rely on BRI to access essential financial services, such as savings accounts and insurance products, enabling them to grow their businesses, serve their local communities and provide for themselves and their families.
We take a look at why BRI’s a business actively included in our Impact Plan and how this company’s making a positive difference.
What problem is BRI trying to solve?
Indonesia’s a vast country of more than 270 million people, yet roughly half the population remains unbanked, meaning they don’t possess their own bank or other financial accounts often because they lack access. There are also more than 60 million MSMEs in Indonesia, which incredibly make up 99.99% of the total business population and employ 96.9% of the total workforce. The huge number of MSMEs are often run by low-income households typically unable to get approval for loans and generally access financial services, which has made BRI’s products and services essential to millions of people.
One of the great challenges in delivering financial services to Indonesia’s unbanked population is overcoming the country’s geographical makeup. Indonesia’s made up of more than 6,000 islands, many of which are rural, hard to reach and lack essential infrastructure for traditional banks to offer financial services. As a result, many simply don’t have access to a physical bank branch or they lack the technology to access banking services online.
How does BRI help create an impact?
BRI operates both physical micro banking offices as well as an innovative ‘branchless’ network of banks, which offer microloans and savings products to rural communities and MSMEs such as smallholder farmers. That may mean a fisherman or farmer can access finance to buy or repair the equipment they use, so they can run and grow their business and earn an income. BRI’s services also give businesses and individuals access to a legitimate source of financial services, providing an alternative to any unethical lenders who may operate in the same areas.
In 2021, BRI developed a new segment of its financial services offering for ultra-micro businesses referred to as Ultra Micro Holding (UMi). This aims to provide financial services to even lower-income entrepreneurs which could include farmers, wet market traders and shop owners, enabling them to grow their businesses with collateral-free financing and lower instalment rates at which to pay back loans.
To help tackle the challenge of reaching the more remote parts of Indonesia, BRI utilises a technology called BRILink which enables ‘branchless banking’ through a hyperlocal bank representative. Instead of a dedicated physical bank branch, a bank agent may simply be located within a local store. A BRI agent operates the BRILink technology in the form of a card reading machine or a mobile app the bank supports to process financial transactions such as depositing savings and making payment of loan instalments. Given there’s often a lack of internet access in such remote locations, the BRILink technology operates via satellite to connect an agent to BRI’s banking services.
What’s the size of BRI’s impact?
As Indonesia’s largest provider of microfinance services BRI already has great reach across the country, which continues to grow. It currently has more than 6,000 micro banking offices across Indonesia and that number has grown over the last 30 years from 3,000 in 1990. And with that expansion, there’s also been significant growth in the number of loans given and savings made. The number of BRI borrowers has grown seven times whilst the value of savings has grown by £19 billion between 1990 and 2021. To date, BRI’s loan program serves four million MSME organisations and 4.8 million individuals in rural communities in the region.
BRI has also been rapidly expanding its branchless BRILink network, which is four times bigger than its next competitor’s. Fast growth over the past few years has seen its number of BRILink agents go from 50,000 in 2015 to more than 600,000 in 2021, serving over 100 million customers.
BRI as a financial investment
BRI’s one of the largest banks in Indonesia as well as the country’s largest bank for MSMEs and has shown strong growth and financial performance. Since its IPO in 2003, BRI has consistently posted yearly profits and paid dividends to its shareholders. Its most recent financial report from 2021 showed an increase in net profit of more than 75% over 2020* and a continued increase in the number of loan customers, having grown 13.5% over the same time period. BRI’s micro banking services form a significant part of its profitability and growth in this area continues to be strong; between 2017 and 2021 pre-tax profit increased by 48.4%.
In addition, its recently established UMi offers a new source of growth for the company, having identified 30 million potential ultra-micro businesses.
BRI’s already a leading bank in Indonesia but it has a vision of becoming the ‘The Most Valuable Banking Group in South East Asia and Champion of Financial Inclusion by 2025’, which it plans to achieve through its UMi and hastening its digital transformation. It aims to achieve this through its three-pronged strategy of sustainable growth. This includes:
- ‘Go smaller’ by providing banking services to the underprivileged and underserved.
- ‘Go shorter’ by offering shorter-term products, monthly or even daily.
- ‘Go Faster’ by increasing efficiency through technology and digitalisation.
BRI’s inclusion in the Impact Plan
The Impact Plan emphasises the importance of helping people and addressing global issues that require greater attention. So the companies involved must show that they’re helping to solve issues that other organisations, such as governments, charities and other businesses are either leaving completely unaddressed or which need greater attention.
BRI’s inclusion in the Impact Plan comes by way of the crucial access to the financial services it provides to millions of Indonesians. In doing so BRI’s helping historically underrepresented populations including MSMEs, individuals and rural communities in some of the outermost, frontier regions of the country.
In addition to its social impact, BRI has also demonstrated strong financial performance within its industry with its most recent annual report for 2021* showing an increase in net profit of more than 75% over the financial year.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice