Indonesia: a Regional Development Bank Linked with Village-based Non-Bank Financial Institutions

The case of financial linkages between the Regional Development Bank (BPD) and village credit institutions (LPDs) in the province of Bali demonstrates the impact of banking policies, regulation and supervision on the nature, and to a certain extent, the level of success, of formal and informal financial sector linkages. BPD, mandated by government decree, supervises and provides management training to LPDs in the province. Although other financial ties exist between the BPD and LPDs, the main purpose of the relationship appears to be the transfer of knowledge and assurance of good financial health. The author claims this relationship to be a success but cautions against certain rigidities of the model, e.g., restrictions for an LPD to have saving accounts with other financial institutions.

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