Housing microcredit for informal workers in Indonesia

An analysis of the Indonesian government’s housing microcredit program for informal workers.

By Rachel Carroll



As Indonesia strives to catch up with the economic growth of its East Asian Tiger neighbors, the government has worked to increase financial inclusion for its citizens. Over 70 percent of adults in Indonesia do not have bank accounts, according to the World Bank Financial Index (World Bank, 2014). This lack of access to credit hinders Indonesians’ ability to make large purchases that offer improvements to quality of life— most notably, housing. Even with government subsidy programs, over 20 percent of Indonesians are unable to purchase their own homes (The Jakarta Post, March 2017). The inability to buy a home can negatively impact citizens by restricting their sense of community and impeding their efforts to create stable homes for their children (Leeder, 2017).

According to a recent article from the Jakarta Post, “BTN to introduce micro housing credit for informal workers”, the state-owned lender BTN (Bank Tabungan Negara), aims to solve these issues of financial inclusion and low home-ownership by offering housing microcredit to workers in Indonesia’s informal sector (The Jakarta Post, Feb 2017). The informal sector includes vocations such as farming, fishing, and trading. Workers in this sector often have incomes that are low and unstable. This leaves families vulnerable, and in many cases, it only takes one family emergency or bad harvest to tip these workers into poverty. If the Indonesian government wants to succeed in becoming an economic powerhouse like neighboring Singapore, it must address the financial vulnerability of these informal workers.

In order to qualify for a housing loan from BTN, informal workers must open an account with BTN for at least three months so that the bank can monitor and analyze their cash flows (Yudistira, 2017). Additionally, borrowers must be part of a community or cooperative— such as the Association of Mie Bakso Traders (APMISO)—and must have a letter of recommendation to be eligible to participate in the housing microcredit program. Unlike other housing assistance programs that the Indonesian government funds, there is no minimum income requirement for borrowers (Bank BTN, 2017).

The loans offered to informal workers through the program are modest, ranging between Rp 50 million and Rp 75 million—$3,800 to $5,700 USD, respectively. These loans can be used to purchase, renovate, or build homes that are constructed by a government-owned housing company called PT Perumnas. State-owned lender BTN predicts this program will benefit over 6.5 million low-income households who do not have access to mortgages under traditional Indonesian government programs (The Jakarta Post, Feb 2017). To assess the validity of these claims, it is necessary to consider how BTN’s program fits within the traditional microcredit model and whether or not it violates the model’s’ assumptions.

Evaluating the Impact of BTN’s Program

Housing microcredit has a somewhat different framework than the more common enterprise microcredit, specifically in regards to moral hazard and collateralization. While enterprise ex-post moral hazard refers to borrowers lying by stating that their enterprise failed, housing ex-post moral hazard refers to borrowers lying by stating that they do not have the income to pay their mortgage anymore. In enterprise ex-ante moral hazard, borrowers take on projects that are too risky, while in housing ex-ante moral hazard, borrowers get loans on houses they cannot afford.

The frameworks of housing and enterprise microcredit also differ in terms of collateralization. While the collateral for enterprise loans is either the borrower’s wealth or social standing, the collateral for housing loans is the house itself. Because BTN’s housing microcredit program does not use social standing as collateral, it consequently does not employ joint liability, wherein workers borrow in pairs and must both repay their loans in order for either one to borrow again.


In addition to departing from the traditional microcredit model in terms of its framework, BTN’s program also differs in terms of its target market. Traditional microcredit usually targets small entrepreneurs who are often women, but BTN’s program is solely for informal workers who are almost never entrepreneurs and are often men, as 85% of heads of household in Indonesia are male (World Bank, 2012). The difference in BTN’s target market could affect the program’s take-up— the likelihood that men working in the informal sector will participate in this program.

The Future of Housing Microcredit in Indonesia

The success of BTN’s microcredit program will depend on how the program managers define success. Success could mean that the program breaks even and all borrowers repay their loan. Success could mean that BTN reaches its goal of helping 6.5 million Indonesians get homes. Success could mean that more informal workers open bank accounts and therefore financial inclusion improves in Indonesia. Success could mean that informal workers are “better off” for having participated in the housing microcredit program.

If BTN defines success as breaking even, borrowers in the program must repay their loans. This could be difficult to ensure because informal workers have low-income jobs that are highly volatile and vulnerable to shocks, both idiosyncratic and macro. If BTN defines success as increasing the number of Indonesian informal workers who have bank accounts and homes, there must be high take-up among workers in the informal sector.

Lastly, if BTN defines success as making program participants “better off,” owning homes and opening bank accounts must benefit informal workers by making them richer, happier, or both.  This means that owning a home built by PT Perumnas must either 1) be cheaper than renting or 2) people derive a sense of happiness from owning a home as opposed to renting one. While there is a wealth of literature on the benefits of buying versus renting in developed countries, there have been no extensive studies conducted on the subject in Indonesia. Therefore, it is difficult to determine if this assumption holds. This also rests on another assumption that opening a bank account either 1) increases participants income or 2) makes them happier by smoothing their consumption and therefore makes them less vulnerable to negative shocks such as illness, natural disasters, and family emergencies. Based on research done by Dupas and Robinson, there is strong evidence that opening a bank account does indeed improve peoples’ economic outcomes (Dupas and Robinson, 2013).

BTN’s ambitious housing microcredit program has potential to improve the lives of millions of Indonesians. The program’s success hinges on several factors, including loan repayment, program participation rates, the expense of buying versus renting homes in Indonesia, and the benefit of opening bank accounts. Although it may not succeed perfectly in every way, it is likely that BTN’s housing microcredit program will have at least modest benefits for the traditionally marginalized informal workers of Indonesian society.


Benefits of Owning Your Own Home. (n.d.). Retrieved April 24, 2017, from Leeder Real Estate Team website: http://www.tahoerealty.com/free-real-estate-reports/benefits-of-owning-your-own-home/

BTN to introduce micro housing credit for informal workers. (2017, February 10). The Jakarta Post. Retrieved from http://www.thejakartapost.com/

Dupas, P., & Robinson, J. (2013). Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya. American Economic Journal, 163-192.

Female headed households. (2012). Retrieved from The World Bank database.

Financial Inclusion Data/ Global Findex. (2014). Retrieved from The World Bank database.

Kampung [Photograph]. (2014). Retrieved from http://1.bp.blogspot.com/-8v75eI2YdGM/UzeVpJ95bdI/AAAAAAAAAVU/fhM2K93vtO0/s1600/Kampung%2B2014.jpg


Only 40 percent of Indonesians can afford to buy a house: Sri Mulyani. (2017, March 28). The Jakarta Post. Retrieved from http://www.thejakartapost.com/

Sasar Masyarakat MBR Dan Pekerja Informal, Bank BTN Rilis KPR BTN Mikro [Basic Social Market and Informal Workers, Bank BTN Release KPR BTN Mikro]. (2017, February 24). Retrieved from Bank BTN website: http://www.btn.co.id/

Yudistira, G. (2017, February 14). Ini syarat dapat KPR Mikro BTN [This requirement can be KPR Mikro BTN]. Retrieved from Kontan website: http://keuangan.kontan.co.id/news/ini-syarat-dapat-kpr-mikro-btn

4 thoughts on “Housing microcredit for informal workers in Indonesia”

  1. This is a really interesting program, and it’s unusual. In addition to the potential benefits to borrowers that you mention, perhaps having stable housing will make people more productive because they are living in healthier conditions, less likely to miss work because they have to move or repair a badly maintained home, etc. Kids may do better in school for similar reasons. There’s a really nice paper by Erica Field that studies the effect of having property rights over your home (instead of illegally or informally squatting) in Peru, and finds that property rights enable households to increase their labor supply!


    1. Thank you for your post – I enjoyed reading your description of the article, and how you related it to what we learned in class and beyond! You pointed out that BTN’s program does not use social standing as collateral, and does not use joint liability. I wonder if setting up the housing loans as having group liability and not individual liability could help combat moral hazard, or if group liability would be feasible in any way. I appreciate how you discuss that the target market is primarily composed of men, whereas other microcredit studies we have looked at tend to target women. I am curious if this leads to a slower or reduced takeup rate. I also think it is important you recognize that there are different ways to measure success, and wonder if BTN will look at any of these other measures in determining effectiveness. Lastly, you mention Singapore – I wonder if Singapore could provide any examples or inspiration for Indonesia. Regardless, I greatly hope that this scheme helps reduce the financial vulnerability of informal workers in Indonesia.


  2. This article is both interesting and educating. It shown a strong understand of class material what we have learn in econ416. One question I have is although the program is designed for housing purpose in the informal sector, I am curious although a stable housing can help to improve household wellbeing, if the borrower fail to repay, would the program actually make the worse off? They are from the informal sector and most of them I believe have unstable income. Especially in fishing, a three month monitoring do not means much thing as in special month government would block the sea to let the fish reproduce, these household could have difficulties repaying their loan in the blocking month. How can the program designer address such issues? Regardless of my question, I still think this is a good program as it does help a lot of poor households.


  3. This article is extremely interesting. I do have a question when it comes to the article however. You stated that the success of the program depends on the definition of success. Yet, there were a lot of definitions. I was wondering which one you thought would be the best definition. I do think it is interesting that one of the definitions that you looked into was one that stated that success is reaching the 6.5 million people. I believe from everything we have learned about microcredit, success should not be defined this way since microcredit loan take up is usually low. However, I do like everything that you have shown in this article. Furthermore, I do like the way that you combined the article with the paper by Dupas.


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