The strategies for conducting business with social impact are as diverse as the number of social enterprises that have emerged around the world. Bank BTPN is a profitable midsize bank in Indonesia, and one of its business segments provides loans to the bottom of the economic pyramid population. Yale Journal of International Affairs (YJIA) met with Jerry Ng, the bank’s CEO and president director, for a conversation about the bank’s mission and successful business model. Mr. Ng told us about the bank’s strategy for its microfinance portfolio, the plans for adapting BTPN’s model for other emerging markets in Asia, and the books that helped him become a more effective leader. This interview has been edited for length.
Yale Journal of International Affairs: Bank BTPN has a for-profit microlending business and a mission to “do good and do well.” The bank has enjoyed extraordinary success while pursuing this social mission of financial inclusion for borrowers that are considered too risky by traditional commercial banks. Has there been a time where the bank’s social impact mission and profit motive have clashed?
Jerry Ng: I think that people have a misperception in thinking that doing business with those at the bottom of the pyramid is riskier. It is not necessarily so—at least that is my experience. A number of years ago, I had a chance to speak with Professor C.K. Prahalad (who has passed away). He is one of the greatest thinkers, and he said, “If we had methods of doing ratings on microentrepreneurs, the ratings may be higher than a lot of corporations. The reason why microentrepreneurs would not necessarily strain their relationship with the bank, is that they know if they lose their relationship with the bank, the alternative is to go back to the worst alternative. Therefore, they will do all they can to maintain that relationship and as a result of it, as a customer, they will perform better.” That is a lesson I remember from C.K. Prahalad.
Back to your question about whether there is a clash—I think no. I think no in the sense that I always tell everybody upfront that we are a for-profit organization. The way we design our business model is just such that we are also doing a lot of good stuff (to help our customers improve their businesses) on top of just striving for profit. I do not have a dilemma to choose between doing good or doing well. Our approach came from a lot of literature, including research by Michael Porter about creating shared value. According to Porter, it helps when your business contributes to improving the community, because if the community grows, then automatically your business will become more sustainable; in the end, the customers, communities, and the bank benefit.
YJIA: The BTPN microfinance portfolio initially worked with merchants that had proven businesses in main marketplaces and cities, but in recent years, it expanded that microlending business to the banking needs of entreprenuers with less of a track record. How have you adapted that business model that worked really well for merchants to serve this segment of the population that development analysts call the bottom of the pyramid?
Ng: The business models for each segment are very different. People thought that doing business for the segment at the bottom of the pyramid would be pretty straightforward. It is not necessarily so. It requires a tremendous amount of innovation. We have three businesses. One we call micro. The other one is called productive poor (which serves the real bottom of the pyramid). Now we are moving into a third segment called informal SME [small and medium-sized enterprises] (which serves the upper end of our micro customers). Each and every one of these businesses has an entirely different value proposition, means of delivering the products, and business model. In everything we do, we do not just intuitively feel that this is a good thing to do and do it. We always start with in-depth research to understand how sizeable the particular segment is because if it is small, then it is not really relevant. Second, we identify whether there are unfulfilled gaps between customers’ needs and what they have been provided by other institutions. If we see a gap, the third step is to seek to develop a unique value proposition. If we have a unique value proposition, then we will say, “Aha, we have a potential business.” We will develop the business model, we will develop the processes, we will pilot it, and then we will roll it out in a major way.
YJIA: One of the innovative features of BTPN’s microlending business is that the bank offers training programs in conjunction with the loans, including courses on personal finance and business operations. Can you tell me about how the training programs fit into the overall business model?
Ng: This goes back again to research because as a bank, our business is to lend. During our research, we consistently found that customers need additional capital to grow their businesses. We found that they are also looking for ways and means: “How can I improve my business? How can I make sure that my business can compete with modern retail stores like 7-Eleven or the equivalent?” What we have concluded is that customers need both things. Number one, they need capital to grow the business. Number two, they need capacity-building (ways and means to improve their businesses). We put together value propositions: “When you bank with us, not only will we give you capital to grow your business but we will also provide you with training on how to improve and run your business.” This is again doing good and doing well. Examples include trainings for our customers about cash management and inventory management.
YJIA: Another pillar of the bank’s model is that its employees are committed to the social mission. BTPN has more interactions with its customers than a conventional bank, including relationship officers who meet with the borrowers throughout the period of the loan repayment process. How has the bank developed and maintained this company culture that has a true orientation toward service?
Ng: It is a challenge and will continue to be a challenge, so we are not there yet. Whenever we do recruitment, we make sure that employees know that this is what we stand for (our mission). At the operational level, we are looking for people who 1) treasure and appreciate having a job; 2) are willing to work hard and follow things in a disciplined manner; and 3) want to make a difference in their communities. We also have a volunteer program whereby employees can take days off to really go and help. We are trying to do a lot of things to make sure that the employees are engaged. How successful we are—I think we still have a long way to go.
YJIA: Sumitomo Mitsui Banking Corporation (SMBC)—a Japanese bank with a major stake in BTPN—has a goal to take BTPN’s approach to other emerging markets including Myanmar and Vietnam. What makes the Indonesian context unique? What elements of the BTPN model will need to be adapted for markets in other countries?
Ng: SMBC is the second largest bank in Japan in terms of market capitalization. I think SMBC’s balance sheet size is more than $1.3 trillion, so it is a large global bank. SMBC is a very successful universal banking group in Japan. But outside of Japan, they are predominantly a wholesale bank. The first question I asked the senior management (when we first met) was, “Do you know what kind of bank BTPN is? We are a mass market bank. And we are not a typical commercial bank.” I think they decided to invest in BTPN for a couple of reasons. Number one, I believe that they want to use BTPN as a potential platform to become a larger bank in Indonesia. Secondly, I think they recognize that if they want to go into other markets in Asia, they will need to have a variety of business models. Speaking with SMBC’s senior management, we are hoping that one day we can adapt this business model for other markets where the population size is big. I think naturally this will be countries like Vietnam, maybe Myanmar at one point, the Philippines…not Singapore or Hong Kong because they are too small for mass market. But those are the intentions, I think, from the strategic point of view.
YJIA: Looking forward to how technology will change banking strategies in underserved areas around the world, what do you see as the potential for mobile banking and other technologies to help BTPN achieve its social impact goals?
Ng: I think it is huge. Mobile and digital, in my opinion, are the future of the world. Let me give you some context. Number one, people ask about doing business with microcustomers, “Why do you need technology?” To me, it is the contrary. In fact, you must find technology because when you do business with microentrepreneurs, the size of the relationship is very small. You need to innovate to bring down the cost of serving them. I believe that technology is the way to go.
The second thing, in Indonesia today, we have approximately 250 million people. Although the per capita income is about US$3,500, it is unevenly distributed. I think that roughly less than 20 percent are making incomes of more than $3,500. A large portion of the population—around 80 percent—is making less than perhaps $2,000. Project ahead—ten years, fifteen years, twenty years from now—I think that the population will probably be 300 million people, and I think that the middle income group is going be large—maybe 40 percent to 50 percent of the population, assuming the economy continues to grow at 5 percent to 6 percent. Our strategy is to have a two-pronged approach. We believe that the way to approach the mass market is to use mobile because mobile penetration is very high, and mobile is the inexpensive way to do banking. But for the middle income, as the world and our lives become more digitized, then I think mobile is also the way to go. Therefore, going forward, we are going to gradually move up the market to do middle market as well, and we believe that the big bet is going to be mobile and digital.
YJIA: We have a couple of questions that we ask all Journal interviewees. To start, what book are you currently reading?
Ng: In my life, I have learned a lot from people like Professor Steven Covey. The 7 Habits of Highly Effective People and The 8th Habit, which talk about finding your inner voice and helping others find their inner voice, are fascinating. Second, I have benefited from meeting with (back in 2002) and reading books written by Jim Collins (Good to Great, Built to Last, and Great by Choice). C.K. Prahalad wrote a column in Harvard Business Review only months before he passed away. He said that leadership is about self-awareness…recognizing your failings, and developing modesty, humility, and humanity. That captures what I believe leadership is all about. We tend to think that leadership is about somebody who is charismatic, has great vision, is an eloquent speaker and so forth. To me, a leader should have those dimensions. But more importantly, a leader should have the heart to go beyond just building a great profitable business, which is what I believe C.K. Prahalad said.
YJIA: What gives you the greatest hope for the future?
Ng: I think the world is an exciting place. I think it is getting more complex and the speed at which things are changing is incredible, but I’m sure that all these complex world problems will be solvable—if not my generation, it will be your generation and the next generation. I am an optimist. I believe that as long as you do not give up, there is always hope. I am very excited for the future.
About the Interviewee
Interviewed by Allison Cordell, Managing Editor for Articles.