Asia Programs: Programs

Financial Sector Program

Director: Jay Rosengard

Program Mission

The Financial Sector Program (FSP) focuses on the development of financial institutions, their products and delivery systems, the markets in which they function, and the regulatory regimes under which they operate. Encompassing the fields of microfinance and retail banking, FSP comprises graduate degree courses, executive education, applied policy research, overseas advisory activities, and internship opportunities. FSP explores such issues as the relationship between financial sector development and economic growth; the appropriate role of government in the financial sector; bank closures and systemic risk; creation of a regulatory environment that fosters entrepreneurship among banks and their borrowers; financial exclusion; financial intermediation for the poor; and the impact of microfinance on poverty alleviation.


Past Highlights

In December 2003 FSP reached a rare milestone in development assistance as it concluded twenty years of Harvard advisory services to Bank Rakyat Indonesia (BRI), the world’s largest commercially-based micro banking institution. This relationship began in the early 1980s, and since 1987, first the Harvard Institute for International Development and later MR-CBG provided technical assistance directly to BRI in savings mobilization, credit instruments and delivery systems, strategic management, information technology, human resource development, and BRI’s International Visitor’s Program.

FSP had been phasing out this technical assistance over the previous five years, with the final configuration comprising two resident advisory teams working with BRI, one that assisted BRI’s Micro Banking Division to improve BRI’s microfinance services, and the other helping BRI’s Retail Banking Divisions to apply the successes of microfinance to BRI’s retail branch banking operations. FSP was also providing policy research assistance to BRI under the Facilitating Economic Recovery and Growth Through Micro Banking (REGROWTH) Project.

Many of the KSG-assisted initiatives have been successfully institutionalized, as indicated by the IPO at the end of 2003, which divested 40.5 percent of BRI: shares were 16 times oversubscribed, allowing all shares to be sold at the top of the estimated price range and raising approximately one-half billion dollars. FSP left BRI in an extremely healthy and competitive position, and since FSP’s departure, BRI’s micro banking operations have continued to prosper: as of 30 September 2006, BRI had 3.4 million micro loans outstanding totaling $2.9 billion, as well as 33.1 micro savings accounts totaling $4.3 billion. FSP continues to work with BRI on collaborative applied research and development, joint policy conferences and workshops, and participation of BRI officers and staff in Kennedy School Executive Education opportunities.

East Timor

Also in 2003, FSP assessed the feasibility of reintroducing nationwide, market-based, sustainable financial services for the “unbanked majority” of East Timorese through the resumption of operations (in some form) by BRI. With the abrupt departure of Indonesia in September 1999, the entire banking infrastructure in East Timor disappeared. While two foreign banks had established operations in Dili, they were serving only as deposit takers and foreign exchange agents, primarily for the expatriate community – there was no formal domestic financial intermediation in East Timor. A key part of this assessment was to assist BRI and East Timorese leadership in determining the most appropriate institutional mechanism for reestablishing previously viable microfinance banking services in East Timor, and if appropriate, help both parties to design and initiate BRI reentry into the East Timor market.

United States

In April 2005, FSP and the Federal Reserve Bank of Boston co-hosted a national symposium on improving access to financial services for low-income and immigrant communities. This activity drew on FSP’s considerable experience in the development of sustainable microfinance overseas, complemented by the Fed’s extensive knowledge of unbanked or underbanked communities in the United States. The national symposium had two components: an all-day, closed-door discussion at the Boston Fed among senior bankers, regulators, and community-based organizations; and an evening Forum event at the Kennedy School, open to the public as usual.

In May 2005, FSP and the United Nations Association of Greater Boston co-hosted the “Conference on Experience with Promotion of Sustainable Financial Markets: Meeting Poor Household Requirements” at the Kennedy School. The conference focused on the experience of microfinance institutions managing the tradeoffs between attaining profitability and achieving social impact. The first part of the conference was devoted to microfinance strategies for targeting low-income households, and the second part of the conference explored critical elements of microfinance institutional sustainability.


Recent Activities

Overseas Applied Policy Research and Advisory Services

Strategically, FSP’s focus is shifting from Southeast Asia to China, where the financial sector is under extreme stress and could be a major constraint to future economic growth. Opportunities to assist China in liberalizing its financial sector while improving the outreach and coverage of financial services are being pursued jointly with MR-CBG colleagues in the China Public Policy Program. FSP is also planning to offer a customized version of its FIPED Executive Program (see below) in China.

Executive Education

FIPED (Financial Institutions for Private Enterprise Development) is a two-week FSP executive program on the sustainable provision of financial services for micro, small, and medium enterprises. FIPED offers practical guidance for senior-level managers, advisors, and regulators working in the areas of microfinance and commercial banking for small- and medium-sized businesses on delivering savings, credit, and payment services for unbanked and underbanked markets in a profitable and sustainable manner. The provision of commercially viable financial services for family businesses and low-income households is a striking example of social entrepreneurship, or pursuit of the "double bottom line": bankers for the poor can create both private and social value added. FIPED demonstrates that offering financial services for low-income households and family businesses not only can earn profits for financial intermediaries, but can also have positive income, employment, and quality of life impacts on their customers. Since its inception in 1995, FIPED has attracted an outstanding group of executives to Harvard University from financial institutions and government organizations in 93 countries.


FSP developed a “virtual bank” for use in both KSG executive programs and degree courses with a grant from the Provost’s Fund for Innovation in Instructional Technology and funding from the Kennedy School’s Associate Dean of Information Technology. The project has produced SymBanc™, a computer-based, interactive simulation of the internal and external dynamics of a microfinance institution in a developing or transitional economy. In FIPED, participants operate SymBanc™ as they navigate system dynamics simulations of real policy and operational environments. To learn more and try to simulator, please click here...

Future Initiatives

FSP will continue to explore opportunities to work in both China and Vietnam as a complement to other MR-CBG activities in these two countries. The focus will be similar to previous capacity building activities in Indonesia, namely applied policy research, advisory services, and executive education, preferably without the financial support of official development assistance. FSP will also participate in microfinance research in Mexico under the cooperative agreement with the Escuela de Graduados en Administración Pública (EGAP) of the Instituto Tecnológico de Monterrey (ITESM).

In addition, FSP will enhance its work in the U.S. on financial exclusion, working with the Federal Reserve and the FDIC on policy issues, as well as expanding FIPED coverage to include more participants from domestic banks and community development financial institutions (CDFIs). The first such activity was FSP evaluation of the Chicago-based New Alliance Task Force (NATF) in April 2006 for the Ash Institute’s Innovations in Government competition. The NATF strives to enhance the economic well-being of immigrants to the U.S. by improving access to the U.S. banking system, providing financial education, and developing innovative remittance products.