People Direct – Indonesia

August 2004

In the wake of 32 years of autocratic rule, Indonesia is struggling to build a new democracy. This involves a rapid shift from corrupt and highly centralised control to administration dispersed across hundreds of districts that operate according to the rule of law. There has been a comprehensive effort to re-involve the people at every level – from the villages to national governance. The Kecamatan Development Project (KDP), in collaboration with the World Bank, has been instrumental in reducing poverty through the improvement of local-level governance in Indonesia.

Colonial Legacy

Following three decades of colonial rule by the Netherlands, Indonesians were poorly equipped to manage their own affairs. Lacking the institutions to support a democratic system, Indonesia had inherited the traditions and legal structure of a highly authoritarian system. Thus, when the country declared its independence in 1949, rule was plagued with administrative problems and outbreaks of violence. This paved the way for the 1965 coup, in which President Soeharto was allowed to gain control.

Soeharto increasingly punished dissent and free speech, and his New Order stifled expression and demanded uniformity in a society that was far from uniform. The New Order directed the country on a more prosperous path, however, and so the autocratic style of rule was considered by many to be an acceptable price to pay.

Soeharto’s regime rested on the power of the military, which had a pivotal role in socio-political spheres. Its ‘dual function’ (dwifungsi) meant that serving military officers had seats in parliament as well as occupying key positions throughout the administration. Therefore, despite holding regular (controlled) elections, Soeharto steadily narrowed the scope for political and social organisation. Over the years, Soeharto’s regime became increasingly corrupt and complacent.


Soeharto’s downfall was a result of two factors:

  • The 1997 Asian financial crisis hit Indonesia harder than any other country, and the nation’s economy was unable to make a rapid recovery. Soeharto was slow to act in the face of a collapsing economy and rocketing inflation;
  • The expression of dissent against Soeharto’s failure to acknowledge and share the burden of the crisis. The people demanded reformisi – ‘reformation’.

In May 1998, having lost the support of the military, the middle-class, the business community, intellectuals and other opinion makers, Soeharto resigned and was replaced by vice-president Habibie.

The Habibie administration was short-lived at 17 months, but it enacted some important changes. Importantly, legislation was passed for decentralising authority and spending, lending power to the regions and allowing them to retain a greater share of revenues.

‘What began as the most severe economic crisis in the post-independence period of Indonesia has now spilled over into an agenda for total transformation in Indonesian society and politics. This is the great canvas on which Indonesian policy makers must write and by which all of us, donor and recipient alike, will be judged.’
(UN Common Country Assessment, 2001)

The fall of the Soeharto administration also saw the dramatic redefinition of the role of the military, which found itself exposed to an unprecedented amount of criticism, and was denounced for systematic abuses of human rights. The military lost further ground during the Habibie administration.

Decentralisation of Governance

© Victor Bottini, World Bank
© Victor Bottini, World Bank

The opening up of Indonesian politics during the reformisi has paved the way for an increased involvement of the Indonesian people and external organisations. The co-operation between local communities and organisations like the World Bank facilitates a process of decentralisation of governance from the capital, Jakarta, to the local governments scattered across the archipelago. This ensures that financial and organisational resources reach those on the margins of poverty. Constructed on the base of the World Bank’s Village Infrastructure Projects, and based on the principle of community-driven development (CDD), the Kecamatan Development Project has been established for this purpose.

Community-driven development (CDD)

The community forms the central focal point in state-endorsed participation projects. It is the organising principle for the local people and for local power struggles over the right to define, defend and represent local people. It is now, therefore, recognised that it is necessary to involve local communities in decision-making processes.

What is CDD?

CDD approaches enable poor people and their institutions to be initiators, collaborators and resources on which to build. CDD gives control of decisions and resources to community groups and community-based organisations (CBOs). CDD is a way to provide the following:

  • Social and infrastructure services;
  • Organisation of economic activity and resource management;
  • Empowerment of poor people;
  • Improved governance;
  • Enhanced security for the poor.

Why CDD?

CDD is an effective mechanism for poverty reduction, complementing market-driven and state-run activities by achieving immediate and lasting results at the grassroots level. CDD can increase the efficiency and effectiveness of poverty reduction efforts by making them more demand responsive and by enhancing sustainability. As responsibility is devolved to the local level, CDD can occur simultaneously in a large number of communities, thereby achieving a far-reaching impact on poverty. CDD programmes are inclusive of poor and vulnerable groups, strengthen community networks, and give the poor a greater voice both in their community and in broader political processes.

CDD and microfinance

Models of group-based microfinance can extend the reach of financial services to achieve high repayment rates. Group-based programmes are effective where the screening and monitoring costs of credit are too high for the lender. The group approach reduces the cost of information gathering and creates incentives at the local level. KDP has emerged as a group-based finance initiative, providing block grants to poor communities.

Kecamatan Development Project

The Kecamatan Development Project (KDP) is designed to alleviate poverty and improve local-level governance in rural Indonesia. KDP began in 1998, a time of political upheaval and economic crisis that reversed years of progress in poverty reduction. The Kecamatan are sub-districts within Indonesian provinces. The goal of the KDP is to support village-level investments in 751 of these sub-districts, including a total of 9000 villages with about 35 million people. It does so with a loan from IBRD (International Bank for Reconstruction and Development – a sub-section of the World Bank) of $225 million, along with $1 million start-up capital and $47 million from the Indonesian government.

© Victor Bottini, World Bank
© Victor Bottini, World Bank

Before the project began, the Indonesian government’s poverty strategy revolved around direct financial transfers, increased service provision, regional development programmes and support for local economic development and employment creation. As part of that programme, the World Bank had supported two Village Infrastructure Programmes (VIPs), which used block grant transfers distributed through Bank Rayat Indonesia, a state-owned bank. KDP built upon the VIPs to develop an overall strategy for these different poverty reduction initiatives. This developed into a system that linked financial transfers with a village and sub-district planning process and capacity-building programme.

KDP Objectives

  • To alleviate poverty by raising rural incomes and providing enhanced economic opportunities at the village level.
  • To strengthen local government and community institutions by empowering them to manage increased funding and becoming accountable for it.
  • To build public infrastructure through labour-intensive methods.

KDP sets out to achieve its objectives through five key strategies:

  • Block grants distributed to the sub-districts participating in the project.
  • Activities to strengthen the local government councils, with a particular focus on the village representative forum, inter-village forums, and the sub-district parliaments.
  • Support to microfinance institutions through training and technical assistance.
  • A programme of poverty impact assessments using quantitative and qualitative methods. This includes pilot programmes for community-based monitoring and studies on village and sub-district revenue generation, trade and infrastructure.
  • Funding for operational costs.

Block grants take two forms. The first supports investment proposals that are made by villages and selected by consensus in an inter-village decision meeting. There are more than 300 borrowers of the KDP fund and 6.8 per cent (22) are under the poverty line. However, all of them had pre-existing economic activities. This was the criterion used to prove their capability to repay the loan. The second grant supports the participatory planning process.

KDP Principles

Community participation and empowerment of poor rural communities Communities should have control over decisions and resources that affect them. Communities take ownership of all aspects of projects, from planning and decision-making to implementation. Participation should be broad based and include poor people and other marginalised groups. Involving women in the decision-making process is a vital, yet problematic, component of community participation.

Transparency KDP emphasises transparency and information sharing throughout the project cycle. Decision-making and financial management should be open and shared with the entire community. Everyone should have access to key programme information.

Sustainability Activities should be sustainable, building on community self-reliance and village management of all activities.

Simplicity There should be no complex rules or procedures; only simple strategies and methods should be used.

Competition for funds There should be open, healthy competition between villages for KDP funds. KDP encourages villagers to select projects based on their individual merits.


© Victor Bottini, World Bank
© Victor Bottini, World Bank

Key indicators of the programme’s progress were collected from participatory village reports. Independent NGOs and local journalists, who regularly observe and comment on the impact of the programme, carried out monitoring and evaluation. The Demographic Institute of the University of Indonesia also carried out official independent programme evaluations.




Results of these household surveys were mixed. On the positive side:

  • KDP infrastructure investments were popular with the villagers who were satisfied with the results;
    Women and the very poor were deemed to be more involved in KDP areas than elsewhere;
  • KDP beneficiaries had greater knowledge of the role of village councils, Kecamatan forums, women’s groups and the poor in KDP areas than elsewhere.

Kedung Keris village reaps the rewards

Kedung Keris village was one of the first to receive a loan three years ago, which they used to help solve the problem of a lack of access to water. Instead of having to travel to the river, the villagers were able to build wells to meet their individual needs. Realising the potential of small wells, the villagers expanded the idea by installing an electric pump. This allowed for the water to be pumped around the village so that everyone could have access.

Meanwhile, Surgesi Wahuni was in charge of building a bridge:

With the help of the technician we could plan everything carefully and wisely. All the human resources from the area. The people here were self supporting with some materials including wood to build a temporary bridge for the children to go to school.’

On the negative side, respondents raised problems such as:

  • Lack of financial transparency;
  • The negative impact of some infrastructure projects on local livelihoods and individuals;
  • Economic loans were not reaching the poorer families in the villages.

Future KDP Initiatives

© Victor Bottini, World Bank
© Victor Bottini, World Bank

The Project has successfully combined community participation, government decentralisation and restructuring, microfinance provision and support, and continued monitoring and assessment of its operations. In this way, it has overcome the local social, political and economic barriers and helped many poor communities lift themselves from poverty. However, the listed areas for improvement indicate a need to improve the ability of the programme to reach the poorest section of the population.

Since a monitoring system is in place for all KDP projects, recommendations for improvement are always being put forward. Thus, KDP III, the latest initiative, aims to build on the success that previous programmes have achieved by addressing their shortcomings. For example, to ensure that the poorest members of the communities have access to loans, KDP has adopted four additional strategies:

  • Within each village, all small business activities of the poor should be acknowledged for funding consideration;
  • Priority should be given to group economic activities;
  • Appropriate managerial and technical training should be given to the borrowers;
  • Sustainable monitoring and evaluation should be carried out on the borrowers’ activities and the regularity of loan repayments.

By continuously acting on the lessons learned from previous KDP initiatives, the ability of the programme to meet the needs of the poorest segment of the population is improving. While community responses are not completely positive, the ground is being prepared for a path to improved lives for the poorest of the poor. In order to fully achieve this goal, however, inclusion and participation by these sections of the population is essential.


ITDG would like to thank Victor Bottini of the World Bank for providing information and helping in this case study.

The case study draws on articles written by the World Bank and the UN.

Further Information


Demographic Institute (2002). Evaluation of Kacamatan Development Program (KDP) Impacts on Community Organisation and Household Welfare (the Second Round Survey). Jakarta: University of Indonesia.
Jensen, S. (2004). ‘Claiming community: Local politics on the Cape Flats, South Africa’. Critique of Anthropology. 24(2):179-207.

Mosse, D. (1994). ‘Authority, gender and knowledge: Theoretical reflections on the practice of participatory rural appraisal’. Development and Change. 25: 497-526.

United Nations (2001). Common Country Assessment: Indonesia. Jakarta: UN.

United Nations (2002). Development Assistance Framework for the Republic of Indonesia 2002-2005. Jakarta: UN.

Wong, S. (2003). Indonesia Kecamatan Development Projects: Building a Monitoring System for a Large-scale Community-Driven Development Program. World Bank Environment and Social Development Unit (EASES) Discussion Paper.

Relevant Organisations

United Nations Development Programme

World Bank


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