Ensuring financial security in traditional microfinance: the case for a liquidity guarantee fund for LPD (Lembaga Perkreditan Desa) in Bali
Lembaga Perkreditan Desa (LPD) in Bali play an important role in providing local wisdom-based financial access for indigenous village communities. However, amidst their growth, LPDs face challenges in terms of governance, transparency, and liquidity risks that can trigger bank runs. This study highlights the urgency of establishing a deposit guarantee system for LPDs as a measure to mitigate systemic risk and increase public trust. Using a qualitative approach based on literature studies, this study analyzes the implementation of the liquidity guarantee fund as a potential solution, with funding sources from LPD participant premiums, government grants, and asset reserves. In addition, this study emphasizes the importance of an early warning system mechanism to detect liquidity risks earlier and a moral hazard mitigation strategy in LPD governance. The results of this study are expected to contribute to the formulation of policies that support microfinance stability in Bali, so that LPDs remain a sustainable and trusted financial instrument for indigenous village communities.
Keywords– Microfinance, rural banking, deposit insurance, bank run prevention, liquidity risk
