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Indonesia has made strides in reducing poverty over the past few years on the back of strong economic growth. Millions of people have been lifted out of poverty, but many millions more still remain trapped.

One the biggest challenges facing the country, therefore, is to continue to chip away at lowering poverty rates, especially urban poverty. World Health Organization figures for Southeast Asia show that about a third of the population of 11 countries in the region now live in urban centers, many of them in urban slums.

Fighting poverty will take a long time and a strong political will. President Susilo Bambang Yudhoyono has begun to tackle this pressing problem by creating jobs and through the direct cash assistance policy.

But as the growing number of beggars on our streets illustrates, urban poverty remains very real. In rural areas too, poverty remains high although most scrape together just enough to get by.

Microfinance has played a central role in reducing poverty across the country and it can continue to do so well into the future. Not only does providing small loans help families avert destitution, it also empowers them to built better lives. And the vast majority of microfinance recipients eventually repay their loans, making it a viable business model.

Microfinance improves the lives of the poor in a variety of ways. It provides access to banking services that are fundamental to the expansion, diversification and enrichment of economic life.

But a recent study by the Asian Development Bank, conducted in villages across five provinces and taking in 120 rural households from a mixture of poor, extremely poor and middle-income families, found that more than 60 percent had no access at all to institutional credit. Empowerment through microfinance, necessitating a minimum of paperwork and no collateral, then becomes a logical solution in providing access to funds for people who have so far been excluded from the more formal banking system.

And with the accompanying rise in incomes, nutrition, access to health care, education and housing all improving as well, with any luck, microfinance users may eventually transcend poverty and emerge as new members of the mainstream economy.

Clearly, more can be done to promote microfinance here. Currently both private sector and government banks offer microfinance services, but they are arguably not reaching enough people. But in doing so, banks must ensure that they have strong business plans and run their operations on commercial underpinnings. This is critical for their sustainability and in raising the self-esteem of borrowers.

Helping people help themselves is the surest way to ensure that the nation will continue to prosper over the long term. In this sense, microfinance can be a central pillar of nation building.