Vendors benefit from non-bank loans<\/p>\n
By Joko Sarwono<\/p>\n
The government has created a number of credit schemes for
\nsmall business owners. But while banks were still stumbling along
\nin their catering for small loans, Moslem businessmen in 1992
\nset up a non-banking institution, the Baitul Maal wat Tamwiil,
\nreportedly inspired by Bangladesh's Grameen Banks for the poor.
\nThey spread rapidly and in 1995 were launched as a national
\nprogram by President Soeharto. This story looks at a few BMT and
\ntheir clients in Bogor.<\/p>\n
BOGOR (JP): Muhidin, who sells frying pans on Jl. Raya Gadog,
\nonce applied for a loan at the government-owned Bank Rakyat
\nIndonesia. He had heard banks had begun offering loans to tiny
\nentrepreneurs like himself. He decided to borrow Rp 500,000.<\/p>\n
But the credit officer at the Bank in Semplak, Bogor, said
\nalthough the Bank could give such a small loan, Muhidin's
\nbusiness was some 20 kilometers, too far away for them to conduct
\nan initial survey.<\/p>\n
Also, the officer said, Muhidin did not have a business
\nlicense.<\/p>\n
Luckily Muhidin got in touch with a financial institution set
\nup in March 1995, the Ulil Albaab Baitul Maal wat Tamwiil (BMT)
\nat the Ibnu Khaldun University campus, Jl. Baru-Kedung Badak
\nkilometer two.<\/p>\n
A BMT is a non-bank loan provider, based on Islamic
\nprinciples, which does not charge interest on loans. Debtors
\nshare their profits with the institution instead of paying
\ninterest, as the main principle is profit-sharing.<\/p>\n
BMT are now part of Bank Indonesia's community development
\nprogram.<\/p>\n
Muhidin passed the loans officer's strict assessment --
\nhonesty and good business prospects -- and now has had four loans
\nfrom the institution.<\/p>\n
"Before getting a BMT loan, I was only selling five types of
\nfrying pans. Now I am selling 10 varieties," said Muhidin. He
\nborrowed sums of Rp 150,000 to Rp 250,000.<\/p>\n
"Before the loan it was hard to make ends meet. Now I can save
\na little," Muhidin said.<\/p>\n
But business is currently slow, he said. His wife cried when
\nshe first saw The Jakarta Post reporter, thinking a BMT employee
\nhad come to collect debts.<\/p>\n
Nana Sukarna, a shoe seller in Taman Topi, the Hat Park, was
\nanother vendor grateful for BMT's presence.<\/p>\n
Nana said he used to buy only 40 pairs of shoes to sell before
\nsecuring a loan of Rp 750,000 from the BMT.<\/p>\n
"Nowadays I can buy four to five 100 pairs," Nana said.<\/p>\n
He said his daily earnings had increased from Rp 20,000 to Rp
\n30,000.<\/p>\n
Reluctant<\/p>\n
Bambang Wijanarko, a publisher of a BMT bulletin, said
\nconventional banks were reluctant to serve small entrepreneurs
\nbecause their loans were too small.<\/p>\n
Lukman M. Baga, a professor at the Social Economics Department
\nat Bogor Agricultural Institute, said small, short term sums paid
\nback on a daily or weekly basis, were difficult for banks'
\nadministrations to deal with.<\/p>\n
He said the much-published "Jimbaran statement" in 1995, in
\nwhich top business people committed themselves to helping small
\nentrepreneurs and other things, reflected the governments'
\npolitical commitment to entrepreneurs with small capital.<\/p>\n
But expecting banks to cater to small businesses was
\nimpossible, he said.<\/p>\n
"The overhead costs would be too high," he said.<\/p>\n
Banks also worry these clients would be difficult to
\nsupervise: that they cannot manage their books well enough, for
\ninstance.<\/p>\n
Lukman said he wasn't sure of BMT's legal basis. "But they
\nhave clearly helped many clients otherwise unable to access
\nbanks."<\/p>\n
"BMT's help the government with unemployment, by training
\npeople with capital of less than Rp 1 million to do business."<\/p>\n
The Ulil Albaab BMT has a unique strategy for monitoring
\nclients: They must attend the monthly religious sessions that are
\nfollowed by evaluations of their businesses.<\/p>\n
Lukman said would be entrepreneurs needed to learn a lot about
\nthe mechanisms, traps and opportunities in business before they
\ncould come up with suitable business plans. Only then would it be
\npossible to expand their investment, he said.<\/p>\n
"BMT's are professionally managed communal-like organizations,
\nproviding funds in a cooperative spirit," Lukman said.<\/p>\n
Iwan Rudi Saktiawan, the manager of BMT Wihdatul Ummah, said
\ncollateral was not a requirement, service was quick and
\nprocedures relatively easy.<\/p>\n
The maximum loan is Rp 1 million but more often loans were
\nabout Rp 250,000.<\/p>\n
Bambang, the BMT bulletin editor, stressed the growth
\npotential of small entrepreneurial businesses.<\/p>\n
"Vegetable vendors, pecel and fried tidbits sellers can rake
\nin a profit of more than 100 percent. They hardly ever suffer
\nlosses."<\/p>\n
But their businesses were slow to grow as owners lacked funds
\nand know-how, Bambang said.<\/p>\n
Iwan said mismanagement and poor productivity were classic
\nproblems.<\/p>\n
"Often they enter what they believe is a profitable business,
\nand it can turn out to be quite the opposite," explained Iwan, a
\nBogor Agricultural Institute drop-out.<\/p>\n
He said many would hold onto their unprofitable businesses,
\nleaving them penniless at the end of their lives.<\/p>\n
"That is when they fall into the clutches of loansharks,
\nhoping a loan will take them out of their dilemma," Iwan said.
\nThis is where the BMTs come in, he said.<\/p>\n
Funds<\/p>\n
The loans come from other people's saving accounts and
\ndeposits. The owners of the first are entitled to a monthly
\nbonus, while those with the second are entitled to profit
\nsharing.<\/p>\n
"Since April 1996 profit sharing dealt out by BMT has started
\nto rival conventional banking interest," Iwan said.<\/p>\n
Jamaluddin, the Ulil Albaab BMT manager, said in less than two
\nyears its assets grew from Rp 850,000 to Rp 124 million.<\/p>\n
In emergencies the small business owners are supported by
\nanother BMT fund -- alms. Moslem teachings say Moslems should
\ngive at least 2.5 percent of their earnings in alms.<\/p>\n
Jamaluddin said savings and alms were collected from city
\npeople in Bogor to be circulated in smaller towns like Jasinga
\nand villages.<\/p>\n
"Money should not only stay in the city," Jamaluddin said.<\/p>\n
The alms, used for scholarships and other public needs, is one
\nattraction of the BMT.<\/p>\n
Three months ago 50 kiosks selling scrap iron at Merdeka
\nMarket in Bogor were gutted by fire.<\/p>\n
Luckily the owners were clients of Wihdatul Ummah BMT, which
\nreleased Rp 1 million to compensate their losses.<\/p>\n
"Banks would not have done that," said Nasir, a scrap iron
\ncollector who is both a BMT and a private bank client.<\/p>",
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