40% of city's microcredit turns into bad debts

Damar Harsanto, The Jakarta Post, Jakarta

The City Audit Agency revealed on Tuesday that about 40 percent of the total Rp 21.5 billion (US$2.3 million) in revolving funds disbursed to small businesses from 2002 to 2004 had turned into bad debts.

The Rp 8.6 billion of non-performing funds were part of the larger Subdistrict Residents Empowerment Scheme (PPMK) in West Jakarta.

"The reasons for non-payment vary in each subdistrict. Some creditors have problems with their business; others are just unwilling to pay the money back," agency head Firman Hutajulu said.

He added that in some cases, it would be impossible for the administration to recoup the funds since some creditors had passed away or moved out of the area.

The agency had requested the help of 56 subdistrict heads in the municipality to pursue the bad debtors and to carry out in- depth evaluations on creditors who were seeking rescheduling.

Firman said the agency had reported alleged embezzlement cases implicating several subdistrict councils (Dekel) to the police but he would not say which local bodies were involved.

However, West Jakarta Police chief Sr. Comr. Suhardi Alius confirmed his office had received a report detailing alleged corruption in the local municipality and was investigating the case.

West Jakarta has received a total of Rp 84 billion in funds for a variety of projects under the scheme from 2002 to 2004.

The PPMK was initially launched in 2001 in 25 subdistricts, each receiving Rp 2 billion in funds. The program was then expanded to all 267 subdistricts in the city in 2002 with each subdistrict receiving Rp 250 million. The administration gradually increased the fund per subdistrict to Rp 500 million in 2003 and Rp 750 million in 2004.

This year, the administration allocated nearly Rp 1 billion to each subdistrict in a bid to empower local communities, especially small entrepreneurs.

Problems with the implementation of the program had surfaced in many other municipalities, local officials said.

East Jakarta community empowerment board (BPM) acting head Endjang Abdullah said the city had lent Rp 14.775 billion to 20,173 creditors last year.

"Unfortunately, about Rp 2.93 billion of this has turned non- performing since many residents still misinterpret the program as a grant, while other subdistrict councils have failed to channel the funds in accordance with a priority scale made based on the needs of the respective communities," he said.

In 2003, two members of the subdistrict council (Dekel) in Serdang, Kemayoran district, who were in charge of channeling the fund, were sent to jail for misusing Rp 700 million of the fund.

Despite irregularities in the implementation of the scheme, Jakarta Governor Sutiyoso insisted on maintaining the program.

"The benefit of the revolving funds is that residents get easy access to fresh cash to develop their businesses.

"However, we will continue to pursue irregularities in the program and revise regulations to prevent those irregularities from repeating," he said.

PPMK fund in 2005

Area subdistricts fund allocation

C.Jakarta 44 Rp 43.78 billion
N.Jakarta 31 Rp 33.98 billion
W.Jakarta 56 Rp 55.29 billion
S.Jakarta 65 Rp 63.03 billion
E.Jakarta 65 Rp 64.92 billion
Thousand Islands 6 Rp 6 billion

Total Rp 267 billion

Source: Jakarta Community Empowerment Board