JP/5/RENTEN

People in Batam swimming with the loan sharks

Fadli Batam

Many small-time traders and businesspeople in the Riau provincial city of Batam continue to turn to loan sharks when they need money, even though they know they will be charged exorbitant interest rates.

The rampant practice of usury, known locally as renten, in Batam has been attributed to the complicated bureaucracy at local banks.

Nirmala (not her real name), a housewife, borrowed Rp 2 million (US$210.50) from a loan shark to pay the credit installment on her motorcycle.

"I had to borrow the money from the loan shark despite the high interest rate. I was forced to borrow money from them because if I don't pay the credit installment, my motorcycle will be repossessed by the motorcycle dealer," she said.

She said she turned to a loan shark for money because the process was fast and easy, unlike borrowing money from a bank.

The process of borrowing money from a bank can be confusing and daunting for many people. People are required to provide banks with collateral such as a house or land, and if they are unable to provide such collateral it is likely that their loan application will be rejected.

People also complain about the complicated bureaucracy at banks. They are required to submit loan applications along with certificates, letters of reference and numerous other documents proving that they are able to pay back a loan.

"All of these things keep me from borrowing money from banks. Borrowing money from a loan shark is fast and easy, and we don't need any documents to prove that we are able to pay back the loan," said Nirmala, whose husband is a teacher at a vocational high school in Batam.

The only complaint Nirmala has about loan sharks is that they charge very high interest rates.

With so many people in Batam seeking loans from non-bank sources, numerous loan sharks have swum into Batam and opened businesses. They seek profit from the difference between the money they borrow from the banks and the money they lend to the customers.

Ucok (not his real name) is one of an estimated 200 loan sharks in Batam. Ucok, who lives in the Citra Pendawa Asri housing complex in the Sekupang district, opened his business in the city several years ago.

He calls his business the Savings and Loan Cooperative, which makes it sound more respectable and legal. Ucok said his "cooperative" loaned between Rp 100,000 and Rp 5 million to individual customers.

However, there are several requirements before people can borrow money from him. If a person wants to borrow between Rp 100,000 and Rp 300,000, they do not need to provide collateral. If they borrow between Rp 300,000 and Rp 5 million, they will have to hand over some form of collateral that is at least equal in value to the amount of money they wish to borrow.

"We give the customers the money the same day that they provide us with the collateral," Ucok said.

Ucok employs 10 people, all from his hometown of Balige in North Tapanuli regency, North Sumatra province. The employees actively drum up business among vendors in traditional markets who are desperate for cash.

One of the main concerns for the government is that many of the people who turn to renten for money do not use the cash for their businesses, but rather to make consumer purchases.

The chairman of the Batam Authority, Ismeth Abdullah, acknowledged that renten was rampant in the city, despite government efforts to stop the practice. But he said the government was powerless to stop the practice because there was no law saying renten was illegal.