NGOs seek funds to help small entrepreneurs
Leony Aurora, The Jakarta Post, Jakarta
In an effort to accelerate microcredit growth, the Indonesian Movement for Microfinance Development (Gema PKM Indonesia) plans to establish an independent institution to mobilize funds to be channeled to cash-starved small businesses.
Titus Kurniadi, who has been tasked with setting up the institution, told reporters on Tuesday that many non-bank microfinance institutions had encountered problems in obtaining funds, as banks, following prudential banking principles, refused to lend them money in the absence of collateral.
This lack of funds made it difficult for these non-bank microfinancers, generally non-governmental organizations (NGOs), to expand their coverage areas and reach more people in need.
"We need a wholesaler to collect the funds and channel them (to microcredit institutions)," said Titus.
Under the plan, donors will pledge 20 percent of the amount to be borrowed by a wholesaler as collateral. For example, the donors place US$1 million with a bank and the bank, in turn, entrusts the wholesaler with a $5 million loan.
"This is based on our experience that the non-performing loans of micro businesses never exceed 20 percent," said Gema PKM secretary-general Bambang Ismawan.
In fact, he added, the average recovery rate for the loans extended by the NGOs was as high as 97 percent. By comparison, data from Bank Indonesia showed that the credit recovery rate in banks stood at 92.7 percent in July.
Gema PKM, which was established in 2000 with members drawn from various stakeholders involved in microcredit development, aims to have the wholesaler up and running by the middle of next year.
"We are approaching Permodalan Nasional Madani (PNM) and Bank Mandiri to give us the loans," said Bambang, referring to a state-owned investment firm and bank.
Micro businesses have come to be viewed in a better light after having proved themselves capable of weathering the economic crisis in 1998. However, data collected by Gema PKM from various sources show that only 9.46 million units, or 23 percent of the existing 41.8 million micro enterprises, have received loans from formal institutions.
Microcredits are defined by the central bank as loans of under Rp 50 million (US$5,385).
"There are very poor, poor, low-, middle-, and high-income micro enterprises," said Titus. The village units of Bank Rakyat Indonesia (BRI) and credit banks (BPR), seen as the frontline institutions in channeling microcredits, mostly cover the upper levels with loans of more than Rp 3 million.
In the meantime, the very poor entrepreneurs, for whom a Rp 300,000 loan would be enough, remain beyond the reach of banks. "The wholesaler will focus on the poor micro enterprises," Titus said.
In 1989, the central bank made an effort to connect banks and NGOs. Banks provided loans, which were channeled by the NGOs at a slightly higher interest rate. The interest margin enabled the non-bank institutions to cover operating costs, including hiring supervisors.
This collaborative venture was pioneered in five provinces and continued to develop until the economic crisis, which put a halt to the program.
The year 2005 has been declared the International Year of Microcredit by the United Nations in acknowledgement of the important role played by such loans in alleviating poverty.
According to government figures quoted by Gema PKM, there are about 42.5 million business units spread across the archipelago. Of this figure, 98.5 percent, or 41.8 million, are micro enterprises. There are also 650,000 small and medium enterprises and 2,000 large ones.