Poverty eradication through bank loan, not charity

Sari P. Setiogi The Jakarta Post/Jakarta

The government's offer to provide credit for the needy to help them run their own businesses and emerge from poverty looks too good to be true.

A string of requirements have been set only to make it elusive for those who badly need the government loans, who would otherwise turn to loan sharks.

"I was rejected a couple of times by a state bank when I wanted to borrow money to start an enterprise," Leli Yulifar told The Jakarta Post on Saturday.

"The bank asked for collateral under my husband's name which we did not have," she recalled. The tiny woman said she was the breadwinner in her family as her husband was unemployed.

She then went to a loan shark, who demanded nothing but a high interest rate.

Leli opened her garment home industry under name Nabilla Collection. She now has a showroom, workshop and several counters.

Another would-be small-scale entrepreneur, M. Yahya from Malang, East Java, had his loan application approved by a state bank, allowing him to start a leather business.

However, after about two years, his business collapsed. "I had neither experience nor market understanding," he told the Post.

Instead of enjoying profits, Yahya now owes money to cover his debt.

Leli and Yahya are good examples of past mistakes in the government program to boost small and medium enterprises (SMEs) through a link with banks.

Working hand-on-hand with the four state banks: Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN), the government has made changes to the scheme, including the credit ceiling which has been increased to Rp 50 million (US$5,494) from a previous Rp 5 million.

The four banks have pledged to provide Rp 2 trillion throughout the year, but only one tenth of it has been disbursed so far.

Loans will be provided in particular for SMEs in agriculture, plantation and fisheries.

Secretary of the Poverty Eradication Commission Gunawan Sumodiningrat said on Friday the government set the maximum interest at 24 percent per annum.

"The interest rate is far lower than that offered by loan- sharks of between 36 percent and 48 percent," said Gunawan.

State Minister of Cooperatives and SMEs Suryadharma Ali identified several problems facing the poor in dealing with banks.

"First is the high interest. Second, the poor lack access to the bank as perhaps they do not have proper collateral," he said.

"That is why we will cooperate with the state banks which are expected to set easier requirements on collateral. We will also make it easier for people to obtain land ownership certificates, so they could use it as collateral (in the bank)," said Suryadharma.

Under the new scheme, the SMEs have to work with a cooperative and a consultant from a non-governmental organization.

"The consultant will help the SME obtain bank loans as well as keep the enterprise on track and productive, while the cooperative will deal with marketing," said Gunawan.

The three will share the burden of unpaid debts.

Some 36.1 million of the country's population are considered poor or earn less than $2 a day.

Gunawan said the government had set a target of reducing the number of poor people to 32 million in 2005.

"It should be understood that eradicating poverty does not mean charity. The new government is committed to fighting poverty and transforming the poor into productive and independent people," said Suryadharma.