Savings lottery could help fund small businesses

JAKARTA (JP): Traditional savings lotteries is one alternative to fund small scale entrepreneurs, a speaker in a seminar on small businesses said.

"I don't mean the lottery usually held by housewives, but the same basic method can be used by market traders, for instance," Isono Sadoko said on Wednesday.

Isono, a speaker from Bandung-based Akatiga social research institute, said the traditional savings lottery (arisan) has received scant attention from those seeking ways to enhance small-scale entrepreneurs, "due to the feeling that it has limited space for expansion".

In an arisan group, members save an agreed-upon amount of money regularly for a certain period. A lottery is held at agreed intervals, either weekly or monthly, to determine which member receives the sum collected.

However, on the request of any member with urgent needs a group can decide on giving them the collective savings in turns.

Housewives are the main practitioners of this method, but students and men also form arisan groups. Savings range from Rp 100 to millions of rupiah.

"Arisan is a credit group which actually has potential given its informality and flexibility, particularly for very small businesses..." Isono and another researcher, Erna E. Chotim, wrote in their paper.

With support from a bank to circulate funds the potential of this method can be increased, Isono said.

The seminar which ended yesterday was organized by Akatiga with the Asia Foundation, the National Institute of Sciences and Mitra Usaha Foundation. It focused on businesses with a maximum capital of Rp 50 million.

The earlier session heard various experiences of banking and financial institutions, such as Jakarta-based Mitra Usaha and Paramita Foundation, the Purba Danarta in Semarang and PT Sarana Jabar Ventura in Bandung, in dealing with small businesses.

In their paper Isono and Erna differentiated the needs of capital owners of up to Rp 5 million, Rp 10 million and over Rp 20 million (US$8,400). They cited cases of well-intended assistance to small businesses which ended up in dependence on the helping party.

For instance organized scavengers in Jakarta could previously sell their merchandise to the factory with the most attractive offer.

But since an environmental group tried to provide them access to credit, the junk men are only able to sell recycled material to the factory which acts as their bank guarantor.

"A mutual beneficial dependence can only happen in a competitive market with many alternatives, transparent information on prices and relatively high demand of the product," Isono said.

Economist Thee Kian Wie from the National Institute of Sciences stressed the need to be more selective on the provision of credit for small and medium businesses.

He said the special loans introduced recently by the government still stresses a "welfare approach" instead of an "efficiency approach".

The latest effort of the municipality for small traders is the establishment of a coordinating body for small businesses.

It has set up a few markets to accommodate street traders. This month a new one is to be opened in Palmerah, West Jakarta. (anr)