Mon, 01 Dec 2003

State pawnshop expands to east Indonesia

Sandy Darmosumarto, The Jakarta Post, Jakarta

The lack of financial institutions in the eastern part of Indonesia is the main reason for the state-owned pawnshop company Perum Pegadaian to further expand operations in the region, where Islamic-based pawnshop activities have been on the rise.

According to Deddy Kusdedi, director of Pegadaian, it has been the company's policy to expand operations into regions outside Java, especially to eastern islands where there is scarce availability of modern financial institutions that cater to micro-financing.

"We will commit Rp 500 billion (US$35.27 million) for the expansion of our operations in 2004. Out of the fund, Rp 300 billion will be used for expansion outside Java, and the remaining Rp 200 billion for expansion within Java," Deddy told The Jakarta Post in a recent interview.

"Potential markets in Kalimantan are located in Balikpapan, Samarinda, Banjarmasin and Pontianak. Within Sulawesi, Manado and its surroundings are highly regarded," said Deddy.

In Java, potential markets are located in big cities where Pegadaian is already widely presented. "The market in Java is already saturated due to the presence of many banks," he commented.

The company has previously closed down its Ambon, Poso and Aceh branches due to rioting and wars in those areas. But it aims to resume full operations in the lucrative markets of Ambon and Aceh.

In addition, Deddy said the company was targeting East and West Nusa Tenggara, as well as Timika in Papua.

Another lucrative location is Bitung in North Sulawesi, where the presence of a seaport involving export activities helps push up Pegadaian's credit extension to some Rp 55 billion each year.

Pegadaian has secured government loans to help finance its expansion program.

In terms of market competition, the state-owned pawnshop has been facing challenges from Islamic-based pawnshops that only accept gold as loan collateral. "This runs counter to Government Regulation No.103/2002, which allows only Pegadaian to engage in the pawnshop business," said Deddy.

The contradiction is possible because there are now two authorities regulating the pawnshop business, the Ministry of Finance and the central bank through the banking law. Sharia (Islamic) pawnshops are regulated by the banking law, while conventional pawnshops are regulated by the ministry.

In light of this market threat, Pegadaian has joined forces with Bank Muamalat to engage in sharia pawnshop activities. "This year, we will convert 16 branches of Pegadaian across the nation to sharia pawnshops. They include branches in Jakarta, Makassar, Madura, Batam, Semarang, Banda Aceh, Surakarta, Yogyakarta, Kuala Simpang, Langsa and Lhokseumawe," said president of the bank A. Riawan Amin.

"So far, we have invested Rp 30 billion in this joint project, and will not hesitate to continue investing. There will be 100 more sharia pawnshops opening in the next three years," Riawan told the Post. "Profit sharing is expected to be equally distributed."

Pegadaian employs 6,845 workers nationwide. The firm aims to channel Rp 11 trillion to its customers next year.

Despite plans to expand operations, the company claims that it will not hire additional workers because it practices a zero- growth policy in labor and chooses to outsource many of its units.