Vendors benefit from non-bank loans

Vendors benefit from non-bank loans

By Joko Sarwono

The government has created a number of credit schemes for
small business owners. But while banks were still stumbling along
in their catering for small loans, Moslem businessmen in 1992
set up a non-banking institution, the Baitul Maal wat Tamwiil,
reportedly inspired by Bangladesh's Grameen Banks for the poor.
They spread rapidly and in 1995 were launched as a national
program by President Soeharto. This story looks at a few BMT and
their clients in Bogor.

BOGOR (JP): Muhidin, who sells frying pans on Jl. Raya Gadog,
once applied for a loan at the government-owned Bank Rakyat
Indonesia. He had heard banks had begun offering loans to tiny
entrepreneurs like himself. He decided to borrow Rp 500,000.

But the credit officer at the Bank in Semplak, Bogor, said
although the Bank could give such a small loan, Muhidin's
business was some 20 kilometers, too far away for them to conduct
an initial survey.

Also, the officer said, Muhidin did not have a business
license.

Luckily Muhidin got in touch with a financial institution set
up in March 1995, the Ulil Albaab Baitul Maal wat Tamwiil (BMT)
at the Ibnu Khaldun University campus, Jl. Baru-Kedung Badak
kilometer two.

A BMT is a non-bank loan provider, based on Islamic
principles, which does not charge interest on loans. Debtors
share their profits with the institution instead of paying
interest, as the main principle is profit-sharing.

BMT are now part of Bank Indonesia's community development
program.

Muhidin passed the loans officer's strict assessment --
honesty and good business prospects -- and now has had four loans
from the institution.

"Before getting a BMT loan, I was only selling five types of
frying pans. Now I am selling 10 varieties," said Muhidin. He
borrowed sums of Rp 150,000 to Rp 250,000.

"Before the loan it was hard to make ends meet. Now I can save
a little," Muhidin said.

But business is currently slow, he said. His wife cried when
she first saw The Jakarta Post reporter, thinking a BMT employee
had come to collect debts.

Nana Sukarna, a shoe seller in Taman Topi, the Hat Park, was
another vendor grateful for BMT's presence.

Nana said he used to buy only 40 pairs of shoes to sell before
securing a loan of Rp 750,000 from the BMT.

"Nowadays I can buy four to five 100 pairs," Nana said.

He said his daily earnings had increased from Rp 20,000 to Rp
30,000.

Reluctant

Bambang Wijanarko, a publisher of a BMT bulletin, said
conventional banks were reluctant to serve small entrepreneurs
because their loans were too small.

Lukman M. Baga, a professor at the Social Economics Department
at Bogor Agricultural Institute, said small, short term sums paid
back on a daily or weekly basis, were difficult for banks'
administrations to deal with.

He said the much-published "Jimbaran statement" in 1995, in
which top business people committed themselves to helping small
entrepreneurs and other things, reflected the governments'
political commitment to entrepreneurs with small capital.

But expecting banks to cater to small businesses was
impossible, he said.

"The overhead costs would be too high," he said.

Banks also worry these clients would be difficult to
supervise: that they cannot manage their books well enough, for
instance.

Lukman said he wasn't sure of BMT's legal basis. "But they
have clearly helped many clients otherwise unable to access
banks."

"BMT's help the government with unemployment, by training
people with capital of less than Rp 1 million to do business."

The Ulil Albaab BMT has a unique strategy for monitoring
clients: They must attend the monthly religious sessions that are
followed by evaluations of their businesses.

Lukman said would be entrepreneurs needed to learn a lot about
the mechanisms, traps and opportunities in business before they
could come up with suitable business plans. Only then would it be
possible to expand their investment, he said.

"BMT's are professionally managed communal-like organizations,
providing funds in a cooperative spirit," Lukman said.

Iwan Rudi Saktiawan, the manager of BMT Wihdatul Ummah, said
collateral was not a requirement, service was quick and
procedures relatively easy.

The maximum loan is Rp 1 million but more often loans were
about Rp 250,000.

Bambang, the BMT bulletin editor, stressed the growth
potential of small entrepreneurial businesses.

"Vegetable vendors, pecel and fried tidbits sellers can rake
in a profit of more than 100 percent. They hardly ever suffer
losses."

But their businesses were slow to grow as owners lacked funds
and know-how, Bambang said.

Iwan said mismanagement and poor productivity were classic
problems.

"Often they enter what they believe is a profitable business,
and it can turn out to be quite the opposite," explained Iwan, a
Bogor Agricultural Institute drop-out.

He said many would hold onto their unprofitable businesses,
leaving them penniless at the end of their lives.

"That is when they fall into the clutches of loansharks,
hoping a loan will take them out of their dilemma," Iwan said.
This is where the BMTs come in, he said.

Funds

The loans come from other people's saving accounts and
deposits. The owners of the first are entitled to a monthly
bonus, while those with the second are entitled to profit
sharing.

"Since April 1996 profit sharing dealt out by BMT has started
to rival conventional banking interest," Iwan said.

Jamaluddin, the Ulil Albaab BMT manager, said in less than two
years its assets grew from Rp 850,000 to Rp 124 million.

In emergencies the small business owners are supported by
another BMT fund -- alms. Moslem teachings say Moslems should
give at least 2.5 percent of their earnings in alms.

Jamaluddin said savings and alms were collected from city
people in Bogor to be circulated in smaller towns like Jasinga
and villages.

"Money should not only stay in the city," Jamaluddin said.

The alms, used for scholarships and other public needs, is one
attraction of the BMT.

Three months ago 50 kiosks selling scrap iron at Merdeka
Market in Bogor were gutted by fire.

Luckily the owners were clients of Wihdatul Ummah BMT, which
released Rp 1 million to compensate their losses.

"Banks would not have done that," said Nasir, a scrap iron
collector who is both a BMT and a private bank client.