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.