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Many roadside stall operators in Indonesia have to resort to loans from mobile
banks (bank keliling) as they are unable to obtain formal banking services.
(JG Photo/Fajrin Raharjo) |
A tattooed
man briefly interrupted Wastiri as he ducked into her roadside stall, taking a
seat alongside the slow-moving traffic that crawled down the narrow Tanjung
Priok street. She flashed him a smile as he greeted her, beaming wide and
toothless from her perch atop a worn wooden bench.
Colorful
bags of instant noodles and potato chips lined the walls of Wastiri’s stall — a
tiny plastic-covered shop sandwiched between a ramshackle noodle stand and a
large commercial bank in North Jakarta’s roughhewn portside neighborhood.
For some 40
years this stall has been the source of Wastiri’s livelihood, she explained. In
that time the woman, now more than 80, has become something of an institution.
Customers call her “Emak” (Mother) as they stop by to ask what she has in
stock, peering into her small store as they walk down the street.
The bank
next door hasn’t been as reliable, she said.
“I would
like to borrow from banks, as it is cheaper to do so, but their requirements
are complicated,” she complained. “They ask me for an identification card
[which I have], but I do not have a family card or the deed to my home for
collateral. I don’t own the place.”
For
Wastiri, and millions of other low-income Indonesians, the nation’s commercial
banking system is a closed door. While lenders like Bank Rakyat Indonesia offer
low-cost microloans, lending regulations — which require customers to have proof
of a permanent job, income and collateral — shut out the majority of
Indonesia’s laborers.
It’s a
large segment of the domestic market. Despite Indonesia’s rising middle class,
nearly half of the country’s households live at, or close to, the government’s
$22-a-month poverty line, according to World Bank statistics. Some 92 percent
of Indonesia’s workforce is employed in the informal sector. Most hold
semi-permanent jobs but lack an employment contract.
Commercial
lenders and microfinance cooperatives have tried to meet the demand, but a
combination of strict regulations and too-high thresholds have hampered efforts
and given rise to a murky black-market of motorcycle-riding lenders and
unscrupulous loan sharks.
The lenders
offer loans at high interest rates — nearly 20 percent higher than bank rates —
and often collect daily payments from customers. The requirements are loose and
the lenders are eager to approach customers, said Wastiri.
“Bank
keliling [mobile banks] are more suitable for us,” she said. “Thought they ask
for daily or weekly payments, it is easier for us to borrow money from them — I
personally don’t even have to give them my identification card.”
Experts
have struggled to estimate the real size of the informal market, but from their
best estimates it appears to be growing.
“We can
expect to see an increase in the number of non-bank microfinance institutions
because the non-bankable segment is huge and it is very difficult for the poor
to access banks,” said Dewi Meisari, an expert in micro-, small- and medium-
sized enterprises at the University of Indonesia (UI).
The
Ministry of Micro, Small and Middle Enterprises recorded 55 million MSMEs in
2011 and reported a loan-to-GDP ratio of 33.1 percent in a survey a year later.
Some two-thirds of the MSMEs in Indonesia have no access to formal banking
services, the ministry found, warning that the lack of access was a threat to
Indonesia’s economic growth.
“The lower
income population has little or no options when they borrow money,” Dewi said.
Growth
potential
Indonesia’s
microfinance market can be lucrative if properly tapped, experts believe. MSMEs
account for 57 percent of the nation’s
gross domestic product, Bank Indonesia (BI) Deputy Governor Halim Alamsyah said
during a seminar last June. While MSMEs have historically borrowed outside the
formal market, the number of micro business owners receiving commercial loans
has grown in the last year, Firman Moeis, head of commercial linkage at CIMB
Niaga, added.
“The micro
finance market in Indonesia has great potential for growth,” he said. Out of
the 56 million MSME owners in Indonesia, only 37 percent of them receive micro
banking services. [But] as of February 2013, the MSME industry had an
outstanding loan value of Rp. 514.5 trillion — a 14.6 percent jump from last
year’s numbers.”
Firman
believes the nation’s economic growth is anchored by micro businesses like
Wastiri’s food stall. During the Asian economic crisis, the owners of small and
mirco businesses emerged unscathed, he said.
“The 1998
crisis negatively impacted big companies, but small-medium businesses thrived,”
Firman explained. Today, the economic downturn isn’t as drastic; furthermore,
the small-medium businesses are fundamentally sound, so I am certain this
situation will leave little or no impact on the microfinance industry.”
While large
companies saw their balance sheets reverse into the red, the nation’s informal
sector — cigarette sellers, stall owners and street food cart operators —
continued to earn a living, said Leonardus Kamilius, founder of Koperasi Kasih
Indonesia, a microfinance institution operating in Cilincing, North Jakarta.
“In the
1998 crisis, the companies that were battered by the crisis were the big
companies who owed US dollars. For small enterprises, their economies are not
as related to the global economy and hence, they are more resilient,” he told
the Jakarta Globe.
Financial
literacy still a problem
For Said
Hendro, access to microloans has been both a blessing and a curse. It’s
tempting to borrow too much, he said, adding that many of his friends found
themselves neck-deep in debt after taking money from both microfinance
cooperatives and mobile banks.
“Many of my
friends around here have gone back to their villages as their businesses have gone
bankrupt,” Said shared. “They borrow from all these mobile banks and they can’t
repay their debt.
“I
understand their predicament completely because these people come by everyday
offering loans and it is hard to say no. Even though I have loans from both
official cooperatives and the mobile banks, I am still tempted to borrow more.”
Experts
warn that the lack of financial literacy among low-income residents could
undermine out any gains made by offering poor people access to financial
services. Borrowers need access to both commercial loans and education for
Indonesia’s microcredit industry to make a positive impact, experts said.
“Most
people in the low-income population cannot comprehend the whole notion of
interest rates — the way the process of borrowing is explained to them is by
telling them how much they need to pay in installments per week,” Dewi
explained.
Leonardus echoed Dewi’s sentiment.
“People who
can afford loans of 5 million rupiah and above, they generally already know how
to manage their money and do not require further financial education,” he said.
“However, for smaller loans like 500,000 rupiah loans for a banana fritter
[pisang goreng] seller, he does not know how to manage his money and will
benefit greatly from financial education.”
