Supporting Micro Enterprises Through Group Lending

In the last 17 years, pioneered by pro-poor Grameen Bank in Bangladesh, group lending for poor people is becoming popular. In Indonesia, group lending is carried out in several institutions including cooperatives and BPRs (peoples credit bank). Targeting Women, Eradicating Poverty Group lending is a credit disbursed to a group whose members live in the same neighbourhood. The main goal is to eradicate poverty. Women are usually the main target because they are considered more careful and responsible in utilizing loans than men. One of the BPRs which has been successfuly applying group lending for women is BPR Artha Nusa Sembada (ANS) Group, through a product named Kredit Kartini Mandiri (KKM). KKM is a work capital credit with the ceiling between Rp 500,000 and Rp 1 million for women of less prosperous families. Presently, 7 out of 14 BPRs within the group have initiated KKM since early 2008. The number of KKM clients reached 10,126 people with the total ceiling of Rp 7.958 billion. BPR Kebo Mas in Gresik and BPR Artha Kencana in Madiun, East Java, also have group lending product targeting on women. The number of Kebo Mas group lending clients has reached 243 groups with 12 members in each. The portofolio of the Kebo Mas group lending is around Rp 6 billion for a total of 2,942 clients. Meanwhile, BPR Artha Kencanas group lending product, Kusuma, is targeting housewives. At present, there are 54 groups with 1,353 active rural clients. About 5% of the BPR Artha Kencana income comes from the group lending, with the portofolio reaching Rp 1 billion.

Maruli Tua Pakpahan (left), an account officer for group lending product Kusuma from BPR Bumi Asih NBP 30, takes notes while collecting loan installment during a monthly group meeting at the group leaders house in Ciwidey, Bandung regency , West Java. Some members of Bina Karya 2 group develop strawberry themed handicrafts business using loans from group lending product. (Photo: SS)

Getting rid of loan sharks Before being introduced to group lending, low income people used to rely on loan sharks who offered express funds, often without collateral, but with very high loan interest. Widyawati (43) once experienced dealing with a loan shark. The installment payment was hard. The loan eventually could not be used for business but for household needs, she recalled. Fortunately, in the last four years, Widyawati has become a client of Kusuma group lending with the ceiling of Rp 1 million from BPR Bumi Asih NBP 30 in Ciwidey, Bandung, West Java. The Taurus Group which she leads now has 8 members. Before she became Kusumas client, Widyawati was a vegetables seller. Thanks to the group lending, she and her husband has initiated their own farming business. My first round loan was used to buy fertilizers, she said. Now, the couple has become strawberry farmers, able to produce up to 30 kilos every week. Like Widyawati, Tintin Mulyati (39) was once forced to lend money from a loan shark. When one of her children got a fever, she had to borrow Rp 300,000 for medicines. Titin had to pay Rp 9,000 in installments for 60 days in a row, meaning that the total of loan interest she had to pay was 80%.

Titin who sells chicken porridge eventually decided to become a client of Kenari (Kredit Wanita Berdikari) product from NBP 30 because she needed additional business capital. Now, beside chicken porridge, Titin also sells yellow-turmeric rice. After she paid off the second-round loan, she decided not to take further credit as she feels her business has been quite independent and she does not want to continue lending. However, she has been for a few months become a Pundi savings holder in the same BPR. The saving balance is still below Rp 1 million. I always try to save some of my income everyday, which I can withdraw at any time when there is a need for my childrens education, said the mother of two children. The transition from a borrower into a saver can definitely become the indicator of improved financial status of an individual; moreover, when the person can successfully get rid of a loan shark and has a profitable independent business. If group lending increasingly wins a fame, of course more Indonesian women will be supported, like Widyawati and Titin. (SS/CKM)

PAC NEWSLETTER Edition 03 | May 2010