Moderator’s Note: Dear members, we are proudly posting the Consolidated Reply (CR) of the Third Query on Agriculture-based Smallholders Financing. We really thank members for sharing their valuable knowledge and experiences. We hope this forum gives significant impacts to Indonesian development, particularly to promote the provision of valuable solutions for issues in Economic Development sector. Best regards, Thamrin Simanjuntak
Solution Exchange for the Economic Development Community
Consolidated Reply
Query: Agriculture-based Smallholders Financing-Experiences
Compiled by Thamrin Simanjuntak, Moderator and Dewi Gayatri, Research Assistant
Issue Date: 25 February 2009
From Indra Perwiryanto, Aceh Partnerships for Economic Development (APED) – UNDP, Banda Aceh, Indonesia
Posted 14 January 2009
Dear Members,
For the last two years I have been working with the APED Project (Aceh Partnership for Economic Development) and our activities are aimed at developing Aceh’s best known commodities - coffee, cocoa, rubber, livestock and fresh water fish.
During my daily field visits, I come across farming smallholders facing difficulties in getting loans from banks. Loans for land preparation, seed, fertilizer, maintenance and post harvesting are very much needed, but these do not have to come tied with undesirable “tricky” agreements with local trading companies.
I have had discussions with colleagues from the banking sector, but they see agriculture as a risky business, with unpredictable harvest, and they worry about the absence of qualified collateral. In my discussions with microfinance activists, they admit to facing problems with their funding sources who prefer to provide loans to the trading sector.
In the context of the above, I have the following questions for members:
· Are members aware of any financial institutions, and microfinance institutions in particular, providing useful service to agriculture-based business, and their experience? Is there scope for increasing lending to this sector?
· Have there been any other approaches that have succeeded in resolving small holders’ financial problems in their agriculture based programmes?
Hopefully, with inputs from our colleagues, our commodities development programme in Aceh will be more successful.
Responses were received, with thanks, from
1. Candra Nugrahanto, International Organization for Migration (IOM), Yogyakarta , Indonesia
2. Muhammad Ridwan, Agribusiness Market and Support Activity (AMARTA), Jakarta , Indonesia
3. Indrajit Indra, Microfinance Innovation Center for Resources and Alternatives (MICRA), Jakarta, Indonesia
4. Basyuni, International Development Law Organization (IDLO), Banda Aceh , Indonesia
5. Job Charles, International Organization for Migration (IOM), Banda Aceh , Indonesia
6. Hiswaty Hafid, Agribusiness Market and Support Activity (AMARTA), Makassar , Indonesia
7. Achyar Rasyidi, YDP Project, CARE International Indonesia , Banda Aceh , Indonesia
8. Kusdijono, Catholic Relief Services (CRS), Jakarta , Indonesia
9. Edi Timbul Hardiyanto, Valuindo Utama, Jakarta , Indonesia
10. Margaretha Ari Widowati, Bina Insan Sejahtera Mandiri (BISMA), Jakarta , Indonesia
11. S.M. Ahsan Habib, Grameen Foundation, Banda Aceh , Indonesia
12. Wawan Setiawan, Foundation for Noble Work (Yayasan Usaha Mulia), Banda Aceh , Indonesia
13. Idham Edo, Consultant, Banda Aceh , Indonesia
14. Syardan Jalil, DDR-Post Conflict Community, International Organization of Migration (IOM), Langsa, Nanggroe Aceh Darussalam , Indonesia
15. Dirk Lebe, Icon Institute, Banda Aceh , Indonesia
16. Iwan Saktiawan, Handicap International, Banda Aceh , Indonesia
17. Handy Pardjoko, Ohama Indonesia Group, Jakarta , Indonesia
Summary of Responses
Members responded to the query which sought to know about financial institutions, particularly microfinance institutions, that provide service to agri-business, their experience, scope for increasing lending and other approaches than micro financing that have been successful.
Referring to several types of financial services for agriculture sector provided and managed by government and private sector organizations at the national, provincial, district and village level in Indonesia, respondent wrote about the state-owned bank Bank Syariah Mandiri, BPR a local district level bank BPRS Baiturrahman and the Cooperative such as Cooperative Amanah Tani, Baitul Qiradh Abu Indrapuri. They also wrote about such as Yamida and YKBS, which working in conjunction with the Grameen Foundation providing support to financial services programmes or agri-businesses activities. Members explained that there were international organizations and monetary funds working on these issues;
- Providing technical assistance, access to credit and financing support (MercyCorps, MICRA, WVI, ADB, IFC)
- Facilitating improvement of agricultural products (CARE International, AMARTA, APED)
- Providing insurance services as guarantors (BASIX, MIA)
By way of providing useful information about credit schemes, interest rates etc, respondents wrote about several government credit schemes and their details, which are managed by the Department of Agriculture or which work in collaboration with state owned banks and insurance companies. They inter alia supplied detailed information about loan types, interest rates, procedures, credit conditions etc from Kredit Usaha Tani (KUT), Kredit Koperasi Primer (KKP), Pembinaan Peningkatan Pendapatan Petani-Nelayan Kecil (P4K), Pengembangan Usaha Agribisnis Pedesaan (PUAP) and Lembaga Penjamin Kredit Daerah (LPKD).
Sharing experience of working in collaboration with BPR/Syariah and Cooperative on a Save and Loan programme for farmers in Aceh, members mentioned some areas for improvement were identified while implementing the programme. These are the need to redesign the products to better accommodate farmers, and to have accounts officer specialized in agricultural analysis. Members also highlighted other experiences, notably one where a cooperative in another province, provided farming inputs and obtained the right to buy the future harvest. (Money lenders in villages have also, at times, resorted to this method). This cooperative became a major rice supplier for islands in the province of East Nusa Tenggara . Members gave an example of a feasibility study of silk farmers to point towards the need to improve skills of account officers to assess customers client’s business.
Respondents also highlighted ways of assisting farmers in Aceh through the provision of financial services. They noted that in addition to the farmers being served in groups (loan to groups), agricultural business could be in-partnered with other small businesses such as poultry, small shops and snack productions that could provide supplemental income on a daily basis. This would also enable the agri-business to fulfill their weekly loan repayment requirement, they noted. In support of this contention, members highlighted that such a programme formed about 20% the Grameen Foundation’s total portfolio. They also gave the example of the practice of polyculture (mixing of quick and slow yielding commodities) from Babelan area in West Java province.
Emphasizing the benefit of joint efforts, they wrote about an experience from Japan where all the stakeholders, including agri-businesses, banks, educational institutions, farmers’ cooperatives and government, have worked together for financing, marketing and stabilizing prices to establish a strong agriculture industry. Members also articulated the need to optimize the role of existing regional credit guarantors like LPKD, and explored initiatives to involve insurance companies covering weather index based or rainfall based insurances. Another option, they said, was to attract more financing options for farmers i.e. microinsurance which are now actively explored by NGOs and financing institutions, such as CARE International, MercyCorps, IFC.
Respondents underlined some peculiar characteristics of the agriculture sector that effect loan approval such as varying cultivating duration of different corps, and factors that affect income from harvest such as weather, natural disasters and pests that present a high risk of production failure. They highlighted other risks of agriculture sector such as lack of identified market, and not very clear demand and supply causing fluctuation in prices and underscored the impact of market chain or supply chain on prices. To overcome these risks and constraining factors, members suggested providing training on improving quality and post-harvest products. They also supported the establishment of a center which facilitates purchases, and collaborates with local vendors to adopt a transparent system. These actions, they averred, could help stabilize prices and maintain the quality of products.
Members described experience of the steps of facilitating farmers groups successfully and inter alia provided some steps that could be taken as suggestions to strengthen and support financial services for agriculture business:
- Develop the financial institution which is presently available, conduct assessment to review the financial capacity of MFI and commitment of the personnel.
- Another option is to create a specific unit or a cooperative which utilizes members’ funds for agriculture sector only.
- Provide technical assistance to stakeholders and strengthen farmers’ capacity.
- Rehabilitate infrastructure and facilities, such as transportation, market and trade center.
- Apply group approach to integrate the marketing function – i.e. connect farmer groups to agri-business companies and market players, develop centers of purchasing, conduct savings and loan activities.
In a nutshell, members provided experiences of successful financial programmes that provide services to agriculture sector and shared useful ideas that could help improve the products and maintain financial infrastructure for profitable and sustainable agri-business.
Comparative Experiences
Nanggroe Aceh Darussalam
Combining Cultivation Business with other business (from S.M. Ahsan Habib, Grameen Foundation, Banda Aceh , Indonesia )
Grameen Foundation found that weekly repayment systems in loan disbursements were unsuited to agricultural business given the long gestation periods. They overcame this problem and continued to finance agriculture by combining it with other small businesses in the same loan proposal such as small shops, poultry, cake or snack production which earns daily income. This forms 20% of the Foundation’s portfolio with all their clients repaying on schedule.
From Muhammad Ridwan, Agribusiness Market and Support Activity, Jakarta , Indonesia )
Nanggroe Aceh Darussalam
Design Products to Accommodate Agriculture Finance Scheme
In 2005-2007, MercyCorps project collaborated with four BPR/s targeting labour intensive businesses providing loans to trading businesses with high turnover. By end of 2006, the same strategy was applied to agriculture sector, and came across some obstacles which the project is trying to overcome-risks of bad debts, need to redesign the products to suit agricultural finance scheme and need for an account officer specialized with agricultural analysis skills.
East Nusa Tenggara
Transparent Transaction Benefits Trade Growth, Kupang
MecyCorps along with a Cooperative implemented an approach, where the cooperative provides farming materials required by its members and enjoys rights to buy future harvest by making transparent, prices of material inputs and selling. This thus enabled farmers to obtain high quality farming materials, guidance and coaching. This Cooperative thereby gains the attention of banks and also benefits from trading rice and becoming a major supplier for islands around Timor .
Babelan, West Java
Balancing Cashflows through the Polyculture Approach from Handy Pardjoko, Ohama Indonesia Group, Jakarta , Indonesia )
To overcome the problem of gaps in cash inflows and outflows of traditional farming or fishery practice, Ohama Indonesia Group developed cash flow based fisheries, which balances cash flows and incorporates this into business practice. The application of polyculture, mixing commodities in one farming or fishing location balances quick yielding with slow return commodities. This helped address poverty of 300 shrimp pond fishermen in Babelan, Bekasi area. Read more.
South Sulawesi
(from Hiswaty Hafid, Agribusiness Market and Support Activity, Makassar , Indonesia )
Training Center to Improve Product Quality
To improve product quality and post-harvest products and to fulfill the standard of quality required by exporters, the AMARTA programme provided training to farmers. They trained farmers to produce fertilizers, particularly organic fertilizers. This encouraged farmers to sell good quality products and partners to purchase products for a reasonable. In instances of a shortage of fertilizer, partners assisted in providing it.
Market Center to Promote Transparent Transaction
Besides problems associated with production, farmers also face quality and market access problems which have adverse economic impacts. AMARTA recommended partners to develop a center which facilitates purchases or establish an exporters association at the district level. In case of high costs, partners collaborated with local vendors in the district. This resulted in the adoption of transparent purchasing system using receipts and based on quality evaluations.
Suka Mulya, Sare, Aceh Besar
Groups Financing Growth (from Achyar Rasyidi, YDP Project, CARE International Indonesia , Banda Aceh , Indonesia )
Farmers group have been developed two years ago managing saving and loans. CARE facilitated the establishment of this saving and loans group which only had 12 members in the beginning. There are now 30 members and the group’s assets total Rp 35,000,000.- There are many other farmers who would like to join this group, but the group is quite selective, they want members who have certain skills and are responsible so as to ensure loans from the group’s fund will be used sensibly.
Related Resources
Recommended Documentation
From Candra Nugrahanto, IOM, Yogyakarta , Indonesia .
Strengthening BPRs as Community Banks to Increase Local Access to Finance
Document; by Detlev Holloh; ProFI; July 2007; English version available at
http://www.profi.or.id/index.php?option=com_content&task=view&id=98&Itemid=82 (PDF, Size: 207 KB)
Provides details of BPR’ history, definition, government policies, strategic objectives and instruments, regulatory issues and possible actions that govern the microfinance sector
Government Indonesia Law of Cooperative No. 25
Regulation; Government of Indonesia; 1992; Bahasa Indonesia version available at
http://www.deptan.go.id/bdd/admin/uu/UU-25-92.pdf (PDF, Size: 94 KB)
Government law regarding cooperative operation - covers vision, mission, principles, establishment, structure, membership, bylaws, obligations and rights and services
From Kusdijono, Catholic Relief Services, Jakarta , Indonesia
Kredit Usaha Tani (KUT) – Credit for Farming Business
Regulation; Government of Indonesia; Bahasa Indonesia version available at
Explains the objectives and mechanism procedure of financial services for agri-business covers the credit distribution, repayment, obligations and rights of creditor
Kredit Koperasi Primer (KKP) – Credit for Primary Cooperative
Official Information; Bank Negara Indonesia , Bahasa Indonesia version available at
http://www.bni.co.id/Korporat/Kredit/KreditKoperasiPrimer/tabid/87/Default.aspx
Product of a state-owned bank, Bank Negara Indonesia provides credit for agri-business, explaining loan size, loan period, collateral and requirement
Pembinaan Peningkatan Pendapatan Petani-Nelayan Kecil (P4K) – Empowerment and Income Development for Small Farmers and Fishermen
Project Brief; Department of Agriculture; Government of Indonesia; Jakarta ; English version and Bahasa Indonesia version are available at http://www.deptan.go.id/bpsdm/p4k.htm
Describes implementation of the P4K programme, covers objective, participants, duration of each phase, area of programme implementation and lessons learned
Pengembangan Usaha Agribisnis Pedesaan (PUAP) – Village-Based Agri-business Development
Project Brief; Indonesian Center for Agriculture Socio Economic and Policies Studies; 25 June 2008; Bahasa Indonesia and English version are available at
http://pse.litbang.deptan.go.id/eng/index.php?option=com_content&task=view&id=302&Itemid=65
Provides information on the Rural Agri-business Development Programme, covers objectives, implementers, numbers of participants, areas and approaches
Lembaga Penjamin Kredit Daerah (LPKD) – Local Institute for Credit Guarantee (from Idham Edo, Consultant, Banda Aceh , Indonesia )
Article; by A. Junaidi SE ME; Ministry of Cooperative and Small and Micro Business; Bahasa Indonesia version available at http://smecda.com/deputi7/file_Infokop/Edisi%2022/prospek_rintisan.htm
Covers the history of the institutions of credit guarantee, their purpose, government regulations, companies, mechanism, financing and ratio of non performing loans
Optimized Exploitation of Tidal Affected Area (Type 3) By Applying Polyculture System (Barito Kuala, South Kalimantan) (from Handy Pardjoko, Ohama Indonesia Group, Jakarta , Indonesia )
Report; by Dr. Ayi Kusmayadi, Rezani Mahakam SP, Syaiful Asgar, Amd; Special Programme for Food Security; FAO and Agriculture Department of Indonesia; English version available at
http://database.deptan.go.id/saims-indonesia/index.php?files=DetailTechnologies&id=56
Report the Optimized Exploitation of Tidal Affected Area (Type 3) by Applying Polyculture System (Barito Kuala, South Kalimantan )
Recommended Organizations and Programmes
Aceh Partnerships for Economic Development, Banda Aceh (From Indra Perwiryanto)
Jalan Tgk Daud Beureueh no. 26, Banda Aceh , Indonesia ; Tel.: +62-651-21064; aped@aped-project.org; http://www.aped-project.org/
Encourages production, trade and marketing, mobilizes material, financial and institutional resources, and collaborates in the implementation of economic activities
Agribusiness Market and Support Activity, Jakarta (from Hiswaty Hafid)
BRI II Building, 28th floor, Suite 2806 Jalan Jenderal Sudirman 44 – 46, Jakarta 10210, Indonesia; Tel.: +62-21-5713548, 5713549, Fax: +62-21-5711388;
http://www.amarta.net/amarta/EN/about-us.aspx?mn=B1&lang=EN and http://www.dai.com
Provides technical assistance from experts, incorporates government agencies, alliances of agri-business enterprises, agri-business associations and business service providers
Asian Development Bank, Jakarta (from Candra Nugrahanto, IOM, Yogyakarta , Indonesia )
Indonesia Resident Mission BRI II Building, 7th Floor Jalan Jenderal Sudirman Kav 44-46, Jakarta 10210 , Indonesia . P.O. Box 99 JKPSA Jakarta Pusat , Indonesia ; Tel.: +62-21-2512721, Fax: +62-21-2512749; adbirm@adb.org
Banda Aceh office Jalan Cut Nyak Dhien 375, Lamteumen Timur, Banda Aceh , Indonesia ; Tel.: +62-6510-41429; Fax: +62-651-45773; psmidt@adb.org; http://www.adb.org/Indonesia/ and
http://www.aceh-microfinance.org/index.php?option=com_content&task=view&id=25&Itemid=23
Collaborates with Aceh - Nias Rehabilitation and Reconstruction Agency and established Microfinance Innovation Fund (MIF) to capitalize financial institutions
From Edi Timbul Hardiyanto, Valuindo Utama, Jakarta , Indonesia
Bank Indonesia , Jakarta
Humas Bank Indonesia , Jalan MH Thamrin 2 Jakarta 10110, Indonesia; Tel.: +62-21-3817187, Fax: +62-21-3501867; humasbi@bi.go.id; http://www.bi.go.id/web/id/
Central Bank which provides national information regarding policies, government law, regulations, rate, interest, foreign exchange rate, inflation, statistical, journals, reports
Chamber of Commerce and Industry (KADIN), Banda Aceh
Bale’ Saudagar, Jalan Taman Makam Pahlawan no.1, Kp Ateuk, Banda Aceh 23243 , Indonesia ; Tel.: +62-651-28371/74, Fax: +62-651-28380; http://kadinaceh.com
Center for communication, information, representation, consultation, facilitation and advocacy for national and international trading networks, including planning and financing
Bank Perkreditan Rakyat Syariah Baiturrahman, Banda Aceh (from Dirk Lebe, Icon Institute, Banda Aceh , Indonesia )
Jalan Cut Nyak Dhien No. 291B, Banda Aceh 23236 , Indonesia ; Tel.: +62-651-42624
Local bank at the district level applying Islamic (Syariah) law in financial services, such as profit sharing principles of loan transactions, time deposit and savings
Bank Syariah Mandiri, Jakarta (from Iwan Saktiawan, Handicap International, Banda Aceh , Indonesia )
Gedung Bank Syariah Mandiri, Jalan MH. Thamrin No. 5, Jakarta 10340 , Indonesia ; Tel.: +62-21-2300509/39839000, Fax: +62-21-39832989; http://www.syariahmandiri.co.id/
Banda Aceh: Jalan Diponegoro no. 6; Tel.: +62-651-21750, Fax: +62-651-33945.
Provides financial services for several types of business, such as employee cooperatives, commodities, education, housing and other businesses as approved by the bank
From S.M. Ahsan Habib, Grameen Foundation, Banda Aceh , Indonesia
Grameen Foundation, Washington D.C. , USA
50 F Street NW, 8th Floor, Washington , DC 20001 , USA ; Tel.: +1-202-6283560, Fax: +1 202-6283880;
Banda Aceh Office: Jalan Poeteumeureuhom no. 42, Lambhuk, Ulee Kareng, Banda Aceh , Indonesia ; Tel: + 62-651-34304; http://www.grameenfoundation.org/
In Indonesia , GF builds solutions to help poor tsunami survivors recover by providing funding and technical assistance and developing management information systems
Jalan Raya Lenteng Agung Km. 03 no. 10 Jagakarsa, Jakarta 12160 , Indonesia ; Tel/Fax: +62-21-7804452; admin@mitradhuafafoundation.org; http://www.mitradhuafafoundation.org/
Manages cooperatives using both Grameen Bank and Syariah systems to improve the economic status of poor women based on fair, transparent and sustainable principles
Yayasan Karya Bunda Sejahtera, Medan
Jalan Karya Wisata Kompleks Citra Wisata Blok XIV No. 35 Medan 20143, North Sumatra, Indonesia; Tel.: +62-61-77643301, Fax: +62-61-7871950; http://www.ykbs.or.id/
Manages loans and grants from international organizations, using the Grameen Bank Method to help the poor enabling them to raise their family income
CARE International Indonesia , Jakarta (from Achyar Rasyidi)
TIFA Building 10th floor Suite 1005 Jalan Kuningan Barat 26 Jakarta 12710 Indonesia ; Tel.: +62-21-52922282, Fax: +62-21-52922283; info@careind.or.id; http://www.careindonesia.or.id/
Manages several projects on economic development, promoting sustainable livelihoods by providing cash for tools and assets and developing technology for agriculture
Catholic Relief Services, Jakarta (from Kusdijono)
Jalan Wijaya I no 35, Kebayoran Baru, Jakarta 12170 , Indonesia ; Tel.: +62-21-7253339, Fax: +62-21-7251566; http://crs.org/indonesia
Focused on food-aid programme to address food insecurity through programmes on Food For Work, Health and Nutrition, and Income Generating Activities in parts of Indonesia
International Development Law Organization, Banda Aceh (from Basyuni)
Indonesian Programme Office (Banda Aceh), Green Paradise, Jalan Tgk. Chiek Kompleks Puskopol Ajun Jeumpet, Aceh Besar, Nanggroe Aceh Darussalam, Indonesia; Tel.: +62-812-6999801; http://www.idlo.int
Provides tools and skills for strengthening the rule of law and good governance practices through economic growth and trade, social development and institutional development
International Organization for Migration, Banda Aceh (from Job Charles)
Jalan Sudirman no. 32 Banda Aceh 23230 Indonesia ; Tel.: +62-651-43556, Fax: +62-651-43554; iomaceh@iom.int; http://www.iom.or.id/
Provides beneficiaries with ways to make a living and become financially independent, includes providing livestock, sewing machines, small food and retail stock
MercyCorps, Jakarta (from Muhammad Ridwan, Agribusiness Market and Support Activity, Jakarta , Jakarta , Indonesia )
Jalan Kemang Selatan I/ 3, Bangka, Jakarta 12730 , Indonesia ; Tel.: +62-21-7194948, Fax: +62-21-71790703; info@id.mercycorps.org; http://indonesia.mercycorps.org/
Promotes integrated, entrepreneurial self-help programmes and innovations in the areas of pro-poor outreach and product development with a strong focus on technology
From Margaretha Ari Widowati, Bina Insan Sejahtera Mandiri, Jakarta , Indonesia
Micro Insurance Agency Holdings, LLC, Illinois , USA
2122 York Rd., Oak Brook , Illinois 60523 , USA; Tel: +1-630-6871950; info@microinsuranceagency.com; http://www.microinsuranceagency.com
Acts as an intermediary to extend insurance coverage, design affordable and sustainable products for clients and distributors and provide back-office administration
BASIX, Hyderabad
3rd floor, Surabhi Arcade, Bank Street, Troop Bazar, Koti, Hyderabad 500001, India; Tel.: +91-40-30512500/01, Fax: +91-40-30512502; info@basixindia.com; http://www.basixindia.com
Provides livelihood promotion services through financial inclusion services, agricultural and livestock business development services and institutional development services
International Finance Corporation, Jakarta
Jakarta Stock Exchange Building, Tower 2, 9th Floor, Jalan Jenderal Sudirman Kav 52 - 53
Jakarta 12190, Indonesia; Tel.: +62-21-52993001, Fax: +62-21-52993141; http://www.ifc.org and http://www.ifc.org/ifcext/eastasia.nsf/Content/Indonesia
Combines investment and advisory to expand access to finance and infrastructure for underserved market segments and strengthens commodity-based supply chains
From Indrajit Indra, Microfinance Innovation Center for Resources and Alternatives, Jakarta ,
Microfinance Innovation Center for Resources and Alternatives, Jakarta
Jalan Kemang Timur Raya No. 69E Kelurahan Bangka, Jakarta 12730 , Indonesia ; Tel.: +62-21-7198442, Fax: +62-21-70308449; http://www.micra-indo.org/
A microfinance institution providing support to all stakeholders and promoting innovations, transparency and increased outreach to the poor in Indonesia
World Vision Indonesia , Jakarta
Jalan Wahid Hasyim No 33 Jakarta 10310, Indonesia; Tel.: +62-21-31927467, Fax: + 62-21-3107846; Indonesia@wvi.org; http://indonesia.wvasiapacific.org/index.php
Supports communities to carry out their own development programmes in education, health, water and sanitation, agriculture, microfinance and economic development
Cooperative Amanah Tani, Aceh Barat
Jalan Meulaboh - kuala Bhee 12.cot seumereng, Kecamatan Samatiga, Kabupaten Aceh Barat, Nanggroe Aceh Darussalam, Indonesia; tel.: + 62-813-70513069 att. Ferry Yunus
Experiences in financial services for agri-business and in-conjunction with other organisations provide technical assistance for members including farmers
Bq. Baitul Qiradh Abu Indrapuri, Aceh Besar
Jalan Banda Aceh - Medan Km 25, Pasar Indrapuri, Kabupaten Aceh Besar, Nanggroe Aceh Darussalam, Indonesia; Tel.: + 62-813-70513069 att. Sayuthie Sulaiman
Experiences in financial services for agri-business using Islamic (Syariah) principles and in-conjunction with other organizations provide technical assistance for members
Foundation for Noble Work - Yayasan Usaha Mulia, Jakarta (from Wawan Setiawan)
Wisma Subud 20, Jalan Fatmawati No.52, Jakarta 12430 , Indonesia ; Tel.: +62-21-7698505,
Fax: +62-21-7698504; jakarta@yumindonesia.org; http://www.yumindonesia.org/
YUM Aceh Community Centre; Jalan Utama I No. 1, Punge Blang Cut, Banda Aceh , Indonesia ; Tel.: +62-651-42900;
Helps women access and effectively use loans applying principles endorsed by the Grameen Foundation; also provides business management and organizational training
Ohama Indonesia Group, Jakarta (from Handy Pardjoko)
Wisma 46, Kota BNI 43rd floor; Jalan Jenderal Sudirman Kav I, Jakarta 10320 , Indonesia ; Tel.: +62-21-5748870, Fax: +62-21-5748888; handy@ohamabiofuel.com
Group of businesses work on bio technology and storage of fishery and sea products
Recommended Communities and Networks
Koperindo (from Dewi Gayatri, Research Assistant) http://groups.yahoo.com/group/koperindo/summary and http://www.koperindo.com/
Forum on economic development which facilitates discussions on the principles of Cooperatives and supports development of the Cooperative Indonesia portal
Recommended Portal and Information Bases
Microfinance in NAD – Nias Portal, supported by ADB, GTZ, Hivos, MercyCorps, SBFIC, Triangle, Save the Children US, USAID (from Thamrin Simanjuntak, Moderator)
Jalan Cut Meutia, Banda Aceh , Indonesia ; Tel.: + 62-651-32320; http://aceh-microfinance.org/
Provides a directory of microfinance services, brief history of donor projects, Microfinance institutions, reports, and strategies to cover sectoral gaps and avoid overlaps
AER online, Biro Ekonomi Sekretariat Daerah Provinsi NAD (from Dewi Gayatri, Research Assistant)
Jalan T. Nyak Arief, No. 219 Banda Aceh, Indonesia ; Tel.: +62-651-7552586; redaksi@aernews.com; http://aceh-economic-review.com/
Maintains updated information of commodity prices, agri-business technology, news of economic development and its opportunities at the local, national and international level
Responses in Full
Candra Nugrahanto, International Organization for Migration, Yogyakarta , Indonesia
I work at IOM and we often observe constraints as you mentioned. Microfinance institutions such as BPR and the Cooperative who use the conventional, or Syariah method preferred to select trade, manufacturing, services and other sectors rather than agriculture.
Microfinance institutions (BPR–Bank for People’s Credit and the Cooperative) avoided the agricultural sector because of internal and external factors. Internally, the MFI does not provide a service that can accommodate loans to the agricultural sector. One of the characteristics of the agricultural sector is that income from a crop does not come in for 3-4 months after it has been harvested (this is the general process, although some crops can be harvested monthly). Microfinance institutions expect monthly repayments from farmers and don’t want those who pay late on their books. Another issue was that microfinance institutions were unable to calculate precisely the income of the farmers, which meant MFI staff had to identify the agricultural cycle (from seedling to harvest time). An external factor was that MFI predicted the harvest would have a low yield due to natural disaster, such as rain and flood, and therefore they avoided providing loans to the agricultural sector.
When I was in Banda Aceh, I attended a seminar conducted by ADB (Asian Development Bank) which discussed a loan scheme for the agricultural sector. You can contact the ADB office for more information.
There is an alternative for guaranteeing finance for high risk sectors, such as agriculture, where institutions can intervene by creating a special unit or a cooperative which utilizes members’ funds. This fund will only be for use by the sector, in this instance agriculture, and will be self-regulated; for example the application of revolving fund systems from one member to another.
I apologize if this sounds instructive however I wanted to share my concerns relating to microfinance.
Muhammad Ridwan, Agribusiness Market and Support Activity, Jakarta , Indonesia
I would like to share my experiences with others who are active in community-based economic capacity building, and respond to our colleague Indra Perwiryanto from the APED project.
In 2005-2007, I worked in Aceh for a MercyCorps project to develop a Financial Access Programme using an individual loan guarantee method. This facility mostly targeted labour intensive businesses and then it provided loans to the trading sector which had better turnover. The project was implemented in conjunction with 4 BPR/s (Bank for People Credit/Syariah) and KSP (Cooperative for Save and Loan).
At the end of 2006, we sounded out the possibility of applying this method in the agriculture sector, and we came across the following obstacles:
· The related financial institutions had not yet established an agricultural finance scheme and so they needed to redesign their products.
· The serious concern over the bad debt risks of the agriculture sector. The local government once provided a credit facility for the sector but it failed. Only the Syariah Financial Institution stayed interested in providing credit for the agricultural sector, although they only provided a buy and sell scheme and not a profit sharing scheme.
· There was no Account Officer who had specialized agricultural analysis skills.
There are still other obstacles but Indra may contacts colleagues at MercyCorps for further discussions or establish a joint programme.
We are implementing another approach with a Cooperative in Kupang (East Nusa Tenggara), which is yielding some good results on an agricultural scheme which provides mutual benefits. The Cooperative provides all the farming materials required by the Cooperative’s Members and the Cooperative has the rights to buy the future harvest. It looks like an ijon system (advanced selling with discounted price) but is a better way as the material input prices and selling prices are made transparent. This system enabled farmers to obtain high quality farming materials, guidance and coaching. This Cooperative can benefit from trading rice and becoming a major supplier for islands around Timor . The bank will be more interested in providing loans to this Cooperative which will distribute funds to Cooperative members in the form of materials. It is better than directly providing loans to the farmers.
I hope that sharing my experiences will be useful, and we will succeed in improving and developing our communities.
Indrajit Indra, Microfinance Innovation Center for Resources and Alternatives, Jakarta , Indonesia
Looking at the situation of farmers and the Financial Institutions, there are indeed some risks in the agricultural or plantation sectors, aside from the risks of pests and harvest failure. Financial Institutions, (particularly BPR-Bank for People’s Credit), have some requirements relating to the rate of repayments, and the agricultural sector requires longer loan terms than the trading sector. On one hand, Financial Institutions need liquidity of capital and a diversified source of income to help sustain the institution, however on the other hand, the farmers need access to working capital at a reasonable cost.
When I was in Meulaboh, I met with one of the WVI (World Vision International) staff who was working on a farmers empowerment programme dealing with these issues. They wanted to create a sustainable and integrated programme, although I don’t have an update on the current progress of the project.
In order to develop the two sectors (Agriculture and Finance) together based on a mutual benefit and to support your programme achievements, I suggest that attention be given to the following:
· Develop the Financial Institution, conduct assessment to review the financial capacity of MFI and the personnel commitment.
· Develop the farmers’ capacity on the technical aspects.
· Conduct monitoring and provide technical assistant to stakeholders.
Our organization is willing to offer assistance to institutions on preparing any programmes related to the development of financing facilities.
You may also contact these organizations:
1. Cooperative Amanah Tani
Address: Jalan Meulaboh - kuala Bhee 12.cot seumereng
Kecamatan Samatiga, Kabupaten Aceh Barat
Province of Nanggroe Aceh Darussalam
Contact person: Bpk. Ferry Yunus (081370513069)
2. Bq. Baitul Qiradh Abu Indrapuri
Address: Jalan Banda Aceh - Medan Km 25
Pasar Indrapuri, Kabupaten Aceh Besar
Province of Nanggroe Aceh Darussalam
Contact person: Bpk. Sayuthie Sulaiman (081370513069)
Basyuni, International Development Law Organization, Banda Aceh , Indonesia
My name is Basyuni and I am from IDLO (International Development Law Organization) which is based in Banda Aceh. I work as a researcher looking at the implications of land rights on locals’ access to natural resources. In the context of Pak Indra’s query dealing with farmers’ financing issues, I would like to share my thoughts on how we could utilize economic and social policies to overcome the issues raised.
Communities have generally applied three strategies to deal with these problems; Optimizing Human Resources, Reducing or Controlling Spending, and Utilizing Networks. In this response I will only refer to the Utilizing Networks Strategy.
Networks consist of relationships, both formal and informal, that is interactions with institutions and social interactions. In villages it is common practice for people to borrow and lend money among their friends and relatives. This shows an existing solidarity among the community members which is based on trust. However, some people still borrow money from individuals that lend money for interest or banks, or participate in poverty reduction schemes that do not depend on a social relationship. Networks are important for people, not only economically but also spiritually.
To help farmers finance production, financial institutions could utilize the solidarity and trust among community members to provide loans to groups instead of individuals. Although funds would be circulated to individuals within the group, all members would be responsible for the loan and work together to service it. The next step would be to ensure the group remains harmonious and complies with the financial institution agreement.
Job Charles, International Organization for Migration, Banda Aceh , Indonesia
Farmers in Indonesia not only lack access to capital, but also face other issues including;
1. Organization of farmer groups.
2. Human resources, skills and education.
3. Infrastructure and facilities to support agricultural production.
4. Quality and quantity of production.
5. Marketing.
Instead of trying to resolve these issues separately an integrated approach should be adopted.
In relation to the issue of providing capital to the agriculture sector, Bank Rakyat Indonesia (BRI) provided loans to the agriculture sector (KUT programme) however farmers were in arrears of approximately Rp 200 billion (data from: Bank Indonesia). The main reasons for arrears were:
Failure of production.
- Person in-charge of distributing credit did not assess the applicants properly and distributed to recipients who were not in a position to service the loan.
Banks were wary of distributing loans to the agriculture sector because of the following reasons:
1. High risk of production failure.
2. Market not clearly identified.
3. Prices of production fluctuated due to seasons, demand and supply.
Banks assess farmers and request they provide collateral. These requirements can make it difficult for farmers to access bank loans.
Suggestions to overcome these problems include:
1. Revitalize farmer groups and savings and loans activities to support and provide capital for farmers.
2. Improve farmer’s capacity in terms of skills and knowledge.
3. Rehabilitate infrastructure and facilities.
4. Develop a market-orientated attitude among farmers.
5. Use a scheme to strengthen farmer groups which integrate the marketing function, financing, production and other functions.
Hiswaty Hafid, Agribusiness Market and Support Activity, Makassar , Indonesia
My name is Hiswaty Hafid and I work with the AMARTA programme, Agri-business Market Support Activity. The AMARTA programme links farmers to exporters, particularly those farmers who are involved in the production of export commodities such as cocoa, coffee, rubber, seaweed, fish and livestock. Providing an overview of this programme may not directly answer Indra’s query, however I hope it will be useful in developing a programme strategy in Nanggroe Aceh Darussalam.
AMARTA programme works with the private sector through the exporters of commodities. Besides problems associated with production, farmers also face quality and market access problems which have adverse economic impacts. To avoid using and reducing the number of money lenders with ijon systems (advance selling with discounted price) in villages, AMARTA recommended partners develop a center which facilitates purchases or establish an exporters association at the district level. If the cost of this is too high then partners would collaborate with local vendors in the district who were willing to adopt a transparent purchasing system using receipts and based on quality evaluations.
The AMARTA programme provided training to farmers on improving product quality and post-harvest products, and introducing farmers to the district purchasing center. This training provided farmers with the opportunity to evaluate the standard of quality required by exporters and to determine commodity prices. In relation to production, the AMARTA programme trained farmers to produce fertilizer, particularly organic fertilizer. In several instances, there was a shortage of fertilizer so partners assisted in providing it.
The programme encourages farmers to sell good quality products and partners to purchase products for a reasonable. It also promotes transparent transactions. In the beginning there were some problems with the purchasing center, for example: additional expenses charged to the farmers without their agreement, or the what should be the minimum value or weight for each transactions. However, the problem was resolved which proves that the evaluation process is working.
For more information on the programme please see the link below.
http://www.amarta.net/amarta/EN/about-us.aspx?mn=B1&lang=EN and http://www.dai.com.
Achyar Rasyidi, YDP Project, CARE International Indonesia , Banda Aceh , Indonesia
I would like to share my experience with all members, especially Pak Indra Perwiryanto who posed the query: “Are there any other approaches that have proven to be effective in overcoming the lack of a financing facility for agriculture particularly at production level?”
My colleagues and I are facilitating youth capacity building in the economic sector at several villages in Banda Aceh and Aceh Besar. At these villages we are establishing saving and loan groups. In a meeting with the chairman of a farmers group in Sare, Suka Mulya Village , we discussed the saving and loans groups which have been developed two years ago by the community in conjunction with CARE. From our discussion with the farmer’s group, I found that considerable progress was being made.
CARE facilitated the establishment of this saving and loans group which only had 12 members in the beginning. An initial lack of support of the group, according to the chairman, was due to many farmers simply not being interested in joining in its early days or the fact that farmers lacked an understanding of the advantages of being a member. There are now 30 members and the group’s assets total Rp.35.000.000. There are many other farmers who would like to join this group, but the group is quite selective in choosing new members. They want members who have certain skills or attitudes and are responsible so as to ensure loans from the group’s fund will be used sensibly.
From this discussion, I also found that the group has helped members by providing cash loans which allows them to buy seeds, fertilizer and pesticides. Furthermore, I was pleased to hear that most of the members were enthusiastic about the saving and loan group.
The philosophy for conducting the save and loan group is straightforward. Although there are probably members of this community that are experienced dealing with these types of groups, the process employed by the group I mentioned is worth outlining:
· Firstly, CARE provided a metal case to store cash deposits from the group, which had 3 locks, keys of which were kept by 3 trusted members of the group with the treasurer looking after the case.
· Each member of the group agreed to save a certain amount of money monthly or fortnightly. The amount of money saved by each member depended on their capacity to save and this is re-evaluated at weekly and monthly meetings.
· Each member can borrow a maximum of 300% of their last savings balance, with the loan terms depending on their business. For example, farmers who grow maize have terms of 4 months as it takes 3 months to cultivate their crop. 5% of their profit then goes to the group.
· If the borrower cannot pay back the loan in the specified period, the percentage of the profit that goes to the group will be increased to 10% and he/she will have an additional 3 months to pay (although this depends on the initial arrangement).
· If the member fails to pay back the loan, the group will takeover his or her productive assets (e.g. farming land, motorbike, becak, cow, goat, duck, etc) and these will be utilized by other members to earn money. The money received will be used to pay back the loan and the balance will be given to the initial borrower.
It is a simple mechanism and easy for us to replicate.
Kusdijono, Catholic Relief Services, Jakarta , Indonesia
Commercial Financial Institution faced high risk in disbursing loan to on-farm business, moreover for small and micro business.
· First, on-farm was an unpredictable business, high dependency to environment (climate, soil, water reservation, etc) and the product was perishable.
· Second, producers (farmers) didn’t have enough technical skill of on-farm management and marketing.
It is not surprising that financial institutions were not willing to provide loans to farmers. To overcome this problem, government programmes paid attention then decided to take the risk.
As we predicted, there were several financing programmes regarding agriculture such as on-farm credit (KUT), Primary Cooperative Credit (KKP), Programme for farmer income generation (P4K), and Agri-business Rural Development (PUAP). The P4K implemented by the Department of Agriculture was implemented in 2005 successfully. Subsequently in order to reach a lager number of farmers the programme expanded and PUAP was implemented.
Though this is an on going issue, I would like to remind all of us to think through different options. If we want to support the income increment of the farmers, then we must think more broadly about the whole agri-business system rather than the production increment only. Thinking of the production and marketing as part of the whole of the agriculture chain, analyzing both the supply chain and the market chain. Therefore, I am curious about the coverage of and talk about developing and increasing primary commodity in Nanggroe Aceh Darussalam such as coffee, cacao, rubber, livestock and fishery. It’s not enough to see it as production only.
If we are serious about financing the agriculture sector, why not start by strengthening the capital of farming groups? Many local NGOs supported farmer organizations through the development of savings and loan activities to collect capital and to disburse loans to the members. The amount might not have been big, but the progress became the asset and was able to attract external funding. Many approaches of government programmes as well as microfinance institutions support financing to farmer’s groups they consider to be accountable and trust worthy.
It is worth remembering that it is not necessary to support all components of financing. The farmers need external support to cover several smaller aspects such as the cost of employing workers in harvest time. The loans administered covered the cost of seeds, organic manure and maintenance of tools.
Another option could be to connect farmer groups to agri-business companies who will buy their products. The idea here would be that the agri-business companies would manage the market and deal with issues involved with marketing, and then the farmers deliver products that fulfill the specific requirement standards. In the past we have found that agri-business companies are in a position to and are willing to provide the finance for the loans necessary for this process.
Edi Timbul Hardiyanto, Valuindo Utama, Jakarta , Indonesia
I have experience working as a consultant for one of CARE’s projects in West Java . One of the objectives of this project is to increase the access silk farmers have to financial institutions. One of our responsibilities within the project was to ensure that the financial institution involved had a deep enough understanding of and knowledge about the particularities of the silk farming business and its production methods, marketing and financial aspects. This was important for the financial institutions to make a reasoned judgment as to whether to administer a loan or not. We found this process to be beneficial for the financial institutions in order for them to find out about;
- The profitability of the business
- The scale of business
- The individual components which made up expenses (mulberry culture, bombyx-mori worm rearing, cocoon harvesting, yarn making, fabric production and others).
- The selling price fluctuations of each output (mulberry leaves, cocoon, yarn and fabric)
- The investment needed on fixed assets (farming land rent, worm rearing house) and tools (sprayer or cocoon nests)
Those variables could be explained through a financial model which also could provide analysis on sensitivity which was measured by a simulation on variables. The simulation was able to identify what combination of variables allowed the business to remain profitable. For example: if the selling price decreases to what extent can the business remain profitable? And what about with a cost increase? With this analysis and the notes above, financial institutions can measure the risk levels and can observe and understand the particularities of a business’ progress over a time period.
A well developed financial model can be used to manage the business process. The input variables (costs) will be simulated to reach the maximum output (sales and profit), developing a model for action. In order for a business to be considered for a loan or get access to credit it must be proved profitable, the simulation is an effective way of predicting profitability.
Although we can provide additional collaterals, such as fixed assets, these will not change the impression to a bank, because it is not the bank’s objective to make a profit from selling collaterals. Also, Bank Indonesia (central bank) has provided guidance on sectors which they consider to be fundable and not-fundable. Bank Indonesia (BI) considered the risks in various businesses. There is opinion that BI actually has not well informed about certain businesses and that they are in a position to ignore certain businesses. For big industries the dissemination is handled by their association or through Indonesian Chamber of Commerce (KADIN), but what about smaller businesses?
So, if the coffee and cocoa farmers design their business process and disseminate the business character, there is a possibility they could overcome the credit access issue. The financial institution practitioners should understand the businesses they are funding in detail and keep up to date with any changes which might effect profitability. For example, new farming technology, new seed innovations, market changes that will effect risk level. And do not forget funding any business is a risk, but with this system it become a managed and predictable risk.
Margaretha Ari Widowati, Bina Insan Sejahtera Mandiri, Jakarta , Indonesia
I fully support Pak Charles’ input, and I would like to add another option to attract more financing options for farmers i.e. microinsurance. There are several insurance instruments which are now actively promoted by NGOs and Insurance Companies, these include; weather index based insurance, crop insurance, and rainfall insurance amongst others. These types of insurance are beneficial to farmers as they protect their welfare (saving assets), and they also work to minimize default repayments. This decreases the financial obligation of repayment if there is a failed harvest (due to draught or flood). This helps increase the leverage of bargaining power for farmers. This is important because currently one of the biggest obstacles to financiers providing loans to farmers is that farmer’s incomes are highly dependent on seasonal issues which are unpredictable. Seasonal and weather insurance on harvesting can help alleviate these problems.
There are several organizations which are already working to provide these insurance options, including; Microinsurance Agency or MIA (www.microinsuranceagency.com) in partnership with Opportunity International which has begun to develop a wide range of insurance options ranging from life, health, property, livestock to crop derivative). BASIX in India (www.basixindia.com) is another example of a finance company that is providing insurance which is specifically targeted to protect farmers. BASIX works as a group of financial services and technical assistance that provide insurance (life, livestock, health, rainfall and assets) to the rural poor.
In Indonesia , crop insurance or weather index based insurance or rainfall insurances are considered new initiatives actively promoted in the last two years. To my understanding CARE Indonesia, IFC and MercyCorps are very keen to explore these initiatives.
I hope it is helpful.
S.M. Ahsan Habib, Grameen Foundation, Banda Aceh , Indonesia
The Grameen Foundation (GF) has its headquarters in Wasnington DC , USA but has operating in Aceh since July 2005 and will proceed its plan until March 2010. Grameen is a “Bangla” word and it means village. Grameen Bank founded and operated in Bangladesh . The objective of the Grameen Foundation is to empower poor women by providing microfinance.
In Aceh, the GF in partnership with Yayasan Mitra Duafa (YAMIDA) and Yayasan Karya Bunda Sejahtera (YKBS) operated with 10 branches throughout tsunami affected areas and serve more than 12,000 clients of which 100% women. We have been targeted women as we believed that through improving their economic position, we increase their confidence and decision making roles in the family.
In responding to Pak Indra’s query, actually GF has been financing cultivation or agriculture with another small business in 20% from our total portfolio. We apply the weekly pay back systems in the loan disbursements, and seems unsuited to agriculture business especially when farmers started a new cultivation which need months or years before it earns income from selling the first harvest output.
However, we still can serve the cultivation business as long as it is combined with other business in one loan proposal. What other business? The business that is quick yielding such as small shops, poultry (chickens, eggs, ducks, etc), cake or snack production which usually earn money everyday. So, the farmers should conduct a mixed business which included the non-cultivation business to be able to access loan with the Grameen method.
Other things, the cultivation cost components that fundable are seeds, fertilizer, pesticides and irrigation. The other costs are naturally owned or provided by the farmers.
I have been impressed that women can utilize the loan safely, using the money according to their business plan. So far, all the clients have been paid back the loan on schedule!
We could have more discussion.
Wawan Setiawan, Foundation for Noble Work, Banda Aceh , Indonesia
Firstly, I would like to posit a reflection; if the suggestions of members were to be implemented – this country would be broke! Farmers of this country have accepted a myth- that this country is an agriculture land which has many assets. Day by day farmers are being marginalized, they maintain the land, but they have neither allies nor real structural support. For many years now farmers have been introduced and subjected to new agricultural business jargon about productivity, modernization, partnership management, etc.
If small business of agriculture or small scale of agro business (high risk) was avoided by other business communities particularly the bank, this mean all economy theories were not valid, many experts of business management and the methods of planning, forecasting, networking, marketing, etc were not applicable.
I had some experience with these issues during my time studying to become a social worker in Japan . The Japanese are interested and concerned with their agricultural industry, even though they live in modernity with high levels of technology, they still provide their agricultural industry with support and look forward optimistically to implementing new initiatives. Many political parties in Japan provide specific support for farming businesses and farming enterprises, also communities of businesses, banks, education and government collaborate and work together to ensure a strong feasible agricultural industry. Part of the strength of this industry stems from the mindset that all agricultural businesses are important and should all be exposed to the same opportunities regardless of size. Part of the success of Japan is that it allows industries to become primary and niche markets. Kome (rice), jagaimo (sweet cassava), budou (grapes), sitake (mushroom), sakana (fish) are among the commodities.
One of the keys to this success is cooperative working. If you have a cooperative which everyone is a member of then all stakeholders support that farming cooperative. The cooperatives function as protectors for all those involved. They also provide product promotion and assistance to farmers in areas such as business concerns which are not their strength areas. Cooperatives also help in seeking financing for the farming business. They have been giving a guarantee and ensuring the financing for farmer business, marketing the products, and the stability of selling prices. The banks have also supporting the empowerment of farmers.
Idham Edo, Consultant, Banda Aceh , Indonesia
My name is Idham Edo, currently I work as a consultant for PUMKM in Bank of Indonesia Banda Aceh implementing projects for the real sector (non-financial and service sector) and Micro and Small Business in Aceh.
I agree with Edi Timbul Hardiyanto. It is necessary to have communication channels between the active players of agriculture, the information from which is often mediated through NGOs, to the financial institutions and banks. It’s necessary the players analyze and disseminate all aspects that might need financing. Thus, banks and financial institutions who will distribute loans are able to identify the risks and can determine flexible credit scheme.
Besides this, the government of Aceh is expected to be involved. The government of Aceh has established LPKD (Regional Credit Guarantee) and a committee to implement it, however it is not yet actively working. Farmers and fishermen expect LPKD will be to assist by acting as a guarantor as when one is required by the banks.
It is incorrect to assume that banks want to avoid risks- banks are known to operate under the motto of “high risk, high gain.” Banks examine early whether they will get profit or not. So far, the banks (not the farmers and practitioners of agriculture) think that financing in the agriculture sector is not beneficial.
Farmers and banks expect LPKD and it’s also important to improve the function as intermediate. One of the strategies is to connect the farmers and banks who are intermediated by NGOs, public institutions, universities, and related government offices. There could also be initiatives such as exhibitions which invite agriculture sectors to promote their products to bankers and also entrepreneurs to provide presentations about their businesses. The banks usually work routine or see in one direction, thus it’s necessary to conduct an organized approach to expose and show off the businesses which have the potential to be beneficial for banks.
I think all explanations from previous responses are appropriate. However, the bank’s business engagement with agriculture sector needs “good will” and better approaches and it needs support from our development organizations.
Please start supporting the bank intermediary process and good luck. I hope that this input is adequate and useful.
Syardan Jalil, DDR-Post Conflict Community, International Organization of Migration, Langsa, Nanggroe Aceh Darussalam , Indonesia
There was a negative comment made in this forum regarding money lenders (who practice advanced buying with discounted prices and trading on credits) in the villages. In reality, money lenders’ roles are recognized in trades. They work on the basis of mutual commitment that both parties, lender and borrowers, feel they are receiving benefits. However, when this profession began to monopolize the trading in the villages, it seemed that profit only for money lenders and farmers were deficit or gained only a very small profit.
I used to be a money lender in Bireun and stopped operating due to conflict, now I’m active in NGO services.
Money lenders are traders and have business sense, they are able to identify the needs of a community; they usually have enough money as capital and several of them have farming land. This capital has been gained from profits collected over many years.
The money lenders lend fertilizer and pesticides with higher prices (15 -20%) then in harvest the farmers sold the products to those money lenders as payment. The money lenders can differentiate farmers based on their ability to repay loans. Thus the risks of a bad debt developing were minimal, this was also due to the minimal risk of a total failure of harvest. The worst case scenario is a repayment that only covers the cost, no profit no loss.
Though other types of fund providers for farmers will be available, the money lenders will continue to exist and still operate, but the cost will be adjusted as there will be a competition, which will benefit farmers.
Dirk Lebe, Icon Institute, Banda Aceh , Indonesia
Please contact MercyCorps. As far as I know they have started an agriculture lending programme together with one of the rural banks (BPRS Baiturrahman) and maybe even others in October or November last year.
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We were working with the BPR/S in Aceh until last December, but not in the field of agricultural lending. Due to the insights I had, I know that MercyCorps is working on that issue. If a bank does not understand this highly specialized issue, it should not work on it, because avoiding risk is one of the main businesses of a bank.
Iwan Saktiawan, Handicap International, Banda Aceh , Indonesia
I know that Bank Syariah Mandiri (BSM) provides product on agriculture financing. However, it is not for small or micro business, but for medium and up scale. The source of fund is generated from programme fund, so the fund has to be distributed to the agriculture sectors.
For further information please directly contact BSM.
Handy Pardjoko, Ohama Indonesia Group, Jakarta , Indonesia
In traditional farming or fishery practices we will find a gap between the cash inflows and cash outflows of their economic lives. Whilst they all have daily, weekly, monthly and annual cash outflows most of them only have quarterly or even yearly cash inflows. This poor cash flow situation may eventually lead to systematic increase in poverty levels. In that case the farmers will have to finance their cash deficits with bridging loans from non financial institutions, which carry high interest rates.
I have been working on developing cash flow based fisheries and farming practices, my main objective is to balance the cash flows and incorporate this into business practice for the farmers and fishermen. I have tried to implement this practice in Babelan, Bekasi area ( West Java ) to help around 300 shrimp pond fishermen. Within two years, poverty is no longer found in their dictionary. The key is the application of polyculture, the mixed of commodities in one farming or fishery location. A polyculture approach mixes quick yielding commodities with the slow return commodities.
I am now, working to develop more models for cash flow based business activities, especially for small and medium sized enterprises. I hope these models can help more people around the globe.
Many Thanks to all who contributed to this Query!
If you have further information to share on this topic, please send it to thamrincare@yahoo.co.id with the subject heading “Re: [se-ecdv-id] Query: Agriculture-based Smallholders Financing – Experiences. Additional Reply”
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