Rural Areas and Financial Inclusion

KOMPAS/DAHLIA IRAWATI

East Java Governor Khofifah Indar Parawansa attended the Bumdes Jamboree in Turen, Malang Regency, Saturday (04/05/2019).

Financial inclusion is providing access to various financial institutions and their products and services. As financial intermediaries, financial institutions play a key role in improving public welfare through the convenience of their products and services, such as savings and loans.

From the regional perspective, there is a gap in financial inclusion between urban and rural areas. A survey conducted by the Financial Services Authority (OJK) found that the financial inclusion index for rural areas in Indonesia was 68.49 percent in 2019, an increase from 63.2 percent in 2016.

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Despite the increase, the figure is still lower than the financial inclusion index in urban areas. In 2019, the financial inclusion index in urban areas was 83.6 percent, an increase from 71.2 percent in 2016. The government has targeted a national financial inclusion index of 75 percent.

Balance

In an effort to increase the financial inclusion index for rural areas in the country, two main aspects need to be pursued, namely balancing savings and loans as well as the roles of village-owned enterprises (BUMDes) and cooperatives.

Rural financial inclusion must encourage economic growth in rural areas.

Data from the financial report of state-owned Bank Rakyat Indonesia (BRI), which has paid great attention to rural areas for many years, show that rural loans (Kupedes) exceeded rural savings (Simpedes).

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In 2020, Kupedes reached a total value of Rp 351.33 trillion (US$24.50), while Simpedes totaled Rp 285.96 trillion.

If the value of Kupedes and Simpedes reflects the economic enthusiasm in rural areas, the BRI data on Kupedes and Simpedes is quite encouraging.

These funds, some of which come from outside rural areas and are used to finance rural economic activities, has helped add value to rural commodities.

Of course, this is on the condition that the rural loans are channeled towards productive (not consumptive) activities. These funds, some of which come from outside rural areas and are used to finance rural economic activities, has helped add value to rural commodities.

It is hoped that the results of these productive activities are also enjoyed by the majority of rural residents, because it is quite common that farmlands in villages are not owned by local residents, and that villagers only work as farm workers. Another hope is that the loans do not turn into bad debts.

BUMDes and cooperatives

The presence of BUMDes can increase financial inclusion in rural areas. As a legal business entity, financial institutions can use BUMDes to distribute their products and services in rural areas. Rural residents can use BUMDes to access the financial products and services provided by these institutions.

KOMPAS/IQBAL BASYARI

Workers move wholesale goods belonging to the Rungkut Makmur Sejahtera Cooperative to the Della Jaya Grocery Store, Surabaya, East Java, Wednesday (21/11/2018). The Surabaya City Government has formed a grocery store cooperative so that traders can sell products cheaper than networked minimarkets.

Financial inclusion is often defined as access to the financial products and services provided by financial institutions, especially banks. A cooperative should understand the lives of rural communities better than other financial institutions. More than 80 percent of villages in the country rely on the agricultural economic sector to support their residents’ livelihoods. Therefore, rural residents must have familiarity with rural cooperative units (KUD), of which one function is to distribute agricultural production facilities to rural areas.

Unfortunately, the fate of cooperatives today seems to be that they are reluctant to live but unwilling to die.

Savings and loans cooperatives operate like conventional financial institutions (banks), with additional characteristics. For example, they are more democratic and foster the spirit of gotong royong (mutual cooperation). Cooperatives use the funds they collect from their members and use them for the benefit of their members. They also share the profits with their members. Unfortunately, the fate of cooperatives today seems to be that they are reluctant to live but unwilling to die.

Experience in assisting several cooperatives has taught us that Indonesia’s savings and loans cooperatives not only face challenges in their professional management, but also other challenges from outside. Political interests often undermine their spirit of gotong royong.

Efforts to encourage cooperatives to be independent must face the reality that some parties often establish cooperatives only to channel grants from political contestants, usually incumbents.

A newly established cooperative is often likened to a pigeon and dubbed a "pigeon cooperative". Pigeons usually appear when there is food, but when the food runs out, they fly away. Once a regional election (Pilkada) is over, these pigeon cooperatives leave behind only their business signs.

It is not only the money that disappears, but also the spirit of gotong royong and the hard work that has been put in the cooperative. In fact, hard work is the main foundation of cooperatives. Cooperative members will then believe that that they do not need to deposit their savings in a cooperative, because the funds are available at any time, especially before Pilkada.

The efforts to increase the rural financial inclusion index will be more meaningful if these efforts are able to revive the spirit of gotong royong, encourage the spirit of helping each other again. Cooperatives are one type of financial institution that possesses this spirit. Financial inclusion also does not do away with the habit of rural people who still maintain their wealth in the form of livestock.

KORNELIS KEWA AMA

Bank BRI Unit Tuak Daun Merah, Kupang, Thursday (23/7/2020) is always crowded with customers.

My acquaintance Mbah Sudi still breeds goats as her farm’s savings. There are still many people like Mbah Sudi, because customer engagement with financial institutions is about trust and convenience.

SIWI NUGRAHENI is a lecturer at the School of Economics, Parahyangan Catholic University.

(This article was translated by Hendarsyah Tarmizi)