Escaping the Trap of Loan Sharks

KOMPAS/KORNELIS KEWA AMA

Albertus Seran (right) and his wife Margaretha Seran, are all smiles after their home has been electrified in Silawan village of Belu, East Nusa Tenggara. The couple no longer lives in a darkened house, and also do not need to ask for electricity to be supplied from a neighboring village across the border in Timor Leste.

The use of the village funds for physical development is indeed necessary. However, community development and empowerment also need to be considered. That is why the village-owned enterprise (BUMDs) was established to empower the residents.

The trap of the loan sharks had long ensnared the residents of Kedungjaran village in Pekalongan regency, Central Java. With the interest rate as much as half of the loan principal, the people were suffocated, powerless. The presence of village-owned enterprises (BUMDs) focusing on financial services has changed everything. The residents became familiar with saving until they slowly became economically independent.

Ahmad Usman, 40, came down to park his motorcycle in front of a building of the former Kedungjaran village office in Sragi district some time ago. Then, he entered one of the rooms. Shortly thereafter, he took out a bank account book and some money from the pocket of his worn-out jacket. That day, he scheduled to deposit money. Two bank employees served him kindly.

Over the past two years, Ahmad, who runs a small garment business, has always deposited money at BUMDs Kedungjaran. This business entity can also accept deposits as low as Rp 1,000 (6 US cents). “If we go to a bank, there is a sense of shame when we deposit a small amount of money, not to mention if we see other customers carrying a bundle of money,” he said innocently.

Another perceived benefit of the presence of BUMDs is the low interest loan service. Previously, Ahmad said he had to borrow money from the

moneylenders because he was in need of money to buy additional sewing machines. The interest rate from the loan sharks is extremely high, around 50 percent. Meanwhile, the BUMDs only charges 10 percent.

BUMDs Kedungjaran was established in 2016, with the main service being banking access. The Kedungjaran village administration collaborated with Bank Negara Indonesia (BNI) through the Laku Pandai program. It means the BUMDs Kedungjaran serves as an agent that manages the banking customers. Saving, withdrawing money, transfers and all other banking services can be done through this village bank.

This inclusive financial climate is inseparable from the Villagers Saving Movement (Gemas Bunga Desa), which was implemented by the Kedungjaran village administration. The village administration made a breakthrough by issuing a village regulation that requires residents to have a savings account if they want to get a number of services at the village office. The requirement to open a savings account at the BUMDs Kedungjaran is easy: They only need to have a minimum savings of Rp 1,000. Then, they can access all services at the village office. “Slowly, the residents became increasingly aware of the benefits of saving. Now, 610 customers have registered,” said Kedungjaran village head Saridjo.

Rely on the loan sharks

The saving movement in Kedungjaran village, according to Saridjo, began in 2013. At that time, many residents were ensnared in debt to the loan sharks because they had no savings when there were emergency needs. The village administration then actively invited residents to open a savings account at the bank. However, the effort did not get much response. Villagers were still ashamed and reluctant to deal with conventional banking.

Then in 2016, through the Financial Services Authority\'s (OJK) Laku Pandai program, the Kedungjaran village administration collaborated

with BNI. The BUMDs was established with a focus on banking. To reinforce the policy, village regulations are issued regarding the obligation to have savings if the residents want to get village services.

Saridjo admitted there had been opposition to the policy because the residents think they are entitled to services under any condition. “We then discussed it, including inviting community leaders and religious leaders. It was explained that under the online system, the savings and money would not go anywhere but into the people’s own accounts,” he said.

Ultimately, the residents agreed with the new rules. With the obligation to deposit money, the citizens started to feel a positive impact. The village administration continues to improve its services, one of which is the availability of an emergency response car that is free of charge. Finally, more and more people joined and deposited money at BUMDs.

When opening an account, the residents get basic banking facilities, such as account books and ATM cards from BNI. There is no monthly administration fee even though the interest earned is relatively small. “What is being pursued is not the interest, but how the people can manage their finances,” Saridjo explained.

When they have savings, the residents can prepare their needs in advance. For example, in order to register for their children’s further education, before 2016, many residents complained that they did not have money for urgent needs. Then, they borrowed from the moneylenders.

However, in the past year this kind of case has become increasingly rare. The residents can access loans from BUMDs with a maximum amount of Rp 500,000. They can choose between 11-week or one-year installment periods. The interest rates are relatively low, ranging from 5 to 10 percent. At the BUMDs annual meeting, the residents will also get revenue sharing.

Village funds

The establishment of BUMDs, said Saridjo, was part of the efforts to prepare his village to be independent. He was aware that the village funds, which now amount to more than Rp 600 million, are not necessarily sustainable. Apart from relying on political policy, it could be that the funds will be stopped when the village development was considered complete.

For this reason, he did not want to see the use of village funds too focused on physical development. “From the percentage, the physical development is still big. However, community development and empowerment also needs to be considered. In 2018, we allocated Rp 100 million to BUMDs so that the benefits would be more felt by the community,” Saridjo said.

Aside from banking and loan access, other BUMD services include waste banks, tractor rentals and internet facilities. The garbage bank services are an added value for the community. After depositing trash, the residents get the money directly transferred to their savings accounts.

The internet facilities in Kedungjaran village were provided to respond to the development of information technology. “We encourage the use of positive internet by coaching the residents. Device availability is increasingly massive, so we teach them how to use the internet positively,” Saridjo said.

The internet is also highly used by the village administration to find cooperation opportunities. The Kedungjaran administration in collaboration with the Workers Social Security Agency (BPJS Ketenagakerjaan) inaugurated the Social Security Awareness Village movement. Through a village regulation (Perdes), the residents are encouraged to become members of BPJS Ketenagakerjaan. The goal is to protect the residents from the risk of workplace accidents.

“Every family, at least the breadwinner, needs to be registered with BPJS Ketenagakerjaan. At present, we don’t want to make it an obligation. But we do massive familiarization. The fee is Rp 16,800 per month. For the first month, the village will bear the fee,” he said. At present, in Pekalongan, there have been seven other villages trying to replicate this financial literacy movement in Kedungjaran village. However, Saridjo said, no other village has dared to include the saving movement into a village regulation.