Tag Archives: Micro-finance

Fighting Loan Sharks in Indonesia

Fighting Loan Sharks in Indonesia

In villages and outlying regions of Indonesia they are politely called “mobile lenders”, but often the most accurate description of the motorcycle lenders is “loan shark” or lintah darat.  Usually travelling in pairs, these people visit the poorer communities and offer loans based upon little or no collateral, no need for formal paperwork or documentation, and instant approval. It sounds too good to be true … and thats because it is. What is not properly explained or disclosed is the extremely high rate of interest, or payment fees, that drag the borrower into a debt spiral.

Repayments can seem confusing because the “Sharks” break up repayments into monthly payments and add ridiculously high interest or fee components – forcing the extension of the loan and preventing all but a few from successfully repaying the debt.

Fear is a factor. The use of motorbikes is not just as a mode of transport. When pushed and revved they are also a weapon of intimidation.  The usual system is for two “collectors” one who goes to the borrower demanding their payment, whilst the other sits astride his machine in menacing form, as a sort of “pay or else” reminder that money must be paid.The alternatives are even worse, servitude, prostitution, sexual favours and a range of other sordid exchanges.

Formal lending institutions do not compete in this area. They offer micro lending but require formal documentation and savings histories that exclude those most in need of a micro loan.

Small NGOs and yayasans are an alternative. The micro lending program that Bamboo Micro Credit operates is a genuine answer to the fight against Loan Sharks. Bamboo offers loans that are interest free and, combined with our flexible arrangements, prevent borrowers from entering a debt spiral. Loaned funds still need to be repaid, but the debt never grows, it only shrinks as borrowers repay in line with their needs.

The criteria for these loans is based on each individual case. Bamboo values trust and respect above collateral and past history. Bamboo’s track record speaks for itself, with 95% of borrowings repaid. The limitation therefore, is simply one of scale. For every Bamboo loan there are hundreds of loan shark loans. As Bamboo’s portfolio grows however, the fight against loan sharks takes one step closer fixing the problem. Bamboo’s funds come from donations – so Bamboo’s interest free funding means that when a loan is repaid the money is used for another loan, and another, and another.

Bamboo Micro Credit.    Its not a hand out… it’s a hand up.

 

 

About the Author.

David Cook

David Cook is an Indonesianist, a technologist and an academic interested in poverty, social justice, CSR and Human Computer Interaction. He is a Director of Bamboo Micro Credit.

A reminder of how far Bamboo Micro Credit has come.

The story of how Bamboo Micro Credit came to be reminds us of an important message in understanding why we should look to change the lives of others even from the smallest of beginnings

Bamboo was conceived from an idea by Peter Johnston in 2007. He had visited Indonesia regularly since 2004 and realized that there were many poor people there who had minimal income and that there was an absence of State funded financial support systems for people without income. He also noted, however, that many successfully operated small businesses. He became aware that finance for these businesses was difficult to access for the majority, unless they had significant assets. Banks were not interested in lending to poor people, who often resorted to seeking funds from illegal money lenders, who charged extortionate rates of interest. It was clear that relatively small amounts of money could make a significant difference to peoples’ lives.

Peter had many years of experience as a social worker and community facilitator and felt he could use his experience to develop a program to provide affordable loans to poor people in Indonesia. Indonesia is Australia’s nearest neighbour and while the island of Bali is well known to Australians as a tourist destination, the majority of the remainder of the country, its population of almost 250 million, its culture and religions are little known. It is a newly emerging democracy, with a growing economy, but it is still a developing country, with poorly developed Government support services for its population. Unemployment and under-employment are chronic features of the economy and it is estimated that approximately 20% of employable Indonesians are without full time jobs.

During a visit to West Sumatra in 2007, Peter met a local tour guide in Bukittinggi and respected community worker, Fikar, and between them, they agreed to put into place a trial program of micro credit to a small group of local people. Using funds initially donated by Peter, this trial proved extremely successful and Bamboo Micro Credit came into being. The name Bamboo was selected because of the ubiquitous nature of the wood and its remarkable flexibility reflecting the nature of the organization.

In 2008, another branch was established in Bandung West Java with the help of a local volunteer. This was discontinued in 2010, but in 2012 a partnership was developed with PESAT, an NGO established in 1993 which installs clean water and sanitation in villages around Bandung. This partnership, which expanded PESAT’s existing small micro credit operation, is funded by Bamboo and greatly increases the opportunities for Bamboo to offer loans to potential borrowers in rural communities.

A new partnership with Daya Pertiwi Foundation was more recently signed and Bamboo added a third location in Indonesia. Daya Pertiwi has extensive experience in managing micro finance and Bamboo funds are now targeted towards loans for the poorest people in Malang in East Java.

Whilst other possible partnerships are continually being explored, Bamboo continues to make new connections and form new relationships as the micro-lending organisation takes root as an organisation that makes a difference in the lives of some of Indonesia’s poorest people.

Bamboo Micro Credit – It’s not a handout. It’s a hand up.

About the Author.

David Cook

David Cook is an Indonesianist, a technologist and an academic interested in poverty, social justice, CSR and Human Computer Interaction. He is a Director of Bamboo Micro Credit.