Report 4 of 5: The Bamboo Business - Indonesia

Introduction

In Indonesia in the mid-1980s, nearly 37 million people lived in absolute poverty with incomes below the equivalent of 320kg of rice per year. Millions of small-holders, farmers, farm workers and fishermen were materially and financially unable to tap into the opportunities offered by 20 years of economic growth in the country and, with no collateral, there was no hope of obtaining a bank loan.

P4K is an income-generating project for marginal farmers and landless people in Indonesia. It operates as a credit scheme which is run by the Ministry of Agriculture and supported by the International Fund for Agricultural Development. P4K invests in people to develop their skills, widen their choices and improve their productivity. P4K’s Human Development strategy is to develop, through participatory guidance, the basic human assets of confidence, organisational skills and knowledge.

The first Income-Generating Project for Marginal Farmers and Landless (P4K I), carried out between 1980 and 1986, showed that low-income farmers and fishermen are credit worthy and show economic initiative if they are organised into self-help groups. In 1987, IFAD implemented P4K II which ran between 1988 and 1997. A third phase began in 1998. The objective of IFAD’s P4K II project was to raise the standard of living among the poorest rural families in 18 provinces of Indonesia by means of credit-supported farm and non-farm activities. It aimed to promote the formation of 32,750 self-help groups, strengthen 2,000 such groups already in existence and help group members obtain loans once they had developed solid savings habits and prepared a group business plan. These loans were granted at market rates to finance a wide range of activities that involved relatively small investments in terms of cash and labour.

P4K businesses

Group members selected approximately 200 different types of investment activities. Carried out mostly on an individual basis (although some collective endeavours were involved as well), activities range from livestock-raising to small-scale trade, food processing, handicrafts and micro-enterprises. Businesses in P4K include services such as carpentry; trading, for example, fish, cloth, vegetables; farming and food processing; and manufacturing, for example, bamboo baskets, knives, shoes, pottery and carvings; or any type of business that will increase family incomes. The P4K village groups are beneficiaries of frequent workshops and seminars where the groups learn bookkeeping and management, and also new techniques and new crafts. Traders in new groups in isolated villages pool transport to reach distant markets as a unit.

Target participants

• landless families with no regular income

• marginal farmers with insufficient land or very poor land

• farm labourers or sharecroppers

• fisherfolk

• handicrafters

• Group approach requires that guidance be offered to small groups rather than individuals, so that all members may feel empowered.

• Harmony requires that groups be made up of compatible people of similar background who trust each other and share common objectives.

• Emerging leadership is a natural outgrowth of the view that the group makes its own decisions. Leaders do emerge within the group.

• Partnership means group members are partners and P4K is their partner.

• Self reliance comes from adherence to all of these principles, reinforced by commitment to enterprise.

• Action learning is a creative process in which families improve the techniques of their work through practical application as they produce.

• Total family approach requires that guidance be given to husband, wife and children impartially – all learn, all develop.

• identification of project locations and potential resources

• appropriate small business survey

• identification of project participants

• encourage and guide low income families to form a self help group

• household survey of group members

• group business planning guidance

• guidance in saving and credit application

• guidance in group business implementation

• guidance in credit repayments and savings

• guidance in simple accounts bookkeeping

• marketing guidance

• guidance in capital accumulation and re-investment

• guidance in use of time and money

• guidance in inter group cooperation

• guidance in receiving services from other government institutions and NGOs

P4K managed to persuade one of Indonesia’s most reputable banks, the Bank Rakyat Indonesia (BRI), to offer massive credit at commercial interest rates to large numbers of people who by normal banking standards would never have been considered credit worthy. Credit is given to groups (not individuals) that have been established by agricultural Field Extension Workers. Group membership is between 8 to 16 people. They borrow as a group and save as a group.

Central to the P4K method is the flow of money to improve family income, and its control and reuse. Money is lent to the P4K groups in the form of credits and cash, which must be repaid with interest. The credits range from between US$50 and US$100 per group member annually. Typically groups are allowed three or four credits over an average of three or four years.

The loans are granted for a minimum period of 12 months, but can sometimes be for as long as 15 or 18 months for slow-payout enterprises, such as livestock fattening. A loan is given a maximum of four times and after that, the groups are on their own, having formed the habit of using credit, reinvesting their profits and expanding their range of activity.

Repayments

The relationship between the group and the bank is formalised in the business plan. The members are jointly and individually responsible for repaying the loan. The interest rate is 1% flat rate per month or 22.15% per year, compared to the money lender’s interest rate of up to 20% per month.

Repayment instalments vary from monthly repayments for fast turnover trading, to yearly repayments for some kinds of farming. Repayment of credit is made directly by the groups through a Bank Rakyat Indonesia Branch Office, mobile units or village service post.

For groups paying credit on time, a payment incentive of 2%, taken from the interest, will be given. Default in repayment alerts the field workers and the bankers who help identify the problem and correct it.

Results achieved

P4K has raised the income of the section of the rural community whose income is below the poverty level in Indonesia, by initiating a range of income-generating activities. It has also developed the organisational capabilities of the intended beneficiaries so that they have been able to improve their access to credit and extension services through small farmers groups, and initiate activities leading to improved levels of living for all members of their families.

The project’s success is attributable, first and foremost, to the groups’ newly found self-determination; participants have learned not only to save and invest their earnings but also how to manage their own affairs, build self-confidence and become self-reliant.

• Over 48,000 small farmers groups were set up by the Ministry of Agriculture extension services, 37% of the groups being made up exclusively of women and 25% mixed.

• Some 38,000 groups received at least one loan from BRI and nearly all of them received training in financial planning and management. Total savings stood at IDR 8.1 billion (US$3.3 million) and total borrowing amounted to IDR 113 billion (US$47 million), with a loan repayment rate of 86%.

• The incomes of participating families rose between 41% and 54% on average.

For further information, please contact:
 

Agency for Agricultural Education & Training, Ministry of Agriculture, E Building, 6th Floor, 3 Jalan Harsono RM, Jakarta 12550, Indonesia. Tel: +62 21 780 5035/5641/4386 Fax: +62 21 780 5209/4257	United Nations Development Programme 14 Jalan M.H. Thamrin P.O.Box 2338 Jakarta 10001 Indonesia. Tel: +62 21 314 1308 Fax: +62 21 314 5251
Mattia Prayer Galletti Country Portfolio Manager Asia and the Pacific Division IFAD Via del Serafico, 107 Rome 00142 Italy Tel: +39 06 5459 2294   Communications and Public Affairs Unit IFAD (address as above) Tel: +39 06 5459 2215 Fax: +39 06 5459 2143 / +39 06 5043463 Website: http://www.ifad.org/	Bank Rakyat Indonesia (BRI) Jakarta Jl. Jend. Sudirman No.44-46 P.O. Box 1094 Jakarta 10010 Indonesia Tel: +62 21 2510 244 Fax: +62 21 2500 077

Intermediate Technology Development Group would like to thank the Agency for Agricultural Education & Training in Indonesia, IFAD, in particular, Pascale de la Fregonniere, and the Bank Rakyat Indonesia for providing the original material on P4K.

This document is an output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of the DFID.

TVE/ Practical Action gratefully acknowledge support for the HANDS ON programmes from the UK's Department for International Development (DFID), the European Commission (EC), the UN Foundation and UNDP/The Equator Initiative in collaboration with the Government of Canada, IDRC, IUCN, BrasilConnects and the Nature Conservancy.