MFI Products vs Financial Dinamics of the Poor

7/29/2019 MFI Products vs Financial Dinamics of the Poor

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F I N A L R E P O R T


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TABLE OF CONTENTS

Table of contents .................................................................................................................................................... i

List of Tables ...................................................................................................................................................... iv

List of Pictures .................................................................................................................................................... v

Executive summary ............................................................................................................................................... vi

1. Introduction ................................................................................................................................................... 1

1.1 The reason of doing this research ......................................................................................................... 1

1.2 Questions to answer .............................................................................................................................. 1

2. The research area .......................................................................................................................................... 3

2.1 The City of Semarang ............................................................................................................................ 5

2.2 Semarang District .................................................................................................................................. 6

3. Research method .......................................................................................................................................... 8

3.1 Data sources .......................................................................................................................................... 8

3.2 Sampling process ................................................................................................................................... 8

3.3 Data collection ...................................................................................................................................... 9

4. The Low income household ........................................................................................................................ 10

4.1 Demographic condition of the sample ................................................................................................ 10

4.1.1 Family size ....................................................................................................................................... 10

4.1.2 Age .................................................................................................................................................. 11

4.1.3 Education ........................................................................................................................................ 11

4.2 Financial dynamics of the respondents ............................................................................................... 12

4.2.1 Income ............................................................................................................................................ 12

4.2.2 Occupation ...................................................................................................................................... 14

4.2.3 Living expenses and its source of funding ...................................................................................... 15

4.2.4 Non routine expenses and its sources of funding........................................................................... 16

4.2.5 Periods of no income ...................................................................................................................... 18

4.3 Savings, Investments and loans........................................................................................................... 19

4.3.1 Propensity to save .......................................................................................................................... 19

4.3.2 Savings instruments ........................................................................................................................ 20


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4.3.3 Investments .................................................................................................................................... 21

4.3.4 Attitude towards taking a loan ....................................................................................................... 23

4.3.5 Loans and Debt Service Ratio ......................................................................................................... 24

4.3.6 Loan amount and its use ................................................................................................................. 25

5. Financial services available, known and used ............................................................................................ 28

5.1 MFIs operating in the research area .................................................................................................. 28

5.2 Types of MFIs and its services ............................................................................................................. 28

5.2.1 BRI Unit ........................................................................................................................................... 32

5.2.2 Banks, Danamon Simpan Pinjam .................................................................................................... 33

5.2.3 BPR BKK the regional government owned BPR............................................................................ 33

5.2.4 Rural Bank (BPR) ............................................................................................................................. 33

5.2.5 Leasing companies .......................................................................................................................... 34

5.2.6 Cooperatives ................................................................................................................................... 34

5.2.7 BMT sharia (islamic law) based cooperatives .............................................................................. 34

5.2.8 Koperasi Unit Desa government sponsored farmers cooperatives ............................................. 35

5.2.9 Individual money lenders / quasi-cooperatives .............................................................................. 35

5.2.10 Pawn shop .................................................................................................................................. 35

5.2.11 Government programs: PNPM Mandiri, LKD, UPK ..................................................................... 36

5.2.12 Arisan .......................................................................................................................................... 36

5.3 MFIs Known Among the Respondents ................................................................................................. 41

5.3.1 Places to borrow ............................................................................................................................. 41

5.3.2 Loan requirements.......................................................................................................................... 42

5.3.3 Places to save .................................................................................................................................. 43

5.3.4 MFIs unwanted characteristics / Preference, reason for not using ................................................ 44

5.3.5 Distance still matter. ....................................................................................................................... 45

5.4 MFIs used by the respondents ............................................................................................................. 46

5.5 Outreach and loan sizes ...................................................................................................................... 48

5.5.1 Income level and the use of financial institutions .......................................................................... 48

5.5.2 Loan amount and interest rate ....................................................................................................... 50

5.6 Financial products available and needed ............................................................................................ 52

6. Issues on the demand side .......................................................................................................................... 54

6.1 Level of Education and income sources ............................................................................................... 54

6.2 Expenses and its source of funds ......................................................................................................... 55

6.3 Income expense fluctuation.............................................................................................................. 55


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6.4 Loan use and repayment ..................................................................................................................... 56

6.5 A place to save .................................................................................................................................... 56

7. Improvements needed on the supply side ................................................................................................. 57

7.1 Catering the need for loans ................................................................................................................. 57

7.2 A place for incidental cash surpluses ................................................................................................... 58

7.3 Preparing for the rainy days ................................................................................................................ 58


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LIST OF TABLES

Table 2-1: Main statistics of Central Java and the research area ........................................................................... 4Table 2-2 The Poverty Line in terms of Rp./capita/month. .................................................................................... 4Table 2-3 People living below poverty line, 2004 ................................................................................................... 5Table 2-4 The poor distribution by year and by region : Central Java and Indonesia, 2004, 2007 and 2008. ........ 5Table 2-5: The Growth of the Semarang City GDP in 2000 Constant Prices (Million Rp.) ..................................... 6Table 2-6: The growth of the Semarang Districts GDP in 2000 Constant Prices (Million IDR)............................... 7Table 3-1: Respondent by Area .............................................................................................................................. 9Table 4-1: Average number of family members ................................................................................................... 10Table 4-2: Respondents by Education .................................................................................................................. 12Table 4-3: Income distribution of respondents .................................................................................................... 12Table 4-4: Distribution of daily income per capita, in thousands of rupiah ......................................................... 13Table 4-5: Respondents occupation (As percentage of the population) ............................................................. 15Table 4-6: Additional income from family members ............................................................................................ 15Table 4-7: Monthly routine expenses and its source of funds ............................................................................. 16Table 4-8: Large expenses in 2008 and its source of funds .................................................................................. 16Table 4-9: Most common annual expenses and its amount ................................................................................. 17Table 4-10: Large expenses for income generating purposes .............................................................................. 17Table 4-11: Non Routine cash inflow and its use.................................................................................................. 18Table 4-12: Savings instruments used by respondents ........................................................................................ 20Table 4-13: Perceived best alternative investment instruments.......................................................................... 21Table 4-14: Types of Investment used at the moment ......................................................................................... 22Table 4-15: Reasons for not taking a loan ............................................................................................................ 23Table 4-16 Intensity of loan taking ...................................................................................................................... 24Table 4-17 Loan installment as percentage of monthly expenses....................................................................... 24Table 4-18 loan use .............................................................................................................................................. 25Table 4-19: loan amount by usage ....................................................................................................................... 26

Table 4-20: Track record of the first and the last loan received by respondents (in million rupiah) ................... 27Table 5-1: Formal Financial Service Providers Operating in The Research Area .................................................. 28Table 5-2 Savings product offered by MFIs .......................................................................................................... 29Table 5-3 group loans offered by MFIs ................................................................................................................. 30Table 5-4 individual loans offered by MFIs ........................................................................................................... 31Table 5-5 Loan Products of BRI Unit ..................................................................................................................... 33Table 5-6: Known places to obtain loans .............................................................................................................. 41Table 5-7: FSPs perceived as the best place to obtain loan .................................................................................. 41Table 5-8: Underlying reasons in choosing the best place of FSP to borrow money, by three geographical

institution .................................................................................................................................................... 42Table 5-9: Loan providers perceived to give adverse impact to its borrower ...................................................... 42Table 5-10: Loan requirements that are difficult to fulfill .................................................................................... 43

Table 5-11: Known place to save .......................................................................................................................... 43Table 5-12: Best place to save .............................................................................................................................. 44Table 5-13: Characteristics of a good chosen place to save ................................................................................. 44Table 5-14: Reasons for not using certain FSP ...................................................................................................... 45Table 5-15 Distance of financial service provider to home of respondents ........................................................ 46Table 5-16: relationship with financial service providers ..................................................................................... 47Table 5-17: The use of financial service providers................................................................................................ 48Table 5-18: Detail information of the lowest income families with monthly income of less than Rp. 750,000... 50Table 5-19: Loan amount and interest rate .......................................................................................................... 51Table 5-20: Characters required in savings instruments ...................................................................................... 52Table 5-21: MFI products used by low income people ......................................................................................... 53


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LIST OF PICTURES

Figure 2-1: Indonesia .............................................................................................................................................. 3Figure 2-2:Central Java ........................................................................................................................................... 3Figure 4-1: Family size distribution of low income families.................................................................................. 10Figure 4-2: Age distribution of head of household ............................................................................................... 11Figure 4-3: Income distribution of respondents ( x Rp. 1000 per month) ............................................................ 13Figure 4-4: Distribution of daily income per capita, in thousands of rupiah ........................................................ 14Figure 4-5: Financing sources in time of no income ............................................................................................. 19Figure 4-6: Savings as percentage of monthly income ......................................................................................... 20Figure 4-7: Saving instruments used by respondents .......................................................................................... 21Figure 4-8: Existing investment instruments ........................................................................................................ 22Figure 4-9: Size of loans installments as percentage of monthly expenses ......................................................... 25Figure 5-1: Use of Financial Service Provider by declared monthly income ......................................................... 49Figure 5-2: Range of effective interest rate charged by different financial service providers*) .......................... 51


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EXECUTIVE SUMMARY

In an attempt to develop micro finance activities in Indonesia, supporting financial services that

really serve the needs of low income people is crucial. Financial Institutions worth supporting

are those providing products and services that can help low income people reduce their

financial problems and live a better life. This small research is performed to find preliminary

answer to what financial products are really needed by low income people in making their life

better. Based on answers from 202 respondents in urban, peri urban and rural areas around

Semarang, information about financial dynamics of small income families is mapped and their

need for financial services analyzed.

One important function of financial services is to smooth out fluctuations in both income andexpenses so that the families can manage their life more efficiently. Fluctuation in expenses

already have a lot of attention resulting in many loan product designs offered to low income

people by MFIs operating even in remote rural areas.

At the moment, MFIs have more emphasis on providing loans and lacking attention in offering

products related to income fluctuation. Data collected shows that funding household expenses

from loans cost the low income families up to 10% of their income on top of the prices of the

goods they bought using that loan. In another word, if they can finance these householdexpenses without taking loans, they will become 10% richer. A product that helps low income

families set aside payments for some large expenses before rather than after the event may

reduce this undesirable impact of loan. A term saving may be an alternative solution to it.

Respondents prefer to have loans granted conforming to the time and amount of their needs.

They do not take loans regularly and only one respondent have loans at all times. Of all 202

respondents, only 46 % of them has loans outstanding at the time of the survey. It is not

uncommon for a client to cease borrowing for a long period of time and re-approach theprevious lender for a loan sometime in the future. Thereby, loan product expected by

respondents are those they can tap whenever needed and at an amount appropriate to the then

situation, not the one that require them take larger loan every time they have repaid the

previous one.

During the last year, 20% of respondents have unexpected large expenses in the form of health

care costs at an average amount of Rp. 2,500,000 per family, or 1.67 times of their average

monthly income. A micro health insurance may help these low income families reduce the

severity of this unexpected emergency expense.


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Fluctuation of income has not yet receiving sufficient attention. No less than 65% of

respondents have large cash inflow last year and half of them use it for routine expenses. The

respondents can not find MFIs saving products that can serve their expectations. They need

saving product that is safe, simple, liquid and do not deplete their savings value. It should also

allow small amounts of deposits.

Another important issue is instability of employment. Close to 30% of respondents experienced

periods of no income due to temporarily unemployed. During such time, they are not qualified

for taking loans nor repay loan installments, thereby should finance their livelihood from their

own saving. Again, an appropriate place to save is needed in this case, to prepare for difficult

times.

Within 5 km of the respondents houses operates many different kinds of MFIs with variousproducts. All MFIs offer loans but mostly for large amount only and require collateral, just as

claimed by many publications. Strangely, the respondents do not seem to bother with the

requirements. 30% of the lowest income families are using the services of formal financial

institutions at the moment. Still, re-design of saving and loan products to better serve the need

of low income families is needed. Creative approach is needed to provide small amount of loans

to cater individual needs of the borrower and allowing them to cease borrowing if they do not

need it. Of course, at reasonable cost. At the moment, such loans are offered by state owned

pawn shop, cooperatives and arisans.

A place to save is still an issue.

Only banks and cooperatives are legally allowed to accept savings. Banks are considered safer

but mostly require large deposits and charge monthly fee, two requirements not favored by the

respondents. Some cooperatives accept small amount savings, such as BMT and KUD. Many

respondents use arisans to save but majority of respondents keep their savings at home, an

indication that saving products available are not yet appropriate to the needs of respondents of

low income families.


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1. INTRODUCTION

1.1 THE REASON OF DOING THIS RESEARCH

The Indonesian microfinance industry is perhaps the largest in the world, encompassing over

50.000 institutions. In terms of market share, the industry is characterized by the dominance of

commercial, formal institutions. The microfinance sector is currently comprised of a wide array

of public, private and donor-sponsored institutions, ranging from informal associations to

commercial banks. Major players are among others: BRI Units, BPRs, cooperatives, credit unions

and to a lesser degree NGO-type MFIs and some commercial banks.

Despite of its size, the majority of Indonesian microfinance institutions are considered to havelow outreach, inefficient liquidity management, limited product offerings and limited

engagement with technology. Unlike the microfinance industry in many other countries, an

individual lending approach has been more prevalent than group lending in Indonesia. In

addition to this, most MFIs have not been exposed to microfinance best practices and because

of this are perceived to be not or not to its full potential reaching out to the lowest segment of

the market.

MFIs in Indonesia tend to cluster in urban and peri urban area mainly in Sumatra, Java and Baliwith Nusa Tenggara, Maluku and Irian Jaya barely serviced. To develop MFI coverage in the

eastern part of the country, examples of good practices in the currently better serviced area

with proven result will increase the possibility of success and improve the impact towards the

community it serves. A deeper look into what MFIs do and their impact on the client will give

information to be the starting point in supporting the growth of microfinance movement in the

eastern part of Indonesia.

1.2 QUESTIONS TO ANSWER

This research will address the following research questions:

What product and services of MFIs are available and needed by small income people?

What unfulfilled needs and how they do about it?

What institutions known among the respondents and what types of products are

provided?

What MFIs and products are preferred by the respondents?

What gaps exists and what are the reasons?


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What is the impact in using microfinance services by respondent?

The objectives of the present research deal with: firstly to undertake a study to obtain more

information about demand and supply of microfinance services by poor household in

Semarang and its surroundings; secondly, based on the outcome of the above: to analyze andrecommend how the match between demand and supply can be improved.

During the follow-up of this study, the information obtained will be used to improve the match

between demand and supply of microfinance services in Semarang and its surroundings, as well

as to make this information available on a national level so others can benefit as well from this

information. And the specific objectives are:

To provide a complete overview of the demand for microfinance services by the

productive poor in an urban, peri-urban and rural area (three distinct geographicalareas).

To provide a complete overview of the providers of microfinance services in the above

mentioned three geographical areas.

To indicate the quality of the services offered, with a special focus of the application of

microfinance best practices to serve poorer segments of the market which are not yet

being served.

Based on the above analyze and recommend how to improve the match between

demand and supply.


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2. THE RESEARCH AREA

Figure 2-1: Indonesia

Figure 2-2:Central Java

This research is conducted in Central Java Province, especially in Semarang City and Semarang

District. Central Java covers an area of 32,548 km, or approximately 25.04% of the island area.

Central Java


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Administratively, the Central Java Province consists of 29 regencies and 6 cities, with 565

districts and 7804 villages.

Table 2-1: Main statistics of Central Java and the research area

Central Java Province City of Semarang Semarang District

Total land area 32,548 km2 373.70 km2 950.21 km2Number of sub-districts 565 16 19Number of villages 7.804 177 27Population (2006) 32.177.730 1.468.292 890.898GDP Growth rate (2006-2007)

5.59% 5.98% 4.72%

Dominant business sector Industry Trade, hotel and restaurants Industry

After West and East Java, Central Java is the third most populous province in Indonesia, with

19% of its population living below poverty line, compared to 15% nationwide. Within Central

Java, Semarang city is number five in terms of population density with 3929 population perkm2, while Semarang district is about average at 954 populations per km2.

Poverty line is calculated by food and non food expenditure per capita. Necessity of food is

calculated by the amount of money spent for food to reach the minimum energy consumption of

2100 calories per capita per day. Necessity for non food is calculated by the amount of money

spent for adequate level of consumption for housing, clothing, health, education, transportation

and other basic needs. The amount needed for food consumption is determined by the price of a

basket of 52 items of food while the non food number is coming from the price of a basket of 46non food items. In comparison with non food, consumption for food dominates the

expenditures in both rural and urban, accounted for 77% and 73% of total expenses

respectively, on average it is 74.15%. The poverty line differ by area (rural versus urban) and by

year due to inflation adjustment.

Table 2-2 The Poverty Line in terms of Rp./ capita/month.

Year Rural Urban

March 2007 140.803 168.186March 2008 152.531 184.705

In 2008, the rural and urban poor in Central Java is 6,19 million people or 19% total populationof Central Java, and in national level it is 34,96 million or 15% of total population.


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Table 2-3 People living below poverty line, 2004

Indonesia Central Java Semarang city Semarang district

Poverty line, monthly per capita Rp. 122,775 Rp. 126,651 Rp. 133,814 Rp. 123,907

Total population 218,868 31,978 1.406,2 885,5Number of people living below poverty line 36,147 6,844 79,000 121,300Percent poverty 17% 21% 5.6% 13.68%Source: Biro Pusat Statistik & Jawa Tengah Dalam Angka, latest data available for all area is for 2004.

At national level, the poor population is decreasing overtime in relative term but it is almost

remain unchanged in absolute term. By the end of 2007, the national poor accounted for 37.170

person close to total population of Central Java. On the contrary, in Central Java, percentage of

people living below the poverty line remains about the same. The majority of them or 58.79%

are living in urban area.

Table 2-4 The poor distribution by year and by region : Central Java and

Indonesia, 2004, 2007 and 2008.

No Region / Population CategoryYear (in thousand population and %)

2004 2007 2008

A Central Java1. The Poor 6.840 21% 6.557 20% 6.189 19.0%

2. Total 32.420 100% 32.380 100% 32.626 100%

B Indonesia1. The Poor 36.150 17% 37.170 16% 34.960 15%2. Total Population*) 216.990 100% 225.642 100% 228.523 100%

C The PoorCentral Java 6.840 19% 6.557 18% 6.189 18%Indonesia 36.150 100% 37.170 100% 34.960 100%

Source : BPS, 2009 Note: *) Projection

In August 2008, labor force in Central Java amounting to 16.690.966, of which 15.463.658 are

employed. It makes unemployment rate to be 7.35%, higher than February 2008 at 7.12% but

better than a year before that was 7.70%.

Semarang city rank 6 in unemployment compared to 35 cities and districts in Central Java, and

Semarang District has more of its population having a job at rank 24.

2.1 THE CITY OF SEMARANG

Semarang city is the Capital of Central Java. It is located at the middle of the North Coast of Java,

with a total area of 373.70 km2. Semarang City is divided into 16 sub-districts and 177 villages.

Based on the 2006 Annual Report of the Mayor of Semarang, the population of Semarang city


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was 1,419,478 inhabitants. In the year of 2006 it becomes 1,433,699, with 711,617 male and

722,082 female, a growth rate of 1.01 percent.

Average GDP annual growth rate of Semarang City during the years of 2000 to 2006 is 4.65%.

Largest contribution to GDP comes from Trade, Hotels and Restaurants (THR) Sector covering30.38% of total GDP, followed by the Manufacturing (27.37%), Construction (14.82%) and

Services (12.13%). Construction Sector showed the highest growth rate of 8.46%, followed by

Electricity, Gas and Water (5.82%) and the Transportation and Communications (5.66%).

Semarang City position as the provincial capital with supporting infrastructure such as air and

sea port has a role in supporting this growth.

Table 2-5: The Growth of the Semarang City GDP in 2000 Constant Prices

(Million Rp.)

Sectors 2002Share

(%)2006

Share

(%)

Growth

(%)Agriculture 190,851 1.34 213,730 1.25 2.87Mining 26,421 0.19 29,043 0.17 2.39Manufacturing 4,116,601 28.95 4,668,417 27.37 3.19Electricity, gas and water 180,034 1.27 225,734 1.32 5.82Construction 1,826,153 12.84 2,527,078 14.82 8.46Trade, hotel and restaurant 4,404,338 30.98 5,182,067 30.38 4.15Transport and Communication 1,310,052 9.21 1,633,054 9.58 5.66Finance, rental and Business Services 462,807 3.25 507,540 2.98 2.33Services 1,701,238 11.96 2,068,544 12.13 5.01GDP 14,218,499 100 17,055,212 100 4.65

2.2 SEMARANG DISTRICT

Administrative boundaries of Semarang District are Kota Semarang and Demak District at its

North, Boyolali and Magelang Districts in the South, Districts of Grobogan and Boyolali at the

East, and Districts of Temanggung and Kendal in the West. In the middle of the Semarang

District sits the City of Salatiga. Semarang District covers a total land area of 95,020.674 Ha, or

2.92% of Central Java Province area. Considering of land use, the area consists of 24,417.939 Ha

of rice fields (25.7 percent) and 70,602.7348 Ha of non-rice field (74.3 percent).

Based on 2007 data, the population of Semarang District was 906,112 people, with 449,740 men

and 456,372 women. Compared to the previous year there is a growth of 0.73 percent, making

the population density 954 per km2.


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Table 2-6: The growth of the Semarang Districts GDP in 2000 Constant

Prices (Million IDR)

Sectors 2002 Share 2006 ShareAnnual Growth

rate

Agriculture 637,850 15.45 616,562 13.25 -0.85Mining 4,559 0.11 5,491 0.12 4.76Manufacture Industry 1,886,452 45.69 2,177,770 46.81 3.66Electricity, gas and water 30,240 0.73 38,846 0.84 6.46Construction 147,288 3.57 175,538 3.77 4.48Trade, hotel and restaurant 899,570 21.79 1,017,185 21.87 3.12Transport and communication 74,072 1.79 98,132 2.11 7.28Finance, rental and Business Service 122,366 2.96 149,703 3.22 5.17Services 326,078 7.90 372,811 8.01 3.41GDP 4,128,481 100 4,652,041 100 3.03

Source: Kabupaten Semarang Dalam Angka 2007

According to year of 2000 constant price, the Semarang District average GDP annual growth

rate for the period of 2002 up to 2006 was 3.03%, with the industry Sector gives the largest

contribution (46.81%), followed by the sectors of THR (21.97%) and Agriculture (13.25%).


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3. RESEARCH METHOD

3.1 DATA SOURCES

Data used in this research are both secondary and primary data. Secondary data used in this

research are data that is available, both from the Central Bank, Indonesian Statistic Bureau

(BPS) and other related institutions such as the Bappeda, the office of Industry, Trade and

Cooperation, and the office of Agriculture. Primary data from the field is obtained through

interviews with respondents according to the guidance list of questions that have been tested

before the research was conducted. Secondary data on demographic condition of the research

area also plays an important role in the sampling process, as explained below.

3.2 SAMPLING PROCESS

The unit of observation in this research is a productive poorhousehold who is living in rural,

urban and peri urban areas with a planned sample size of 60 respondents in each area using a

stratified random sampling technique.

For rural area, we choose villages that have most rural characteristics, two villages that are the

closest and the farthest from the sub-district capital. In Peri urban area, two sub-districts withdifferent characteristics are chosen, one near to industrial area, the other closer to agriculture

area. Both villages are ones that are near to the sub district capital. For urban area, the villages

chosen are those known to have many poor families. Based on the above criteria, the chosen

survey areas are Sub-Districts of Bringin for the rural area, Sub-District West Ungaran and Sub-

District East Ungaran for the peri urban area, all at Semarang District, and Sub-Districts of

Tembalang, Central Semarang and North Semarang, all at Semarang City for the urban area.

The sample of low income household is chosen based on the list of low income people (Daftar

Penduduk Miskin), a report published by Regional Development and Planning Board (Badan

Perencanaan Daerah - Bappeda) of Semarang City and Semarang District. Next step is to find

proportion of population by occupation. The sample is meant to have the same proportion as

the population.

Observations were planned to cover the behavior of households in dealing with their financial

situations, the use of various financial services providers to pay for all household expenses and

also household saving pattern. On the other side, this research is expected to uncover the role of

MFIs in helping their clients in managing day-to-day risk and take advantage of economic


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opportunities and also on whether it takes part in reducing the incidence and severity of

poverty. Thus the observation in this research includes the demand and supply of MFIs.

3.3 DATA COLLECTION

The actual number of respondents interviewed is 202 families with details as shown in the table

below:

Table 3-1: Respondent by Area

Areas Sub District Frequency %

Rural Bringin 70 34.65Peri urban West Ungaran 33 16.34

East Ungaran 30 14.85

Sub-total Peri-urban 63 31.19Urban Central Semarang 21 10.40North Semarang 24 11.88Tembalang 24 11.88

Sub-total Urban 69 34.16Total 202 100


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4. THE LOW INCOME HOUSEHOLD

4.1 DEMOGRAPHIC CONDITION OF THE SAMPLE

4.1.1 FAMILY SIZE

Figure 4-1: Family size distribution of low in come families

Table 4-1: Average number of family members

Surveyed families

average 4.33rural 3.96peri urban 4.38urban 4.65

Population statistics

Semarang District 3.70Semarang City 3.80

Compared to the average family size for Semarang City and Semarang District, surveyed families

tend to have larger families, an average of 4.33 members per family compared to 3.8 for

Semarang City and 3.7 in Semarang District.


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4.1.2 AGE

In terms of age, the productive poor in urban area tend to be older than their fellow in peri

urban area, but younger than those in rural area. The urban families have head of families at the

age of around 40 to 50, in peri urban area it is around 30 to 40 and in rural area above 50.

Figure 4-2: Age distribution of head of household

4.1.3 EDUCATION

Majority of respondents have education only up to junior high school only. Population of high-

school graduates is much higher in urban area, 42% of population compared to 22 % in rural

area and 26 % in peri urban area. It is not a surprise to see people in rural area have lower

education level compared to those working in urban and peri urban area, but strangely in

periurban area we found more people who did not finish their elementary education.


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Table 4-2: Respondents by Education

Number Cumulative percent

Education Level RuralPeri-

urbanUrban All Rural

Peri-

urbanUrban All

Bachelor 1 3 3 7 1.42 4.76 4.34 3.46Diploma 4 2 2 8 7.14 7.93 7.24 7.42Senior High School 11 12 24 47 22.86 26.98 42.03 30.69Junior High School 13 14 15 42 41.43 49.21 63.77 51.49Primary School 25 14 20 59 77.14 71.43 92.75 80.69No Schooling/Did notComplete Primary Education

16 18 5 39 22.9 28.6 7.25 19.3

4.2 FINANCIAL DYNAMICS OF THE RESPONDENTS

4.2.1 INCOME

Even though respondents are selected based on the list of low income families that are

supposed to have per capita income below Rp. 168,168 (US$ 16.35/month) per capita per

month, respondents are coming from Rp 83,000 to Rp. 7,000,000 monthly income brackets, and

close to 15 % of sample families have income above US$ 2 per day per capita. Income

distribution of respondents is shown in the following graph.

Table 4-3: Income distribution of respondents

Income

(IDR. 000) per month

Areas

Total %Rural %

Peri-

urban% Urban %

< 500 9 12.86 1 1.59 1 1.45 11 5.45501 - 1.000 15 21.43 17 26.98 6 8.70 38 18.811.001 - 1.500 22 31.43 16 25.40 27 39.13 65 32.181.501 - 2.000 6 8.57 12 19.05 16 23.19 34 16.832.001 - 2.500 9 12.86 11 17.46 8 11.59 28 13.862.501 - 3.000 4 5.71 1 1.59 9 13.04 14 6.933.001 - 3.500 1 1.43 2 3.17 1 1.45 4 1.98

> 3.501 4 5.71 3 4.76 1 1.45 8 3.96Total 70 100 63 100 69 100 202 100


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Figure 4-3: Income distribution of respondents

( x Rp. 1000 per month)

Sample families in rural area have lower monthly income compared to the low income families

in peri urban and urban areas, but because urban poor have larger families, the per capita daily

income is about the same.

Table 4-4: Distribution of daily income per capita, in thousands of rupiah

Income

(IDR. 000) per day

Areas

%Rural %

Peri

urban% Urban % Total

0-5 13 18.57 7 11.11 3 4.35 23 11.39> 5 - 10 16 22.86 23 36.51 24 34.78 63 31.19> 10 -15 18 25.71 10 15.87 21 30.43 49 24.26> 15 - 20 13 18.57 12 19.05 12 17.39 37 18.32

> 20 - 25 2 2.86 4 6.35 5 7.25 11 5.45> 25 - 30 2 2.86 5 7.94 3 4.35 10 4.95> 30 6 8.57 2 3.17 1 1.45 9 4.46Total 70 100 63 100 69 100 202 100


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Figure 4-4: Distribution of daily income per capita, in thousands of rupiah

41% of respondents in rural area, 47% in peri-urban and 39 % in urban population are living onless than US $ 1 per day or slightly above the government defined poverty line. Most of the

respondents have Rp 15,000 or lower daily income per capita or a total monthly income of Rp.

1.5 million or lower.

4.2.2 OCCUPATION

Majority of the population have main occupation as farmers and laborers: farmers in rural area,

farmers and factory laborer in peri urban area and factory laborer in urban area.

To have better income, 28.22% of them have more than one income sources, with farm laborers

and small shoppers/petty traders as the main alternative occupation in rural and peri urban

area, and handyman/casual service providers in urban area. Detail occupation of the

respondents can be seen in the following table.


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Table 4-5: Respondents occupation

(As percentage of the population)

Main occupation Rural Peri urban Urban Total

Farmer 38.57 22.22 13.04 24.75Factory laborer 12.86 22.22 28.99 21.29Petty trader/small shoppers 12.86 11.11 15.94 13.37Casual labor (construction) 11.43 7.94 8.70 9.41Government employees 11.43 11.11 4.35 8.91Casual service provider/ handyman 1.43 1.59 20.29 7.92Casual labor (farm) 11.43 6.35 0.00 5.94Entrepreneur 0.00 11.11 7.25 5.94

Public transportation 0.00 3.17 1.45 1.49Private employee 0.00 3.17 0.00 0.99Second occupation Rural Peri urban Urban Total

Casual labor (farm) 11.43 4.76 0.00 5.45Entrepreneur 7.14 4.76 2.90 4.95Farmers 7.14 4.76 0.00 3.96

Service provider / handyman 1.43 3.17 7.25 3.96Casual labor (construction) 4.29 0.00 4.35 2.97Traders / small shoppers 1.43 3.17 2.90 2.48Public transportation 2.86 1.59 1.45 1.98Part time employee 2.86 1.59 0.00 1.49Factory laborer 1.43 0.00 1.45 0.99No second job 60.00 76.19 79.71 71.78

Some families have more than one income earners, as shown in the following table. Most

families support their living with two sources of income.

Table 4-6: Additional income from family members

Urban Peri urban Rural Total

Number of sample family 69 63 70 202Number of family head having a second job 14 15 28 57Number of family with at least two income earners 42 40 35 117Number of family with at least three income earners 7 4 5 16Number of family with four income earners 0 1 1 2Avg monthly income of first occupation 1,119 1,047 1,045 1,071Avg monthly income of second occupation 575 474 342 447Avg monthly income of second family member 694 691 802 725Avg monthly income of third family member 592 612 430 546

Avg monthly income of fourth family member 0 700 500 600Avg total monthly family income 1,719 1,650 1,575 1,645

4.2.3 LIVING EXPENSES AND ITS SOURCE OF FUNDING

As shown in the following table, 9 respondents or 4.5% of the population finance at least part of

their basic daily needs from loans, even though most families manage to fund their expenses

with their own cash, and quite a good proportion have savings as source of additional funds.


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Table 4-7: Monthly routine expenses and it s source of funds

ExpensesSources

# of answers cash savings donation loan

Utilities 201 193 19 6 3

Basic daily needs 200 198 17 8 9Children pin money 132 126 5 3 3Transportation 130 129 4 0 0Communication 109 108 0 1 0Loan installment 103 99 6 1 3Education 101 93 3 4 4Saving 87 86 1 2 0Other 36 34 1 0 0

4.2.4 NON ROUTINE EXPENSES AND ITS SOURCES OF FUNDING

Most common large non routine expenses that the respondents remember are cultural

occasions, education, health care and social dues and donations. Next are expenses that can be

planned in advance such as house repair, vehicle purchase and house rent. Less common are

large expenses that have investment or asset building nature such as livestock purchase,

starting a new business, and loan repayment.

The need for health care and education expenses is experienced by 44 and 43 families

respectively. That is 20 % of the population. 150 respondents have up to five large extraexpenses during the last year. For these non routine expenses, most respondents cited cash and

savings as their source of funds, as seen in the following table:

Table 4-8: Large expenses in 2008 and its source of funds

Expenses Funding source

Needs Incidence Cash Savings Donation Loan

Cultural occasions (cultural meals,wedding shower, receptions)

49 37 7 7 6

Education 44 32 17 1 9Health care, hospitalization 43 25 15 16 5Social dues and donations 36 27 15 2 4House repair/construction 25 12 13 1 8Vehicle purchase 14 5 9 2 5Funeral 6 2 4 0 2House rent 6 5 0 0 1Livestock purchase 2 1 1 0 1Loan repayment 2 1 0 0 1Giving birth 2 0 2 1 0Car/motorcycle repair 2 1 1 0 0Land property purchase 1 1 0 0 1Recreation 1 0 1 0 0Cell phone purchase 1 0 1 0 0Total *) 234 149 86 30 43Percent 63.68 36.75 12.82 18.38*) One family may have more than one large expenses and finance it with more than one funding sources


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While education and health care ranks 2 and 3 as the most common large expenses among the

low income families, in terms of financial amount, vehicle purchase and house repair takes more

of respondents cash resources, followed by cultural occasions such as wedding parties and

other cultural meals.

Table 4-9: Most common annual expenses and its amount

Expenses IncidenceLargest

amount

Smallest

amount

Average

amount

Average w/o

max & min

amt

Vehicle purchase 14 13,500 500 6,946 6,936House repair/construction 25 50,000 100 7,945 6,390Cultural parties (ceremonies, shower,reception)

49 73,000 50 5,341 3,924

Health care 43 15,600 27 2,501 2,236Funeral 6 6,000 169 2,069 1,562

House rent 6 4,000 40 1,564 1,336Education 44 6,100 50 1,142 1,041Social dues and donations 36 2,400 10 376 327

For households large non routine expenses, most families rely on cash available and savings

liquidation. Donation from relatives and neighbors are a significant source of funding for health

care and hospitalization. Loan is used in less than 20 % of all cases. It is different from the case

for business expenses as explained below.

Last year, large expenses for business purposes experienced by 43 families. None of those

expenses are financed by donation. More families use loans to finance their business needscompared to personal needs, which is 25% compared to 18%.

Table 4-10: Large expenses for income generat ing purposes

Incidence Cash Savings Donation Loan

Repair of business tools andequipments

9 7 1 0 2

Working capital 9 6 1 0 3Loan repayment 8 7 2 0 0Business expansion 7 0 4 0 3

Start a new business 6 1 2 0 3Rental payment of business premises 5 3 1 0 2Purchase of business property 5 5 0 0 1Loss recovery 4 3 3 0 0Purchase/rent of machines & tools 1 1 0 0 0Total 52 33 13 0 13

Percent 63.46 25.00 0 25.00

When asked about large income during the last year, large cash inflow that they can remember

are profits from business activities (including house rent), savings liquidation and loan

disbursements. 65 % of the populations have large non routine income during the last year,

about one third of them set aside part of their large incidental income for saving, while half of

them use it for routine expenses.


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Following is the data on non routine cash inflow cited by the respondents. From figures in the

table below we can see that more people in rural area have non routine income albeit with

smaller amounts - but less people have business investments compared to people in the urban

area. While in the city low income families obtain additional income from business activities,

people in rural area have more savings in the form of livestock and timber yard they can

liquidate in time of needs.

Table 4-11: Non Routine cash inf low and its use

Source of cash flow IncidenceAverage per

tx (Rp 1000)

Usage

Saving

Non routine

large

expenses

Loan

repay

ment

Routine

expenses

Income

generating

Rural area

Saving liquidation 22 5,625 6 10 1 8 3Asset sale 0 0 0 0 0 0 0Harvest 14 2,638 8 3 2 9 1Business activities 3 23,167 2 2 0 0 0Bonus & prizes 16 2,399 6 3 1 6 0Loan 4 1,250 1 2 0 1 0Donations 22 3,475 7 6 2 13 1Other 0 0 0 0 0 0 0Total 81 4,321 30 26 6 37 5

Peri urban area

Saving liquidation 9 12,933 0 4 1 0 1Asset sale 1 13,500 1 1 0 1 0Harvest 10 3,409 6 0 2 6 1Business activities 3 1,833 3 1 1 2 0

Bonus & prizes 9 2,517 4 4 3 5 0Loan 10 2,413 2 3 2 5 3Donations 12 4,963 3 3 0 0 0Other 3 16,333 1 1 1 0 0Total 57 5,699 20 17 10 19 5

Urban area

Saving liquidation 3 1,600 1 1 0 2 0Asset sale 3 10,600 1 2 0 1 0Harvest 4 1,873 3 1 0 4 0Business activities 7 1,886 4 1 4 6 0Bonus & prizes 9 2,381 3 5 0 2 1Loan 10 6,525 0 4 0 4 5Donations 9 24,977 1 2 0 5 0

Other 3 2,500 0 1 0 1 1Total 48 7,839 13 17 4 25 7

4.2.5 PERIODS OF NO INCOME

Close to 30 % of the population have experienced periods of no income. The length of time with

no income ranged from several days to one year, with rural population experienced longer

periods while urban population have shorter periods of no income. The prevalence of

temporary unemployment also higher in rural area where 37% of population have experienced


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temporary unemployed period, while in peri urban and urban area the numbers are 25% and

14% respectively.

The chance of being temporarily unemployed also relates to type of job. Construction workers,

farmers and fishermen have much higher chance of temporarily having no income compared toemployees or factory laborer.

During the period of no income, the respondents finance their living expenses from the

following sources, some families use up to three sources of funds. Most families rely on their

savings that may take a form of livestock or timber, or gold jewelry. The second source of

financing is loan and the third is trying to find a job albeit with lower income.

Figure 4-5: Financing sources in time of no income

4.3 SAVINGS, INVESTMENTS AND LOANS

4.3.1 PROPENSITY TO SAVE

87 out of 202 respondents save regularly, more than half below 5 % of their monthly income.

Surpluses are mostly invested as livestock or business assets, and some as gold jewelry.


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Figure 4-6: Savings as percentage of monthly income

4.3.2 SAVINGS INSTRUMENTS

If asked about a place to save, 136 out of 202 respondents cited BRI as a place where their

neighbors put their savings. Next are arisans, commercial banks and cooperatives cited by 48,

36 and 36 respondents respectively, with BPRs lagging behind, cited by 24 respondents

(detailed numbers presented in chapter 5).

When it comes to their own saving, most respondents put their savings as cash at home. Next in

line are banks, arisans, cooperatives, individual or informal institutions and lastly BPRs.

Table 4-12: Savings instruments used by respondents

Savings media RuralPeri-

urbanUrban Total

Cash at home 35 32 50 117Arisan 11 3 7 21BRI 11 5 3 19Cooperatives 9 4 0 13Bank - non BRI 2 5 2 9Individual 1 4 1 6School 0 2 2 4BPR 3 0 0 3Goods 1 0 1 2

Working capital 1 0 0 1Total 74 55 66 195


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Figure 4-7: Saving instruments used by respondents

4.3.3 INVESTMENTS

Even though financial institutions are available in their neighborhood, most respondents choose

to keep their savings at home, both as cash and in kind. Investments are kept in the form ofgoods such as livestock, timber yard, or gold. Small business owners almost always use extra

cash for business expansion, in a believe that it gives them best return.

Below is a list of investment instruments the respondents consider as the best alternative

whenever they have surplus or extra income.

Table 4-13: Perceived best alternative investment instruments

Alternative of investment Rural Peri urban Urban Total

Livestock, saplings 24 13 2 39Business tools & working capital 10 8 10 28Gold 5 7 4 16Property 4 1 2 7House repair, building material 3 1 3 7Motor vehicle 0 2 1 3Fertilizer 1 1 0 2Crops 1 1 1 3Other 2 1 1 4Total 50 35 24 109

other = arisan, education, daily needs and savings account

It does not differ much from investment they have at the moment, as listed below:


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Table 4-14: Types of Investment used at the moment

Alternative of investment RuralPeri

urbanUrban Total

Livestock, saplings 25 10 2 37Business tools & working capital 12 6 4 22Gold 4 6 4 14Property 2 2 1 5House repair, building material 2 1 2 5Motor vehicle 2 1 1 4Fertilizer 1 2 1 4Crops 1 1 1 3Other 2 2 0 4Total 51 31 16 98

Note : One respondent may have more than one investment alternatives

Comparison among investment instruments used by respondents is presented below.

Figure 4-8: Existing investment instruments

From the above picture we can see that people in rural area have more investments compared

to their fellow in the cities. Most popular investments are those having close relation to their

occupation as farmers, that are livestock, timber trees, and working capital.


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4.3.4 ATTITUDE TOWARDS TAKING A LOAN

Asked about loan providers they do not use and the reasons of it, following are the answers. The

obtained replies shows that among the low income families, the reasons of not taking loan from

certain MFI are coming from the demand side, represented by 89% of the answers, and no lessthan 42 % respondents said they do not need or do not interested in taking loans from such

institution.

Complicated requirements (including requirement of creating group and mandatory savings)

and unavailability of collaterals that commonly perceived as the main reason why the low

income families can not take a loan appear in 10.63% and 1.93% of the answers.

Table 4-15: Reasons for not taking a loan

Decision from the demand side # of answers %

Do not need loan 49 23.67Can not afford, high interest 40 19.32Not interested 38 18.36Do not dare, too risky 29 14.01Already have other loan 10 4.83Complicated requirement 9 4.35Do not like group loan 7 3.38Do not like mandatory saving 4 1.93

Sub total 186 89.86

Decision from the supply side # of answers %

Uncertain income 8 3.86No collateral 4 1.93Request declined 4 1.93Requirements not fulfilled 2 0.97Not a member (cooperatives) 2 0.97Have no business 1 0.48

Sub total 21 10.14

Total 207 100.00

From the above table we see that a good proportion of the low income families do not feel the

need of taking loans, as shown by 42 % of the answers. It may also means that they can obtain

loans whenever they need it. Some respondents are also risk avoiders, do not take loans because

they are unsure of their ability to pay installments.

On how often the respondents take loans, most people do not take loans regularly. One third of

answers said they never have loans (read: formal loans from institution), and only one person

have loans at all times.

It is not uncommon for a client to cease borrowing for a long period of time and re-approach the

previous lender for a loan sometime in the future. It supports the previous statements that

clients prefer to have loans granted conforming to the time and amount of their need.


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Table 4-16 Intensity of loan taking

NoFrequency of taking

loan

Number of

respondentPercent

Valid

Percent

1 Never 33 16.42 31.732 Occasionally 23 11.44 22.12

3 No pattern 11 5.47 10.584 Frequently 36 17.91 34.625 Always 1 0.50 0.966 Sub Total 104 51.74 100.007 Missing 98 48.26

Total 202 100.00

4.3.5 LOANS AND DEBT SERVICE RATIO

Table 4-17 Loan installment as percentage of monthly expenses

Debt service ratio

(DSR)Rural Peri urban Urban Total

= 0% 35 26 38 99> 0 % - 10 % 6 8 4 18> 10 % - 20 % 7 4 8 19> 20 % - 30 % 7 10 7 24> 30 % - 40 % 5 6 6 17> 40% - 50 % 4 6 3 13

> 50 % - 60 % 3 0 1 4

> 60 % - 70 % 2 2 2 6> 70 % 1 1 0 2Total 70 63 69 202Note : DSR is ratio of installment payment to monthly expense

At the moment, 103 out of 202 respondents (51% of population) have borrowing, with average

installment payment of 28.22% of their monthly routine expenses, but mostly in a range from

30% to 40% of monthly expenses. Two respondents pay more than 70% of their expenses as

loan installment.1

1 We should take note that not all monthly expenses cited by the respondents are accurate. For example,one respondent discloses that his total monthly expenses is Rp. 1,435,000 while Rp 1,300,000 of it goes asloan installment. Not counted is the family daily expenses that are taken directly from his kiosk. With suchcase, the familys debt service ratio looks very high, that is 90.59%.


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Figure 4-9: Size of loans installments as percentage of monthly expenses

4.3.6 LOAN AMOUNT AND ITS USE

Loans are used to finance the following needs:

Table 4-18 loan use

Loan use Frequency Percentage

Daily basic needs 9 24Education 4 11House repair 4 11Wedding/circumcision ceremonies 4 11Loan installment 3 8Pin money/pocket money 3 8Utilities 2 5Health care 1 3Vehicle purchase 1 3Business site rent 1 3Other 6 16

In general, loan uses are divided into three categories: working capital, investment and

consumption loans. From 135 respondents providing answer on type and amount of loans they

have had in the past, 87 families took a loan for consumption purposes, and 62 families use it for

business purposes, with 14 families use loans for both consumption and business purposes as

shown in the following diagram.


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Notes: CL = Consumption Loans, WCL = Working Capital Loans, IL = Investment Loans

On average, loan for consumption purposes are smaller in amount even though the maximum

amount of loan taken by respondents are the same, Rp. 50 million, as can be seen in the

following table. As expected, average consumer loan sizes are smaller than business loans.

Strangely, respondents in urban area take smaller loans both in largest loan sizes, smallest

loan sizes, and average loan amount.

Table 4-19: loan amount by usage

All respondents working capital investment consumptionNumber of borrowers 49 17 85Average loan amount 6,099 9,995 4,975Minimum amount 50 450 20Maximum amount 50,000 50,000 50,000

rural area working capital investment consumptionNumber of borrowers 17 7 23Average loan amount 5,694 18,280 4,937Minimum amount 100 461 100Maximum amount 40,000 50,000 35,000

periurban area working capital investment consumptionNumber of borrowers 14 8 28

Average loan amount 7,371 4,556 5,263Minimum amount 200 450 50Maximum amount 50,000 10,000 50,000

urban area working capital investment consumptionNumber of borrowers 18 2 34Average loan amount 5,492 2,750 4,763Minimum amount 50 500 20Maximum amount 37,000 5,000 25,000

Based on 107 replies on loan history, using paired sample test, it is proven that last loans are

bigger than first loan with average differences of Rp. 4.269.000, statistically significant at 1%

error. This fact usually used as an indication of improving financial condition or increasing

36 9

3

3

9 2

73CL

ILWCL


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income, but it may also means the clients are going deeper into indebtedness. Detail statistics of

the loans are presented below:

Table 4-20: Track record of the first and the last loan recei ved by

respondents (in million rupiah)

Statistics First loan Last loanProgressive

(positive difference)

A. Loan size1.Mean 3.416 6.888 8,92.Bigest 37.000 90.000 500,03.Smallest 20 50 0

B. RespondentDebtor 139 114 107Debt free/no loan resp 63 88 95

Total respondent 202 202 202

The table shows that there are 32 respondents who had loans but not borrowing anymore and 7

respondents who have no loans in the past.


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5. FINANCIAL SERVICES AVAILABLE, KNOWN AND USED

5.1 MFIS OPERATING IN THE RESEARCH AREA

According to the respondents, within 5 km radius of their houses there are many different kinds

of MFI, such as banks, BPRs, cooperatives, leasing companies (a.k.a. multi finance company) and

government programs. It is in line with data obtained from Economic Census 2006 of National

Statistics Bureau below, except for state owned pawn shop that was not mentioned in the

respondents replies. It could be because it is not considered as an MFI by the respondents.

As can be seen in the following table, most MFIs are clustered in the center of Semarang City,

and West Ungaran. It actually reflects the vigorous economic activities in the two areas.

Table 5-1: Formal Financial Service Providers Operating in The Research

Area

Sub- District CooperativesCommercial

BankMulti

Finance

PeoplesCreditBank

PawnShop

Govern-ment

programsTotal

A. Semarang District1. Bringin 4 1 0 1 0 0 62. West Ungaran 28 15 2 3 1 1 50

3. East Ungaran 4 0 0 0 0 0 4B. Semarang City (Capital City of Province)

4. North Semarang 8 3 0 0 0 0 115. CentralSemarang 105 50 29 5 1 1 1916. Tembalang 18 2 0 0 0 1 21

Total 167 71 31 9 2 3 283

5.2 TYPES OF MFIS AND ITS SERVICES

Savings and loans offered by MFIs operating in the surveyed area can be seen in table 5-2 5-4.

Most institutions provide only individual loan with minimum loan amount around Rp. 500,000.

For lower amount, people should go to arisan, pawn shop or small cooperatives. Arisans and

pawnshop seem to be the ones providing smallest amount of loans with lowest interest rate.

Actually, there are banks and BPRs providing very small loans but it does not operates in the

surveyed area.


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Table 5-2 Savings product offered by M FIs

savings account time deposits

Type of institution Name of institution LocationFirst depositamount

Minimum

subsequentdeposit

Interest rate,pa

Other benefitMinimumamount

Interestrate

Commercial Bank BRI Unit Nanggulan - Salatiga Rp. 100,000 Rp. 50,000 2.5 - 5 % raffle/prizes Rp. 2,500,000 6.25%

Commercial Bank Danamon Simpan PinjamPasar Ngadirejo -Manggong

Rp. 100,000 Rp. 10,000 4% pa

No monthlycharges forbalance above

Rp. 100,000

not available

Rural Bank BPR Gunung RizkiJl. Sukarno Hatta -Semarang

Rp. 10,000 Rp. 5,000 8 9 % pa Rp. 1,000,000 11.75%

Rural Bank,state owned

BPR BKK Ungaran Ungaran Rp. 25,000 Rp. 5,000 6 % pa Raffle / prizes

Leasing company Colombus sarana mandiri Salatiga not available not availableCooperative,"corporation"

KSP Intidana Semarang Rp. 10,000 No limit 5 % pa Rp. 1,000,000 14% pa

Cooperative,"privately owned"

Koperasi Veteran Salatiga not available not available

Cooperative,Islamic law

BMT Al Mu'awannah Bringin - Salatiga Rp. 10,000 Rp. 10,000 3.5% pa not available

Rural cooperative,governmentsponsored

KUD Beringin Rp. 25,000 Rp 2,000 6% pa not available

Pawnshop,state owned

PT Pegadaian Semarang not available not available

Government Program PNPM Mandiri rarely available not available

Arisan, by profession Arisan pasar simpan pinjamPasar Bringin -Semarang district

Rp. 1,000 Rp. 1,000 profit sharing not available

Arisan, neighborhood Arisan PKK Dliko indah salatigaNo minimum,maximumRp. 20,000

No minimum,maximumRp. 20,000

profit sharing Not available


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Table 5-3 group loans offered by MFIs

Type of institution minimum amountinterest rate /

monthtenor payment interval requirements

BRI Unit not available

Danamon Simpan Pinjam not available

BPR 1.4% flat 12 months monthly for employees of certain institutions

BPR BKK Ungaran 18-19 % flat ps

For group of person with a same

profession/occupation. Collateral

needed.

Leasing company not available

Cooperative, "corporation" not available

Cooperative, "privately owned" not available

Cooperative, Islamic law not available

Rural cooperative, government sponsored not available

Pawnshop, state owned no minimum 1% flat per month Max 3 years monthly

women entrepreneurs, maximum Rp. 3

million, letter from sub district head,

maximum tenor 1 year, administration

fee 1 %

Government Program Rp. 500,0001.5%

flat/installment

10

installments

Monthly or

seasonal

women entrepreneurs from low

income families

Arisan, by profession not available

Arisan, neighborhood not available


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Table 5-4 individual loans offered by MFIs

Type of institutionminimum loanamount

interest rate /month

Tenor,months

payment interval other requirements notes

BRI Unit Rp. 500,000 1.2% - 2 % flat 6 - 60 monthlyfor loans above Rp. 5 million businesslicenses or recommendation from villagehead and collateral

There is an incentivefor timely payment

Danamon SimpanPinjam

Rp. 1,000,000 2.6% flat 12 - 36 monthly for entrepreneurs

BPR No answer 1.25 - 1.6% effective 6 - 36 monthly installment collateral: motor vehicle or land propertyBPR BKK Ungaran No minimum 18 % pa varied monthly

Leasing companyBased on priceof goodsavailable

3% flat max 18 monthlyloan for homeappliances

Cooperative,"corporation"

Rp. 1,500,000 1% - 2.5% flat 3 - 36 monthly installmentcollateral: motor vehicle or land property,provision 1 - 2 %, administration 1 - 2 %,survey fee Rp. 25,000 - 100,000

Cooperative,"privately owned"

Rp. 50,000 5%1 week - 1month

daily, weekly ormonthly

-

Cooperative,Islamic law

No minimum,based onmanagementdecision

1.5% - 2 % flat 24 monthly collateral

Rural cooperative,governmentsponsored

Rp. 1,000,000 2% 3 - 30every 5 days ormonthly installments

KUD member, provision 1%

Pawnshop, stateowned

Rp. 20,000 1 % - 1.5 % effective 0.5 - 4 repaid at maturitypawned goods can be batik, homeelectronics, jewelry etc. administrativecost 1%

fiduciary loans andinstallment loans arealso available

Government Program

Arisan, by profession no minimum 2.5 % max 4Arisan, neighborhood No minimum 1 % Max 3 months Max 3 months no collateral


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Group loan is not a popular product among MFIs. It is mainly offered by government programs

or programs influenced by government institutions. Outside of the surveyed area, there are

group loans offered by NGOs.

In more detail, products offered by the Financial Services Providers in the area are as follows:

5.2.1 BRI UNIT

BRI Units operate in areas considered to be rural or areas not appropriate for a full branch. The

products offered are savings, time deposit, loans, funds transfer and payment point.

To save, the first deposit should be Rp. 100,000 and minimum amount of sunsequent deposits

are Rp. 50,000. Only savings amounting to Rp. 100,000 or above receive an interest of 2.5% per

annum. The interest rate increases to 3.5% for savings with minimum balance over Rp. 1 million

and 5% for savings over Rp. 5 million. In addition to the monthly interest, BRI also gives raffle to

its savers, with prizes ranging from petroleum lamps to cars.

BRI Unit has three different loan products that are Kupedes, KUR and KSM.

1. Kupedes, an acronym of kredit untuk pedesaan or loan for rural area is an individual

loan with minimum amount of Rp 500,000, interest rate of 2 % flat per month and

administration cost of 0.5% of loan amount. Loan tenor is between 6 months to 5 years.Interest rate decreases with the increase of loan amount. An incentive in the form of

refund at 3% of interest paid is given to clients with on time repayments.

2. While Kupedes still require collateral of some sort, KUR or Kredit Usaha Rakyat, loan for

peoples business, is designed as a non collateralized loans. The loan amount is up to Rp.

5 million. No minimum amount defined but usually no less than Rp 500,000. During the

course of time, BRI start to require simple collateral from KUR clients, but not

necessarily motor vehicle. Home appliances is accepted.

3. Kredit Skala Mikro or micro sized loans is a loan with amount of Rp. 5 milion or less. It

also require simple collateral just like KUR.


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Table 5-5 Loan Products of BRI Unit

Loan type Loan amount tenor Interest rate permonth

Other charges Collateral and otherrequirements

kupedes Rp. 500,000 Rp.

25,000,000

6 months 5

years

2% flat 0.5% Collateral needed

Kupedes Rp. 25,000,001 Rp. 50,000,000

6 months 5years

1.67 % flat 0.5% Collateral needed

Kupedes Above Rp50,000,000

6 months 5years

1.2 % flat 1% + Rp.100,000

Collateral needed

KUR Below Rp. 5 million 6 months 3years

1.2% flat Identity card,collateral, homeappliances maysuffice

KSM Below Rp. 5 million 6 months 3years

2 months Identity card,collateral, at leastmotor cycle

5.2.2 BANKS, DANAMON SIMPAN PINJAM

Danamon Simpan Pinjam or DSP is the micro finance wing of Bank Danamon, with emphasis

more on loan than saving. Lately DSP launch a saving product with minimum deposit of Rp.

100,000 and no monthly charge, if the balance is above Rp. 100,000.

DSP offers five loan products, with loan amount ranging from Rp. 1 million to Rp. 500 million.

Interest rate for the smallest loan is 2.6 3 % flat per month. Strangely, DSP require its new

borrowers to have other loan in other financial institutions. This way, DSP can not reach small

income people who need very small loan.

5.2.3 BPR BKK THE REGIONAL GOVERNMENT OWNED BPR

BPR BKK is a Central Java regional government owned MFI operating mostly in rural and peri-

urban area. as a BPR, BKK offers savings and loan products. Founded originally as rural

microfinance institution, BKK accept small transactions: savings deposits as small as Rp. 5,000

and time deposits as small as Rp. 50,000. Loans provided to both individual and group, but all

require collateral.

5.2.4 RURAL BANK (BPR)

As a bank, BPR have loans and savings products. Compared to practices in commercial banks,

savings and deposits in BPRs call for smaller deposit installments, as small as Rp. 5,000 per

deposit for savings and Rp. 1 million for time deposits. BPRs provide a high interest rate, around

11.75% per annum for time deposits and 8 9 % for savings account.


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Most of BPRs credits go to individual borrowers at an interest rate of 1.25 % to 1.6% flat per

month. The tenors are around 6 months to 3 years, sometimes 5 years. Most BPR loans require

motor vehicle or land property as collateral, with loan principal commensurate to collateral

value.

5.2.5 LEASING COMPANIES

Leasing company or formally known as Multi Finance Companies are not allowed to accept

saving. There are leasing companies offering motor vehicle leasing and some other provide

financing for household appliances such as electronic goods or furniture.

Leasing company for household appliances charge higher interest rate, around 3% flat per

month. Due to high competition, motorcycle loans are available at lower interest rates,

sometimes even less than 1% flat per month.

5.2.6 COOPERATIVES

Cooperatives have both savings and loan products. The minimum deposit for its savings and

time deposits products are smaller than those required by banks and BPRs. In the cooperative

that we visited, minimum deposit for its savings is Rp. 10,000, and minimum amount for time

deposit is Rp. 1 million.

Loans in cooperatives are mostly targeted to individual borrowers and require collateral. Some

cooperatives provide individual loans with daily payment without collateral for amount less

than Rp. 5 million. The cooperative that we visited has two types of loans, installment loans and

term loan. Installment loan has monthly payments with tenor of up to 3 years. Loan amount is

Rp. 1,500,000 or larger with interest rate ranging from 1% per month up to 4%. Motor vehicle

or land property is required as collateral. The term loan has a tenor of up to 6 months repayable

at the maturity date. Interest rate is 30% per annum.

5.2.7 BMT SHARIA (ISLAMIC LAW) BASED COOPERATIVES

As a cooperative, BMT has both saving and loan product. As an institution operates under

Islamic Law, it does not charge a certain interest rate but calculate yield of its loan and saving

product on a profit sharing basis. Nevertheless, people still quote certain interest rate as

approximation.

Minimum deposit amount for saving at BMT Al Muawannah, Bringin is Rp. 10,000. Annual

interest rate is around 3.5%.


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Loans at BMT bears an interest around 1.5 2 % flat per month, and the loan amount is based

on the value of collateral.

5.2.8 KOPERASI UNIT DESA GOVERNMENT SPONSORED FARMERS COOPERATIVES

As a cooperative, KUD requires its members to have mandatory savings of Rp. 2,000 per month

and voluntary saving without minimum deposit amount. Saving interest rate is 6% pa. Saving

funds becomes a source of loans to its members. The loan is directed to individual members, a

minimum of Rp. 1 million per member at 2 % flat per month. Tenor is 3 to 30 months with

installment payments on a monthly basis or every five days2.

5.2.9 INDIVIDUAL MONEY LENDERS / QUASI-COOPERATIVES

Providing only loan and only to individual customers, individual money lenders do not have a

fixed regulation about loan requirements and minimum loan amount. It can give loans as small

as Rp. 50,000 with flexible repayment, a tenor of 1 week 1 month, repaid in daily or weekly

installments. In exchange to the flexibility, it charged a very high interest rate, that is 5 to 10 %

per month.

5.2.10PAWN SHOP

There is only one Pawn Shop in Indonesia, that is the state owned Pegadaian. In addition to

the common pawn product where clients submit a certain collateral in exchange of a loan, and

repay the loan plus its interest at the end of the loan period, Perum Pegadaian has some other

loan products that are:

Pawn product with installment payments

Group loan, non collateralized

Fiduciary loan with installment payment

Special product for special group of clients such as housing loan for certain clients, fundstransfer, in cooperation with Western Union, safe deposit rent, and some others.

Minimal loan amount provided by Perum Pegadaian is Rp. 20,000 and maximum amount is Rp.

250,000,000. The interest rates are ranging from 0.9% to 2.5% flat per month, depending on the

2 Also called one pasar or one pasaran, from javanese week that consist of five days: pahing, pon, wage,

kliwon, legi. One week is called one pasar, or pasaran. Some traditional activities are done on certain dayssuch as every kliwons or every pahings. Some traditional market only open on certain days as well.


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loan amount and the risk involved. Fiduciary loan is more expensive than pawn product with

installment payment.

5.2.11GOVERNMENT PROGRAMS: PNPM MANDIRI, LKD, UPK

Government program available in the surveyed area is PNPM Mandiri. PNPM-Mandiri, or

National Program for Peoples Empowerment was started in September 1, 2006, funded and

under coordination of the Direktorat Pemberdayaan Masyarakat Desa, The Ministry of Internal

Affairs. PNPM Mandiri has programs not only in financial field. Micro-finance is one component

of it, targeted to women entrepreneurs. The loans are given to women in groups of five. First

loan amount is Rp. 500,000 at an interest rate of 1.5% flat per month and a tenor of 10 months.

The loan amount can be increased if the clients show good repayment history.

At the moment, default rate is quite high, above 5% because many borrowers assume it is okay

not to repay loans from government programs.

5.2.12ARISAN

Arisan is actually a means of social gathering, initially not intended to be a financial service

provider. Financial activities in a traditional arisan is a collection of a small amount of money

from each members followed by a draw to determine who would receive the funds collected.

Each member will have their turn to win the draw. The round will be repeated after all members

get their chance to win.

During the course of time, arisan as a means of gathering is tied with other activities.

Government use it to disseminate social issues or providing trainings, some members use it as a

place to sell their goods, and some creative person arrange a saving and loan activities in it.

Nowadays, saving and loan activities is quite common in arisans, even though the social

consideration is still more dominant than the financial activities.

In the nineteen eighties, Indonesian government encouraged all RT, RW and Kelurahan3 to have

an arisan called as Arisan PKK. Arisan PKK, in addition to its traditional draw activities, becomes

a place of several village administration activities such as collection of contributions for

independence day ceremonies, garbage collection dues, social contribution etc.

3 Three lowest level of local governance. One RT (Rukun Tetangga) consist of 10 40 families, RW is a

group of several RTs that is managed under one Kelurahan. Several kelurahan goes under one Kecamatanor sub district.


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Some arisan PKKs create a cooperative like activities with mandatory and voluntary savings and

loan activities. Savings and loan installments are collected during their regular monthly

meetings, together with other contributions and the draw money. Regular meeting of all

members make it possible for the arisan to provide loan on an individual basis, with loan

amount commensurate to the members needs. Combining many activities in one meeting makes

the saving and loan transaction cost in an arisan is very low, enable it to charge a low interest

rate. The social cohesiveness among members of an arisan and the closeness of members

houses in neighborhood arisans make the default rate very low, usually with PAR at around

zero. Because the activities are limited to members and the loan amounts are very low, loan

outstanding in an arisan usually is very low, at around Rp. 10,000,000,-.

In this survey, we interviewed members of the following arisans:

Arisan Simpan Pinjam Pasar Bringin:

It is an arisan among market traders in Pasar Bringin, Salatiga. They collect saving every

pasaran (every five days), an amount of as small as Rp. 1000. The collected funds are lent to

members in need at 10% interest per 4 months.

Every end of year, there will be members gathering to determine amount of profit shared to

members. In this cooperative, interest income is divided into three; 10 % for arisans equity,

10% for arisan administrator/treasurer and 80% divided among members.

Arisan PKK Dliko Indah Salatiga

Members of Arisan PKK are housewives living in certain neighborhood, in this case in RT02/RW

11 Dliko Indah. Members meet every month for socializing and collecting dues and savings for

several different purposes such as saving for Eid al-Fitr celebration, dues for social contribution

etc, as well as doing loan transactions. The loan has no minimum amount and needs no

collateral. Tenor is 10 months at an interest of 1% flat per month.


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BPR BKK and its activities

The PD BPR BKK

4

Ungaran is situated in capital city of Semarang and it has a long history in doing business inmicrofinance. PD BPR BKK Ungaran established in 1970s as one of Badan Kredit Kecamatan (BKK)- the

district credit institutions. On October 8th

,1991 it changed it legal status to People Credit Bank (BPR) became the

PD BPR BKK, and ultimately in 2004 Bank Indonesia granted the merger decision of nine (9) PD BPR BKKs

those were operating as independent unit bank in each subdistrict within Semarang district. PD BPR BKK

Ungaran became the head office and the rest of eight (8) PD BPR BKKs became its branch offices.

Our field survey found the eleventh respondents are BPR BKK clients who are currently still using BPR BKK

services both loan and saving products, without mentioning specific types of product.

Deposits types to low level household.

According to the Director, the most preferred saving product is Tamades (in rural) and Tamaskot (in urban).

These two name of saving products are actually having same features except the clients home. It seem like

Simaskot and Simpedes in BRI Units. The minimum initial deposit is Rp. 25.000 and consecutive deposit is at

least Rp. 5.000,- Within a day, t

MFI Products vs Financial Dinamics of the Poor

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