“People’s Financial Institution”

Makalah Lama:
Tulisan ini pernah dimuat dalam Jurnal "Perencanaan Pembangunan" Edisi 23 Tahun 2001.

“People’s Financial Institution”
(Perspectives of Regional Authority,Microfinance Institutions, Small-Medium Enterprises,
And Empowering Local Community)

Rendy R. Wrihatnolo

I. Introduction

The root of crisis problems are multidimensional. It has been hit us for about three months. Some analysts suggest that the root of crisis due to both internal problem (domestic) and external problem. Respectively, it is intertwined one another. We almost never know which the real roots are. However, recovering impacts of multidimensional crisis as well as eliminating sources are required immediately. It won’t stop the problem by having feud on the best recovery strategy for recent Indonesian.
Fundamental elements of economic recovery. Through this brief article I shall emphasize that national competitive strategy must prompts four fundamental elements as foundation of economic recovery, they are: national political commitment; law enforcement, national order and security; recovery of public trust to government; and securing basic needs of the people justly. They are to be fulfilled associated with national economic recovery.
Objectives of economic recovery. Short term objective of economic recovery is laying a solid foundation in implementing ordinary development to achieve long term objective to prosper people vertically and horizontally. I call the strategy “national competitive strategy.” Argument is to recover national economic we must improve our national competitive power and we perform it systematically. Therefore we need strategy which is considered as development vision for all development agents, either society –including business- and government- including local government.
Strategy Direction. National competitive strategy encompasses three directions: first, mobilize all domestic potent, resources, and domestic capacity for national economic interest. Second, creating self-supporting character among national economic agents. And, third, improving national competitive toward global competitive through democratic development mechanism upon people prosperity and national interest.
Based on those strategy I shall formulate five policy foundation of national competitive strategy, includes (1) to foster macro economic recovery ; (2) to foster cultivation of natural resources wisely ; (3) to foster real economic development ; (4) to foster supply and distribution of people basic needs justly ; and (5) to foster supporting instrument and infrastructure of economic activities . Five Yearly National Development Program/Program Pembangunan Nasional-lima tahun (Propenas) has accommodated the ideas.
Strategic Implementation. The strategy can be achieved through two development paths, they are regional-sector development path and national-sector development path. The implementation strategy emphasize on creating entrepreneurship among local agents to be self-supporting in developing their region. Therefore, regional-sector development, called regional development, is the very means in implementing national competitive strategy. Development through national-sector development path is to put government as facilitator of regional development which is performed by local government and local society including local entrepreneur. Local government is the key success of national development, is viewed as sector development in each region. Thus, the key success in improving national competitiveness is all regional components or society.
Regarding with regional authority, here are the explanation. Term “autonomous”, simply translated by Webster’s dictionary as “self-governing”, “of a self-governing state, organization, etc.”. In broader sense autonomous term refer to: “autonomous in adopting regional self-governing”. Hence terms regional autonomous (regional authority) springs. In some cases, term of autonomous is contested with term of centralized state management (centralization). Such, rise view that regional autonomous is opponent of centralized state management (centralization). But, some Indonesian scholars, simply interpreting autonomous as process of creating regional self-support, either government system or social order in achieving people prosperity upon national interest, within Negara Kesatuan Republik Indonesia. More precise assessment on it considers autonomous as regional government and regional society autonomous/ Regional authority. Regional society is viewed as development autonomous, that is development rooted on people potent, by people, and for the sake of the whole people.
Related with national banking, there are facts that national banking system is ruining it self which indicated by failure of banking role in anticipating economic crisis impact. National banking role in the coming of crisis has indeed distorted. National banking are considered and claimed incapable to function properly through it operation standard procedure. Such conditions are inevitable due to individual and non economic interest violation to the efficiency principle as a credo of business-minded institution. Bank functions either representing public interest “to serve the public” or representing individual “bank owner” become biased. Even bank represents interest beyond the two, interest beyond ordinary. Due to these distortion ordinary people become the victim, even the worst, national banking system can not afford crisis impact anymore.
Meanwhile, national banking system has not qualified to apply a true banking system by based on facts and long history of empirical experience of national economic. Now, we need a fundamental reformulation toward national banking system to be effective in developing conducive and constructive climate to develop economic activities which are directly performed by all regional society. Recently, national banking system adopts branch banking system. The system is applied in countries such as British, Australia, New Zealand, Canada, Hong Kong (England), and South Africa. In addition, there is unit banking system which is only applied in United States of America . Others countries, apply hybrid banking system, like Japan, German, India, and French . The main problem in adopting national banking system is the fact that almost all larger national bank have branches throughout Indonesia whose customer are almost all segments of society, which provides various financial services. So, as crisis hit Indonesia they (national banks) collapsed one by one. The impact is that all financial services halted. Regional economic activities cries out for funding problem. And regional economic activities –majority are small scale economic activity and small business –will fail to perform, respectively. .

II. Challenges in Developing Small Business

In the world where geographic boundary is not significant, national economic become integrated into global economic. Gradually, boundary and partition used to protect economic activity are melted. The turbulent and massive global economic activity enable the flow of people, goods, service and information become more advantageous in term of speed, quantity, quality and cost than before.
In this changing process, only those whose advanced economic that will grab economic opportunities. While the weak economic will stand still. In fact, small entrepreneur is the largest part of those with weak economic. Whereas, small entrepreneur with their business which is scattered throughout small villages and intensive in labour open chances to create rural economic activity that absorb unemployment and reduce poverty.
To pace with undergoing changes and on going development, small entrepreneur needs to be adaptive in efforts to improve their competitiveness. Small businesses, them selves, can not be adaptive. Due to lack of production assets and demand of higher competition invites government to support, protect and pay attention and make effort to empower small business.
Here improvement to production assets, particularly toward fund resources finds its important role. For small business, access to fund resources is initial motivator for economic capital building to improve production and income surplus to be used in capital accumulation. In other word, fund supply is basic for capital accumulation and it is foundation in expanding structural changes.
Small business in Indonesia is featured by some weaknesses as follow: first, lack of access toward fund resources, second, lack of technological skill and mastery, and third, lack of marketing strategy, fourth, not competitive business environment. These weaknesses bring about low production among small business. Low output resulting low income. Low income implies in declining productivity that affect quantity and quality product.
It is unsurprisingly that large number of small business only occupy few of production asset and less contribution to national production. BPS data in 1998 suggests that 61,1% of national production constituted only 0,2% relative to the whole company in Indonesia. This figure equal to 66.428 company. The rest of it, 98,8%, or 33,4 millions company in Indonesia only occupy 38,9% of national production. Group of 0,2% is group of large and larger business. While, 98,8% is group of small and smaller business. In addition, business world structure shows that small-micro business contributes 99,4% employment and absorbs up to 84% employment, but only contribute 14% of GDP.
The inequality shows imperfection in national business structure. Such condition is very fragile in facing competition toward foreign country. In globalisation era competition is not only supported by larger company but requires support from small qualified-company. These are our future challenges to foster small and middle industry hand in hand with larger industry to become a foundation for strong national development.

III. Ideas in Managing Small Business

Efforts to be formulated in managing and empower small business must be directed into three levels. First, direct action, whose direction, practice and effect directly related to small business. This action may directly solve internal problem faced by small business. Direct action, at least, includes: provide fund aid and stimulant capital aid, human resources improvement and training assistance, technological instrument and infrastructure assistance, assistance of information system and business information network, and assistance of people institution empowerment and apparatus in managing activity within circle of small business empowerment. Secondly, indirectly action, that is action whose direction, practice, and its impact indirectly related to the objective of forming effective and income generating small business. Including in these action are: providing assistance for physical development such as road network, bridges, dock, market, development of public transportation, development of basic social infrastructure like health and education facility, and development of public service infrastructure. However, indirect action is still important to support small business empowerment in its role as one of empowered national economic agent. And thirdly, specific action, that is action required refinement assistance in handling special case experienced by small business. Specific action is implemented into special assistance that co-ordinate various assistance for small business empowerment.
Three of them shall accommodate action in developing small business, to alleviate small business. Meanwhile, alleviating small business, must refer to the real problem which is faced by small business, upon direction of national development. They may include actions below: supporting for small business empowerment, creating access to fund resources for small business, linkages to larger business, and creating fair and healthy business environment and competition.
Empowerment toward small business is implemented through actions in improving skill and quality of small business. Related to that issue, the most important thing to do for small business is how to make them prepare with skill such as understanding business management, mastering in production technology, and marketing aspect. Having the skill, small business run their business efficiently, productive and based on market demand.
Meanwhile, at funding aspect, recent fact shows that few financial or fund institution which deliver their fund for small business credit in proportion. Proportional means that fund is allocated according to proportion of small, medium and large business, and the needs of fund to be lent must obey existing rule. In addition, fact shows that few financial institution which specialise on improvement and providing credit for small business. Formal financial institution, usually prefer to facilitate large business which meet technical bank criteria than small one.
On that ground, there is a need to identify the needs of financial institution for any kind business as well as way to implement and empower into cluster as follows:
First group, advanced economic agent, is one who capable to productively compete in the market. They have great access to production asset to support their economic activity to become large scale business. Advanced economic is grouped based on the capacity of business that is known as formal large business group. For the formal groups, particularly large one, formal financial institution including bank and non bank institution are available. They get business capital from banks.
The second group, transition economic agents, are those who are developing but government still need to facilitate them to improve their competitiveness in the market. This group is grouped according to business capacity, known as informal small business. For small business, particularly informal one, they need financial institution with appropriate business status and feasible loan terms for them. To informal group, however, availability various fund resources do not solve problem as they still need to have access to more formal institution for them not to be trapped to illegal creditor. Capital access for them must be promoted.
The third group, less developed economic agent which is indicated by their incapability to gain production access and economically not competitive. To be true, small business is less developed economic so that government must support them by siding with (targeting) and assistance from developed economic agent. Government is the right institution to facilitate the efforts into subsidy and tax policy. In brief, government has to function in retrieving tax from economic developed agent and distribute it to the less developed agent through subsidy. We must bear in mind that subsidy is only a stimulant. Thus, partnership between developed and less developed agent actually is a manifestation of co-operative facilitated by government.
To transition economic group who has higher chance to develop need to be endorsed to adopt micro credit provided by government, either through program scheme credit or regional development fund assistance scheme. Underdeveloped economic agent is facilitated with micro finance provided by government through block grant as continual grant associate with physical assistance projected by government to underdeveloped group.
One of requirement in improving small business has to do with creating business link to larger one. Linkage between small, medium and large business must be promoted into mutual relations. Ideally, the linkage is not patron-client (pity-based relations) since it is not favourable for the long term both for small business and “foster-parents/bapak angkat” company. In addition, to achieve effectiveness of partnership we need to develop partnership among all business level, business partnership among region, and partnership to improve human resources, knowledge and technology.
Problem facing by small business also concerning with external challenge, that is environment policy which not conducive yet for the growth of small business. Regard this small business is powerless economic group and lack of production quality and capacity compared to large group business. Therefore government and development agents must clearly and firmly take side with small business.
Siding with small business is interpreted by specific policy to protect one. The policy is precise, particularly, because often access small business to fund resources is not as big as large business, due to assumption that credit to them is high risk. However, this policy is not unlimited thing. At particular time, protection to small business must be sharpened through empowerment associated with the growth and of them. Some protection policies may be take form of Act on Small Business and Act of New Co-operative. Both has not been activated due to no details technical guidance yet. However, some operational through array of development programs have been released to promote small business.

IV. Pattern of Funding for Small Business

Direction of small business development is to improve productivity, competitiveness, and business scale of small business. Policy of small business development must be laid on awareness to develop and empower small business. The policy laid on some steps, particularly related to strengthen management and capital.
Thus, January Policy Package of 1990 (Paket Kebijaksanaan Januari 1990) enables small business to receive credit of small business (KUK), including 20% of credit which is distributed to each bank, excluding foreign bank. Other policy, i.e. development of public credit program (Kupedes) of Bank Rakyat Indonesia (BRI), either in form of investment credit or intensive capital credit, which since 1 May 1990 it’s credit ceiling has been increased from Rp.10 million to Rp.25 million per customer. Policy package and issuing law are first steps to enforce finance institution to serve small business.
Major problem of most small business is providing initial capital to start economic cycle. Therefore, capital service such as credit urgent to be launched in particular time. Credit provision which is launched temporarily is to increase production followed by increasing marketing and surplus as saving to start capital self-supported.
Capital service, substantially, must create business surplus and be managed properly and transparently which refer to the principles of: acceptable, easy to take and use; accountable, transparently manage and accountable; profitable, generate adequate income and educate people to manage activity economically; sustainable, product can be maintained and extended use by people; replicable, fund management and maintenance is done and develop by people in larger scale.
Now, there are various funding institutions either formal or informal finance institution adopting co-operative system and banking principle. Both services delivery system can be distinguished as follows:
First pattern which is included and mentioned in Banking Act as Old Fashioned BPR (BPR Gaya Lama). This pattern including finance institution that established before Pakto 1988 (October Package). BPR Gaya Lama consists of: Bank Desa (Rural Bank), Lumbung Desa (Village Saving), Bank Pasar (Market Bank), Lumbung Pitih Nagari (LPN) at Sumatera Barat, Lembaga Perkreditan Desa (Rural credit Institution) at Bali, BKPD at West Java, Badan Kredit Kecamatan (County Credit Body) at Central Java and Kalimantan.
Second is pattern of Hubungan Bank dan Kelompok Swadaya Masyarakat (HBK)/ Bank Communications and NGO. The pattern involves public banks as fund provider, Lembaga Pengembang Swadaya Masyarakat (LPSM)/Agent for people’s self-developing as technical guidance for small business group, and small business group as economic agent. This pattern can be performed indirectly, either public bank delivers fund to group of small business through LPSM as developer of small business or directly, public bank delivers fund to group of entrepreneur without LPSM.
The third pattern is credit delivery through co-operative, such as Kredit Candak Kulak (KCK) which has been reformulated as Saving Centre/Tempat Pelayanan Simpan Pinjam KUD (TPSP-KUD), Kredit Usaha Tani (KUT)/Agriculture Business Credit, Kredit Pedesaan (Bukopin)/Rural Credit, Unit Simpan Pinjam (USP-KUD)/Credit-Saving Unit, and Koperasi Kredit dan Usaha Simpan Pinjam non-KUD/Non KUD Credit Co-operative and Credit-Saving Business.
Now, there are programs of credit scheme by finance institution into cooperative. Delivered fund is micro credit which most of them are used to fund agriculture development in rural area. Target for micro credit delivery is low-income society to support program of block grant in order to increase small business group’s income and profit. Program credit is banking credit which part of or the whole fund is supported by Credit of Bank Indonesia (KLBI).
Some micro credit for small business which is delivered through cooperative including Credit scheme Kredit Usaha Tani (KUT) , Kredit kepada Cooperative (KKop) , Credit to Primary Cooperative’s Members/ Kredit Kepada Koperasi untuk Anggotanya (KKPA) , Credit to Small and Micro Business/Kredit kepada Pengusaha Kecil dan Mikro (KPKM) , Kredit/Pembiayaan Modal Kerja kepada BPR/BPRS (KMK BPR/PMK BPRS) , and Proyek Kredit Mikro (PKM) .
The fourth pattern related to programs which are carried and managed by technical department aimed to develop particular group society such as Project in Improving Peasants/ Peningkatan Pendapatan Petani Kecil dan Nelayan (P4K) of Agriculture Department, Credit of People Education Kredit Pendidikan Masyarakat (Dikmas) of Department of Education and Culture, Efforts to Improve Members of Family Planning Household/ Usaha Peningkatan Pendapatan Keluarga Akseptor Keluarga Berencana which is developed to become Usaha Peningkatan Pendapatan Keluarga Sejahtera (UPPKS) of Kantor Menteri Negara Kependudukan/BKKN, dan Usaha Ekonomi Desa-Simpan Pinjam (UED-SP) of Ditjen Pembangunan Masyarakat Desa, Departemen Dalam Negeri.
Fifth Pattern, development of capital venture in some areas that is carried out by Finance Department. Some characteristics of venture capital include: risk capital, active investment, temporarily investment, capacity in funding all level of business growth, and demanding capital gain upon investment.
The Sixth Pattern, Pawning. A pawning is finance institution that very popular among small businessmen. Customers borrow some money that is considered equal to value of the goods to be pawned. Customers is obliged to pay particular interest when due time for payback basic loan. Pawning pattern is something commonly used either by private and public institution. Public Enterprise of Pawning is finance institution adopting this pattern. Its existence is widely known throughout provinces.

V. Ideal Finance Institution

In those capital delivery we need an ideal finance institution that has social characteristics based on corporativeness, and economic feature by applying economic principle through procedure and banking criteria. Corporativeness begins with knowing each other, helping each other, and applying economic calculation. Economic principle encompasses four elements, they are favourable unit activities, simple but reliable accounting system to check and control, transaction accounting separated from other activity and autonomous in decision making.
At least they have meet four requirements follow: First, those institution meets legal and formal to have public legitimate for it’s existence. Second, they must be transparent, controllable and assessable by people. Third, they must benefit for all the people and for it own continuity. The fourth, they must be able to give finance service that is accessible for the people.
In funding small business, there are basic things to be considered to strengthen fund and credit institution:
First, agreement in perception among actor of development program/project of fund delivery to community. Agreement is upon the important of capital accumulation.
Second, by the same perception shall bring agreement to improve delivery system of various existing finance and credit for the small business to have optimum service.
Third, reformulation of delivery system is part of effort in integrating and matching development pattern among existing institution. Reformulation shall be associated with establishing finance institution that is particularly directed to serve small business based on readiness and aspiration of the people. Institution must have authority as intermediary agent that mediating development of informal finance institution to become formal one within national monetary system guidance.
Fourth, all above steps greatly depend on the role of central bank (Bank Indonesia). Bappenas as co-ordinator of national development, Finance Department as supervisor of finance institution, related technical department/institution as development program/project executor, public banks as technical supervisor for small entrepreneur, and NGO as small business assistance.

VI. Consolidating the Direction of Fund Current

The most important indicator that determine soundness of people empowerment is the naturally growth of structural changing process. This changing happened as regional skill improvement is sound enough to the continually-adequate improvement of people prosperity which indicated by increasing of capital accumulation at regional level. The Enhancing and building of the more various local economic activity will foster the increasing of money demand. That finance institution finds its important to define local creativity in mobilising regional economic activity.
In optimising fund management we may need Unit of Finance Management/Unit Pengelola Keuangan (UPK) at village and county level run by members local community. UPK functions as finance institution that accommodate and manage various assistance and fund deliver to society, is called social-economic institution in charge of fund delivery mechanism.
Local community skill in managing resources including capital resources at certain region is one of indicator to measure the effectiveness of rural finance institution system through local community UPK into income generating activity. Indicator of effectiveness can be measured to the increasing of capital accumulation through saving rate and fund delivery to the following community group who are going to enjoy access to capital resources. In this stage, strengthening of UPK’s role is aimed in consolidating community social-economic institution to perform development program/activity of and by the local community.
Initially UPK may be a finance institution of people economic activity funding that is consciously directed, organised and sustained by local community without bureaucratic intervention. Government is only stimulating a conducive climate in developing UPK through policy and rule that protect and free local community to do business. Local bureaucracy (particularly, element of village and county authority) must provide people with driving space to control UPK, and autonomous UPK as people’s finance institution/lembaga keuangan masyarakat (LKM) which is featured by: established/initiated and own by people, organised by people including in designing system applied in LKM based on agreement and interest of people, informal (not engaged to any legal-formal rule), and useful and favourable for all party.
In the next phase UPK may be developed as intermediary institution bridging between community (into community group) and bank institution. Initially institution status may be maintained as non bank finance institution and informal institution (in term of legality) and own by people (public share). To perform the role according to capacity and status, however, UPK must organised good financial management to provide accurate, complete an actual information on financial statement of local community at certain village or county. Therefore, in whenever needed the development of local economic and financial statement can be monitored at certain area and region.
LKM is a discussion forum to activate community social-economic activity, i.e. through directed, co-ordinated development planning which laid on community development within body of Unit Daerah Kerja Pembangunan (UDKP)/Regional Development Unit at county. UPK is expected to improve planning, organising, monitoring, funding, maintaining, and developing various input or output of development programmes that are accessible by people. The improvement includes institution, human resources (both apparatus and community), instrument and infrastructure, and local income generating activity.
Activity cycle of economic activity in micro aspect that develop at village and county area, is expected to perform with continuity, integrated, and interrelated to macro aspect at higher level. Interrelation in micro and macro economic cycle, at last, is expected to create comprehensive integrated economic activity through process of bottom-up and top down development. We may draw conclusion that there will be integration and interrelation among economic activity from national level to province, regency/municipality, county, village, and individual.
Role consolidation and function of UPK in the next phase must be directed to create means of development fund management that flow to county to be used as stimulus fund for development at rural area. Such concept must represent features of Act no. 22 1999/ (UU Nomor 22 Tahun 1999) on Regional Government and Act No. 25 1999 (UU Nomor 25 Tahun 1999) on Budget Balancing between National and Regional Government (Perimbangan Keuangan Antara Pemerintah Pusat dan Daerah). Both Acts mentioned that performing regional authority consolidation is directed toward people empowerment and empowerment of government apparatus to support people empowerment (UU 22/1999) based on capacity and regional needs (within certain territory/region) and local community (within community), is called principle of resources base development (UU 25/1999). Empowerment instrument is performed through strengthening local development institution (institutional strengthening), particularly by improving skill/training on mechanism of financial management for development. In local range that function is performed by community local financial institution and privately managed by local people.
Some prominent characteristics in strengthening the role of UPK are: first, UPK development is sustainable fund activities in nature, means that activity mechanism is only emphasis on facilitating local NGO activity which need fund as a “start up” and expected to be continued to achieve self-supporting in funding the activity (revolving fund).
Second, UPK activity is explorative toward local community potential in optimising either skill or power to generate local income (local resources base for job creation to generate local income).
Third, UPK activity is directed to improve financial management skill to generate local income, mediating between community group and banking institution (intermediary banking institution) and to support banking mission as the extended hand of local monetary authority and agent of development (micro finance activities and not micro credit scheme).
Fourth, UPK activity is expected to help market agent in meeting demand and supply transparently and directed to support the flow of market information which easily and directly accessed by local community (direct access to local market information).
Fifth, UPK activity is expected to improve local capacity, particularly at rural area to create entrepreneurship and enhance local community income (enhance capacity of small to medium scale entrepreneurship within local community).
Sixth, UPK activity is directed to be explored as alternative source of real local income and to support regional authority (increasing local government revenues towards sustainable income).
And seventh, UPK activity is directed as intermediary mechanism of social-economic activity of local community. As intermediary, UPK functions as co-ordinator in implementing development program of sector, regional, and cross-sector and cross-regional and capable to create rural-urban linkages development as an effort to enhance capacity of people and apparatus (capacity building and institution building) either the institution (institutional strengthening) or human resources (human resource development). Development linkages between rural-urban territory are implemented by developing agriculture business system. By UPK activity, development linkages which is mentioned in agribusiness system can be performed sustainability (increasing sustainable activities within agribusiness system).

VII. Principle in Managing Institution of Local Development Fund

Fund for each development program that is delivered to village, firstly, flowing to county and there is administered by UPK. The main role of UPK is to record, administer, and sustain fund for local generate income activity, through activity of accumulating, distributing, saving, and delivering fund to the needed community group. The sustainability of local generate income activity must be maintained, therefore we need fund delivery mechanism. This mechanism is viewed as guidance for the agent, both at village and county level.
Revolving mechanism is based on principle “of and by the people” performed by involved party in UPK by institutionalizing principle of “sustaining source of endowment fund.” Business capital fund within a development program (development aid) is directed to become an endowment fund that is accessible by poor people at village continually. Management of business capital fund revolving is performed by UPK and at county and village, respectively. (Tim Pengelola Keuangan/Financial Management Team) is a supporting unit.
Revolving of Fund Program is a process, including way of, sustaining and developing business capital fund from the return of basic credit plus credit-interest of generate income activity by community group. Revolving is performed by re-loan those business fund capital to community group, both that has achieved generate income activity or not yet.
Fund management which is performed by UPK and TPK based on agreement made in UDKP forum. People as fund shareholder uses UDKP forum at county level to make decision including fund revolving and at village as forum of decision making and development.
The Objective of revolving is to guarantee the return of basic credit plus payment of interest rate for community group to be re-loaned again to community group as business capital of generate income activity that is accessible by simple mechanism in managing UPK and decided in the UDKP forum. At village level, it is expected to have improvement of capacity of rural community through TPK organization and activity, in coordinated accumulation of business capital fund that has not been delivered to UPK at county level. Fund revolving is directed to improve sustainability prosperity. To achieve this, there must be a principle and direction in managing UPK and fund revolving.
Fund revolving is the most important element in performing UPK. UPK need to be prepared in order to manage all fund that flows to village coordinated by UDKP at county level. Therefore effectiveness in managing UPK to allocate (fund, facility, and infrastructure) must obey variables below:
First, variable of targeting, that is defining target must be properly aimed to the subject (receiver) (targeted to the poorest of the poor), properly targeted location (territory/area), properly targeted allocation (fund), and properly targeted activity (economic activity).
Second, variable of delivery (delivering). That is aid delivery must apply mechanism of quick disbursement, on time, direct grant, fully cash money, simple procedure, transparent, and accountability.
Third, variable of receiving (receiving). That is, aid must be received by all community group members and they are ready to receive and use it with cooperative within local community institution. Benefit and result of aid management (Use of) must be transparent and accountable.
Fourth, variable of revolving (revolving). That aid revolving must be performed based on local socio-cultural and economic condition. Aid must be considered as stimulus (initial capital) in funding generate income activity that creating and generating sustainable economic activities. Mainly, economic activity that backward and forward linkages.
Fifth, variable of monitoring and evaluation (monitoring and evaluation). Monitoring and evaluation must be performed to provide data and information that support decision making (decision support system) to measure effectiveness, reformulation, and refinement of on going implementation and next policy. Monitoring is aimed to community group, fund usage, and implementation must provide simple, measured and easy to evaluate record.
Based on those variables we draw indicators of revolving direction as follows: (1) creating fund accumulation as business capital at county and village level; (2) availability of endowment fund that is accessible by people, mainly for poorest of the poor, at county and village level; (3) development of generate economic activity among community group; (4) development of local generate economic activity; (5) improving people participation in decision making to use fund as business capital; (6) develop capacity of community at county and village level in managing financial; and (7) increasing of local demand toward money that enables UPK develop as intermediary institution that provide cheap fund for local community in developing and generate further local income economic activity.
Implementation of fund revolving follows principles below: first, principle of transparency, means that ways, procedure and decision in revolving business capital fund so that accountable to community at village and county, as the owner of business fund capital; and accessible by people regularly.
Second, principle of siding-with (targeting), means that every decision on business capital fund revolving must siding with the interest of less developed people in county scope; starting from villages that has already received fund aid and develop to others villages which is participated in UDKP forum.
Third, principle of simplicity, means that every decision on business capital fund revolving must be simplified to less developed people in proposing and receiving fund.
Fourth, principle of institution, means that ways and procedures in decision making to revolve business capital fund must be institutionalized, including matters related to the changing ways and procedures of revolving, to simplify people in monitoring and evaluating performance of UPK.
Fifth, principle of empowerment, means that fund revolving process and decision making on revolving must consider effort to grow and improve the capacity of larger scale community mainly in economics indicating by the increase in income, demand, saving, developing business activity, and capacity to access adequate basic education and health, mainly for group of less developed people.
Sixth, principle of competition, means that every fund revolving decision must motivate the development of a fair and healthy competition climate, individually or collectively, indicated, among others, by giving priority to village that percentage of return of initial credit relative to total credit are higher than other villages.
Seventh, principle development, means that every revolving decision of business capital fund must be able to motivate the development of business capital fund to generate income and county economic activity.

VIII. Closing Remark

Motivated by awareness to empower people’s economic by developing small entrepreneur, so finance institution that highly commit to community and small entrepreneur is urgently required. It is more urgent as we are facing the global economic which demanding high competitiveness in the global world.
Relating to economic self-supporting and capital accumulation, finance agents has been burdened with moral accountability to prepare small entrepreneur to access funding resources in opening chances in establishing or expanding business. The role which is played by finance agent including. First, preparing in creating business access and poor people to the funding. Second, preparing small entrepreneur to use fund effectively and efficiently, including improvement managerial skill, technology and marketing. And third, hand in hand with related government apparatus imposing positive understanding that any single amount of capital to be received from credit must generate business surplus, to be saved, and re-invested to develop business, and return to.
In addition, financial institution as part of development agent is required to improve their performance and professionally provide service and showing loyalty, faithfulness, accountability, fairness, discipline, controlled and matured, and dignity that shall produce the best public service, particularly for poor people.


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Roderick Brazier, Sahala Sianipar (editor). Indonesia’s Anti-Monopoly Law and Its Impact on Small and Medium Enterprises. The Asia Foundation and USAID. Jakarta. April 1999.

Shujiro Uratha. Policy Recommendation for SME Promotion in The Republic of Indonesia. Report to Coordination Minister of Economiy, Finance, and Industry. July 2000.

Sidqy L.P. Suyitno. Konsep Refomasi Perbankan Nasional serta Restrukturisasi dan Rekapitulasi Lembaga Keuangan Masyarakat (LKM) Dalam Rangka Pengembangan Sistem Ekonomi Kerakyatan. article was presented at Seminar on Development Micro Finance Institution, held by Kantor Menko Perekonomian, 24 Oktober 2000.


Magazine and Journal

Usaha Kecil Pada Masa Krisis Mampukah Bangkit? Journal Analisis Sosial. Vol.4. No.1. Januari 1999. The Asia Foundation and USAID.


Report and Proceeding

Bank Indonesia. Annual Report 1998/1999, Bank Indonesia, Jakarta, 1999.

Departemen Perindustrian dan Perdagangan (MoIT). Industri Kecil Dalam Angka Tahun 2000. Jakarta. Februari 2000.

Konperensi Nasional Usaha Kecil. Meningkatkan Kontribusi Usaha Kecil dalam Pertumbuhan Ekonomi Indonesia. Second Edition. ISEI-KADIN-The Asia Foundation. 1998.

OECD Documents. SMEs: Employment, Innovation and Growth. The Washington Workshop. 1996.

Tim Usaha Kecil. Studi Monitoring Dampak Krisis Terhadap Usaha Kecil. Final Report. AKATIGA-The Asia Foundation-USAID. Jakarta. 1999.


Manual and Guidelines

Manual Teknis (Implementation Manual). Program Pengembangan Kecamatan Tahun Anggaran 1999/2000, Tim Koordinasi Pengelolaan Bantuan PPK. 1999.

Panduan Program (Program Guidelines). Program Inpres Desa Tertinggal, Bappenas-Depdagri, Jakarta, March. 1994.

Pedoman Umum (Program Guidelines). Program Pengembangan Kecamatan Tahun Anggaran 1999/2000, Tim Koordinasi Pengelolaan Bantuan PPK. 1999.

Petunjuk Pelaksanaan (Implementation Manual). Program Pemberdayaan Industri Kecil dan Menengah serta Pedagang Kecil dan Menengah. Departemen Perindustrian dan Perdagangan (MoIT). 1999.

Petunjuk Teknis (Technical Manual). Program Pemberdayaan Industri Kecil dan Menengah serta Pedagang Kecil dan Menengah. Departemen Perindustrian dan Perdagangan (MoIT). 1999.

Undang-Undang Republik Indonesia Nomor 9 Tahun 1995 tentang Usaha Kecil.