Poor kampung women double their income through their own micro-credit scheme

Lea Jellinek

In May 1999, Bambang Rustanto and I set up Kesuma Multiguna, an NGO which aimed to work with poor kampung dwellers in Jakarta. We were both dissatisfied with our experiences of international consulting. Poverty projects gave consultants like us good work, good money, and good opportunities, but left the poor unchanged. With the economic crisis of 1997-99 and subsequent big government spending on the Social Safety Net, we saw how the poverty excuse was used yet again to enrich aid agencies, consultants, and government departments. We decided to try to develop programs which would really reach the urban poor. We chose Jakarta because it seemed the most neglected and difficult place. We had set ourselves a challenge, and were by no means sure we could succeed.

We chose to focus on the area surrounding the Anggrek Mall in Slipi, West Jakarta. The mall is a towering structure with condominiums on top and the latest in shopping complexes underneath, complete with ice-skating rink. As you drive in from the airport, it looks like a surreal castle. It is surrounded by cloverleaf freeways, which have literally been imposed on top of a village. It is thus a mixture of very rich and very poor, new and old, modern and traditional. Kampung communities are imprisoned on all sides by high cement walls and multistorey developments.

Suspicious

My colleague Bambang comes from among the poor and communicates well with them. From working on the streets as a trader with his mother, he had learnt that capital for the purchase of trading stock was their most basic need. Many of the poor have small trades - cooked foods, vegetable selling, ginger medicine making, selling clothes on credit - but they lack enough capital to buy adequate stocks. This limits their sales and income.

The first task was to find one neighbourhood where the program could be tested. We spent two months familiarising ourselves with the poorest communities. Most of those we initially approached were suspicious. They had become disillusioned with government programs in the past, and thought this might be similar. Others - especially when they saw a white person - thought distrustfully that it had something to do with Christian proselytising. And still others adopted a handout mentality, thinking we were bringing gifts.

Eventually, however, one group of ten women in the poorest area beside the Grogol Canal was ready to take out loans. A dynamic and caring woman - the wife of the local headman - organised the group. She already ran the traditional rotating credit group, and our intentions were that our credit program would grow out of and build on this group. Neighbours started to talk about our program, and within one month another group had requested loans. Information spread surprisingly rapidly by word of mouth. After eighteen months, over 520 women were part of the savings and borrowing scheme, and there had not been one default.

We chose to work with women because they are the core of the household. They know everybody in their neighbourhood. They know who can and cannot be trusted. They are the ones who run the household enterprises which feed the local population. These enterprises often keep the family going while their husbands are unemployed or seeking work. The women are most concerned about their children's future, and traditionally hold the family purse strings. Moreover, men are out on the city streets seeking an income and thus much more difficult to monitor compared to the women who are reliably present in the kampung.

The first task when forming a group was to find a trusted local leader. Neighbourhood women were asked whom they most admired and who cared for them when they were in difficulties. When most of the fingers pointed at one woman, she was approached to be the leader. She then had the chore of deciding who would be the borrowers. We wanted to reach the poorest of the poor, but at the same time we could not afford default. In most cases, the borrower had to have a viable enterprise. Mostly petty traders were able to get a loan. The head of the group knew each borrower personally - their homes fronted onto one another's houses and they met along the pathways each day. They had lived next to each other for many years and knew each other's life stories. Over a year and a half, eighteen different neighbourhoods formed a savings and borrowers group. The numbers in each group varied from ten to sixty people.

'Interest'

Borrowing was done in stages. The first loan amounted to Rp 100,000 (A$20). It was paid back over the next five months in monthly installments of Rp 20,000 (A$4). In addition, each borrower paid Rp 2000 (A$0.40) every month to cover operating costs and insurance against default. Once they had paid back this amount, they could take out a larger loan of Rp 200,000 (A$40). On each satisfactory repayment, the amount of a subsequent loan could be increased, up to a maximum of Rp 500,000 (A$80). As the program progressed, we felt we wanted to encourage savings as an integral part of borrowing. For every Rp 100,000 borrowed, Rp 5000 was put aside into a savings account for the borrower, and they had a bankbook to prove it.

We constantly agonised over the amount of interest - called 'operating costs' because Muslims generally do not like the idea of interest. Bankers had warned us that if we wanted to remain viable, we had to charge market rates of 20-30 percent interest per annum. This sounds very high by Australian standards, but was in line with Indonesian banks. Furthermore, most of the people we were lending to had, at one time or another, been indebted to illegal moneylenders, who charge interest rates of 300 percent per annum. So kampung dwellers were pleased with the rates we were offering. The aim was to ultimately make the savings and credit system self-sustaining, so that it would not rely on outside funding to keep the office and staff running.

For the first four months, most of the staff worked for free. We had no desks, tables, or computers, but had to work on the floor. The kampung dwellers themselves started to offer us tables and chairs. Eventually Daimler Benz Jakarta gave us some old computers that they were replacing. During the first six months, all the details had been written in children's notebooks. Eighteen months later, all borrower records were computerised, so we could clearly see how many loans they had taken out and how much they had borrowed, saved, and repaid. A staff member who eighteen months earlier had not known anything about computers had become computer-literate.

From the initial groups of borrowers we recruited the most able, unemployed women to be part of our office staff. They had been secretaries and treasurers in supermarkets and shops before the economic crisis. After losing their jobs, they had become impoverished and despairing. It was these young women who lived in the kampung and had knowledge of kampung economics and trade who helped us design the micro-credit system. It was their ideas that formed the core of the program, and they designed the accounting system.

After four months, the staff could no longer afford to volunteer their services. They came from poor families and their husbands were annoyed that their wives were working without bringing home any resources. Although the staff had special borrowing rights from the program, they needed proper salaries if the micro-credit program was to be viable. The 'interest' or 'operating costs' had to cover their salaries.

Another aspect of the program was that it was conducted within peoples' homes like a 'barefoot doctor' scheme. Two of our staff would come to the home of the group leader each month, bringing cash from the bank. They would explain the details of the program, while the women sat in a circle and the money was piled up in front of them on the floor. After each woman signed the necessary documents, they received their loan.

Six months after starting the program, it was a joy to walk through the kampungs. Women came out and embraced us. We were greeted everywhere - no longer the sullen, doubting stares. Instead, many told us that their incomes had doubled from A$1 to A$2 per day. Moreover, a network of women was being created through the communities that belonged to the program. Our staff spread information about the available goods and services from one neighbourhood to another, and this may have expanded inter-neighbourhood trade.

We were painfully aware that the poorest of the poor, such as washerwomen and casual labourers, were still unable to borrow, because they lacked enterprises. We regarded the micro-credit program as a first step to gain entry and trust in the community. From this we are developing other programs for the really poor - nutrition, a lending program for health and schooling, monthly medical clinics and a neighbourhood library.

Lea Jellinek (leajell@ozemail.com.au) lives in Taggerty, Victoria, Australia. She is the author of 'The wheel of fortune: The history of a poor community in Jakarta' (1991).