Anissa S. Febrina, Jakarta – As soon as meatball vendor Ali Muthahirin heard from a neighbor that his subdistrict office in Pondok Labu, South Jakarta, was offering an attractive micro-credit scheme, he quickly followed it up.
"I filled the form and handed in the copies of the documents as required. But, as of today I have still not received the money," he said. Ali says he ended up borrowing from a loan shark to buy new equipment for his business. Meanwhile, he says a neighbor has already received the credit, which he "used to throw a wedding reception".
A recently published study gives credence to Ali's claims. It says the city's effort to support micro-businesses in Jakarta's subdistricts has been hampered by lack of monitoring and mismanagement, which means the credit is often disbursed without transparency, to the wrong people for the wrong reasons and then not paid back as it is supposed to under the "rolling fund" mechanism.
The informal sector, which the micro-credit schemes are aimed at, makes up an estimated 60 percent of the city's economy.
Presented Tuesday at the University of Indonesia, the study by the institution's UKM Center found instances of abuse in 20 percent of the loans.
UKM stands for Usaha Kredit Menengah or credit scheme for medium enterpreneur. Under the scheme, micro-businesses that qualify are entitled to credit worth up to Rp 3 million each.
"Some 16 percent of people receiving the credit did not have an actual business," center director Nining I. Soesilo said. "Subdistrict council members lack the financial management skills to keep the fund rolling and instead just hand out the loans (as cash benefits) to those close to them."
The Jakarta administration has since 2001 been disbursing funds for micro-business loans to subdistrict offices across the city through its Subdistrict Residents Empowerment Scheme (PPMK). The total amount disbursed during the past five years has reached Rp 676.15 billion (about US$7 million), of which Rp 267 billion was scheduled for 2006. Some 60 percent of the fund is earmarked for the empowerment of small entrepreneurs through micro-credit schemes.
"There are problems occurring involving the selected members of subdistrict councils, who are supposed to be responsible for disbursing and managing the fund," Nining said. Council members were chosen to disburse the fund because of their status in the community, not because of their financial management skills, he said.
Every subdistrict receives an annual average of Rp 1.7 billion, of which 40 percent should be used for infrastructure development and community training and the rest for micro-credit schemes.
While several subdistricts have announced the existence of such schemes, others have not done so, meaning the owners of many micro-businesses in the city do not know of the scheme's existence.
"We try to do our best to make sure the fund is managed well, and that those who receive it are the people who need it the most," Pondok Labu subdistrict council member Buaran said.
However, the study found many subdistrict offices often disbursed the money to residents to pay school enrollment fees or for other pending needs. Responding to the study, Buaran said, "sometimes, in case of emergencies, we have to be wise".
Analysts earlier warned that giving the fund directly to subdistrict council members without intensive monitoring and a transparent evaluation system would only encourage corruption.
City monitoring agency head Firman Hutajulu reported the office found 170 cases where Rp 8 billion of the money had been abused in 57 subdistricts between 2002 and 2004.
UKM suggested the administration carry out a more indepth survey instead of financial audits. "We also found that residents' participation in applying for the credit remains low. That needs improving if the administration is to see real results," Nining said.