The Ultramicro “Holding” Controversy
By: Nining I Soesilo, FEB UI Lecturer, Founder, Advisor for UKM Center FEB UI
KOMPAS – (9/8/2021) The ultra-micro program is designed to serve around 46.7 million entrepreneurs who are separated from the People’s Business Credit program. However, creating ultramicro holdings in SOEs (BUMN) will eliminate the ‘spirit’ of the ultramicro program itself.
In a webinar organized by BaraJP Netherlands on July 4, 2021, from Bali a cattle farmer complained that his cow’s milk was only valued at Rp 5,500 per liter by the local KUD (Village Business Cooperative), even though the price of feed was increasing. At this time, mineral water from well-known brands produced by corporate companies is sold at a price of Rp. 26,000-Rp. 33,000 per liter, up to 6 times more!
Whereas FAO found that dairy products worldwide experienced the highest price increase, at 44.8 percent, followed by rice prices (32.9 percent); sugar (29.5 percent); fats, oils, seed oils (28 percent); corn (20.2 percent), and wheat (15.3 percent). The price of beef actually decreased (21.6 percent), and the most rapid decline was the price of poultry (53.5 percent).
The results of hard work raising cows so that they can milk their nutritious milk (this was contested during the Covid-19 pandemic), turned out to be very cheap. Even milk is priced cheaper than water that need only to be stored! The complaints of these breeders actually come from all over Indonesia, because the average cattle breeder only has 2-3 cows, far from the ideal number of around 5-7 cows, so their bargaining position is very low.
In neoclassical economic logic, everyone is considered rational. In the calculation of capital, humans will become “economic animals”, which are assumed to prioritize the achievement of unlimited enjoyment.
Ultra-micro holding thinkers generally assume that a corporation to serve ultra-micro entrepreneurs conceptualized by the Ministry of SOEs requires a large scale implementation to be more efficient, so that interest is cheaper for MSMEs, and will automatically prosper the ultra-micro business actors. Is that true?
The illustration of the irony of milk prices for dairy farmers as stated above can be an illustration that the neoclassical economic logic is not always correct. This is because the assumption of ceteris paribus (all other things being equal) is too much. The weakness is that human rationality is also limited, considering that there are differences in customs, localities, geographical locations, cultural, and historical background that require non-homogeneous services. So, this heterogeneous behavior aggregation actually cannot be done.
Ultra micro concept
As an ultramicro concept designer (UMi), I would like to outline here the chronology and concept. Ultramicro is the output of the 2009 UI Leading Research activity, for which I won the grant. At that time I was still the Head of the FEUI UKM Center (not yet FEB UI). It took eight years to turn the research results into a national program!
The ultramicro concept was inspired by the success story of the Mitra Dhuafa Cooperative (Komida), which applied the Grameen Bank method, then combined it with the efforts of the Tangerang Regency Government which in parallel used the APBD to make similar activities. Muhammad Yunus and Grameen Bank won the Nobel Peace Prize in 2006, as a follow-up to the United Nations decree, which established 2005 as the International Year of Microcredit. This is due to boosting world economic growth, which was followed by an even more rapid increase in the number of poor people because they do not have access to financing.
Grameen Bank reverses the concept of general banking created by the Bassle Accord by providing loans only to women and without collateral with the main condition being that the debtor must be poor. In Halifax Canada in 2006, Muhammad Yunus stated that “the more you stay away from Government, the better”. This is because Grameen Bank is financed by the World Civil Society movement, not from the government. According to Giddens (1998, 2008), in a democracy, civil society (in which there are cooperatives) needs to have the same opportunity to participate as the government and the private sector.
“Although it was inspired by the Grameen Bank, the concept of the UMi program is different, that is, it expects government intervention.”
Although inspired by the Grameen Bank, the concept of the UMi program is different, namely that it expects government intervention. When I was first invited by the Ministry of Finance in 2014 (at that time the minister was Pak Bambang Brodjonegoro) to create the Mekar concept (Elevating the People’s Economy), I often asked, where is the government’s role? This is because when they wanted to lend to the poor, Komida was forced to borrow from a commercial bank at a cost of up to 16 percent.
As a result, members of the cooperative (poor women) have to repay the loan, with an interest rate of 24 percent! Although it looks large, this 8 percent spread (i.e. 24 percent minus 16 percent) is utilized by 60 percent for business assistance. This is a kind of education and assistance for cooperative members.
The Ministry of Finance finally believed that because in 2014 there were around 500,000 Komida members spread over 10 provinces, even though they were financed without government assistance. This weekly (high touch) assistance has also made its non-performing loans (NPL) below 0.05 percent. Unlike the Grameen Bank, the UMi concept is intended for both female and male entrepreneurs, with a maximum loan of Rp 10 million per person, and must be provided together with mentoring (business training). In 2020, the UMi loan ceiling has been increased to Rp 20 million per debtor.
It turns out that unlike the rich, the poor will always pay back their loans. Obstacles only occur when there is a disaster, such as flooding, tsunami, fire, illness, but they never fail. At the end of the year, during the Annual Members Meeting (RAT), all members of the cooperative will get the Remaining Operating Income (SHU). Intense weekly interactions have formed a great social capital.
The distribution of SHU and education to members of this cooperative would never have happened if these ultra micro holdings were managed by banks. These debtors will also not be visited and often billed. They must be disciplined to repay loans, and pay for transportation when they go to the bank.
It turns out that changing the lending culture like this is not easy. The experience at the Parasahabat Foundation when it was still managed by the late Pak Palgunadi Setiawan, when changing the ultra micro pattern into a bank pattern, actually made the bank lose money because debtors were lazy to pay installments, so the foundation returned to a high touch assistance method.
Returning to the history of UMi, after accompanying the Ministry of Finance for almost 2.5 years, the DPR finally agreed to disburse a total of Rp 7 trillion in APBN funds for the UMi program, and the Minister of Finance Regulation on UMi was issued in 2017. UMi is coordinated by the Public Service Agency (BLU). ) Government Investment Center (PIP) under the Ministry of Finance.
The UMi program is designed to serve around 46.7 million entrepreneurs who are scattered from the People’s Business Credit (KUR) program. Currently, about 57 cooperatives have received UMi funds, and the majority is in the form of Sharia cooperatives. However, all of these cooperatives receive indirect services from PIP, because in the APBN clause, if there is a disruption in loan repayments in the cooperative, then PIP is considered to have lost state money.
For that, it is necessary to have Bahana Artha Ventura (BAV) as a bridge from PIP to cooperatives (two-step loan). If there is a risk, then this APBN is not lost, because it is considered as the state’s receivables from SOEs. In this case, BAV, which is partly owned by BRI, is considered a BUMN.
Although the number of cooperatives receiving UMi funds is large, the total funds managed by cooperatives is not. Currently, most of the ultramicro funds are channeled to PNM under the name Mekaar. Some of these ultra-micro funds were also channeled to BUMN Pegadaian, with a slightly different scheme, namely in the form of individual loans with collateral (pawning).
PNM is a state-owned enterprise that also adheres to the Grameen Bank principles in providing group loans. PNM actually learned a lot from Komida. At first, PNM even “hijacked” Komida members and their account officers, so that they actually recruited whole units from Komida. Maybe this is not a policy at PNM leadership, but in the field, this actually happened. PNM as a BUMN with the ‘luxury’ of cheap UMi funds directly from PIP (one-step loan), still had the nerve to take the cooperative’s efforts, and continues to set 24 percent interest to its customers.
Back to ultra micro holding. BRI as a holding company of PNM, Pegadaian, and BAV is a bank that will remain bound to the Basle Accord principle, which does not recognize the concept of 60 percent of the spread for business assistance. Creating an ultramicro holding in BUMN will eliminate the ‘spirit’ of the UMi program, namely the obligation to assist members, which is carried out in parallel with collecting installments, where the process of upgrading will occur together, like sparrows flying together.
Unfortunately, the Ministry of State-Owned Enterprises is actually targeting MSMEs to upgrade from UMi program debtors (like sparrows) so that they can behave like eagles that fly on their own (MSMEs). Nature has taught that this will be difficult to realize.
“Unfortunately, the Ministry of SOEs is targeting MSMEs to upgrade from the UMi program debtors (like sparrows) so that they can behave like eagles that fly alone (MSMEs).”
The UMKM members of the cooperative who borrow from the Ultra Micro holding will also never get the SHU distribution, because BRI is not a cooperative. If the principle of high tech is applied instead of high touch, both BRI and its debtors will lose. If you want to be fair, it is the same as the UMi concept, namely if the cost of this business assistance is charged to the bank, in fact the bank will actually pay a higher interest rate than the cooperative.
However, the lure of bank interest without guidance, which at first glance looks cheaper, is indeed misleading, so it will still be attractive to ordinary people. This will make cooperative members and account officers targets for “hijacking” in the field. As a result, the cooperative will become weaker. Ironically, the government wants cooperatives as the pillars of the Indonesian economy.
In 2016, I wrote in Kompas about the economic cooperative “Soko Lidi”, because the cooperative’s contribution was too small. This condition has not changed much, because the Ministry of Cooperatives is not positioned as an important ministry. In fact, their task is difficult, taking care of cooperatives and Indonesian entrepreneurs, which are more than 90 percent of the ultra-micro scale.
In the 1998 crisis, the MPR was moved to create a people’s economy concept, by giving a role to cooperatives and MSMEs in accordance with the spirit of Article 33 paragraph 3 of the 45 Constitution. Does the MPR still focus their attention here? If you’re serious, speak up again!
While it’s still about cooperative day, I want to tell you about cooperatives in China. When we were consultants to UN IFAD in Rome, when evaluating the IFAD project in China, we were accompanied by local professors. It turns out that in each sub-district there is a TVE (Township and Village Enterprise). Surprisingly, all of these TVEs managed to contribute to 70 percent of China’s total exports; so that China can be called the factory of the world.
“Instead of creating an ultramicro holding with services that tend to be homogeneous, it is better to maintain a variety of services and strengthen cooperatives.”
I once raised this at the Palace on July 6 2019, when Pak Jokowi asked for advice from the Indonesian Small and Micro Entrepreneurs Association (Hipmikindo). What is interesting is that the successful TVEs are actually in the form of cooperatives, not SOEs.
Therefore, rather than creating an ultramicro holding with services that tend to be homogeneous, it is better to maintain a variety of services and strengthen cooperatives. In addition to helping to realize the pillars of the Indonesian economy, cooperatives can balance the power of the state and the private sector (Wright, 2011), and can prevent the dominance of government and private players who have the potential to be overly aggressive in conducting business (Giddens, 2008).
Source: https://www.kompas.id/baca/opini/2021/08/09/kontroversi-holding-ultramikro
(am)