Each of the three research areas has a somewhat different economic structure as well as variations in social, cultural and religious beliefs and practices within the broader Sundanese Muslim society. These differences are also reflected in various economic sectors financed by microfinance lending institutions, which in turn influence the behavior of the borrowers, mantri or bank officers.
The sub-districts government data for 2005 describe the main economic sectors in the three research areas. The sub-district Pagerageung is a rural area where primary production employs about 65% of the workforce in the production of food crops, horticulture, smallholdings, animal husbandry and fishing. Trade, service businesses, civil servants and retirees follow420. The same pattern is found in the coastal area Gebang, where more people are employed in farming than fishing.421 Cimahi Kota has a different economic structure.422 It is an urban area where most of the inhabitants live from trading, as workers in factories and the service sector.
The composition of local economies and their labor forces do not reflect the productivity of local economies. This is especially the case in rural and coastal areas, where the ‘income generators’ who are the easiest to access microcredit are not found in the dominant sectors of the economy. The lending institutions in making their decisions about loans are attracted by the most
420 Program dan Kegiatan Pembangunan Kecamatan Pagerageung 2006-2007, 11 March 2006 and Data Monografi BRI Unit Pagerageung 2005.
421Laporan Perkembangan Kegiatan Ekonomi Kecamatan Gebang 2005.
productive individuals and businesses and they are not influenced by macroeconomic considerations.
The study found that the structure of the local economies in rural, coastal and urban areas is not always reflected in the loan portfolio of banks. Although farming is the largest sector in the rural area, the agricultural sector is not considered a good financial proposition. This lack of microcredit funding for agriculture was reflected in the monthly portfolio reports of the BRI Unit in Pagerageung, which indicated that in this rural area only 3.6% of total loans on
average went to farmers.423 Local BRI managers consider that agriculture has a
high risk because of its long production cycles, perishable products, supply oriented market and slow cash turnover.424 In contrast, traders have a faster
cash turnover, which helps explain why trade is the main sector financed by microcredit by the BRI Unit in Pagerageung, a predominantly rural area, with about 59.7% of the loan portfolio. The trading sector was followed by loans to
fixed income earners (golongan berpenghasilan tetap/golbertap) at 28.3%. The
rest is for service businesses and small industry. BRI Unit Puteran maintained a similar pattern of financing to that of Pagerageung: agriculture 5.2%, trading 75.7% and golbertap 5.4%.425
Fishing and fish trading is a dominant sector in the local economies of coastal areas. However, as in the rural area, the main sector of the coastal
economy financed by the BRI Unit in Gebang was trade.426 Bank managers are
reluctant to finance fishing because of its perceived high risk, but those who trade in fish can access microcredit loans. The Unit financed agriculture (4.7%), trading (85.3%) and fixed income loans (5.0%). In the urban area, the BRI Unit in Cimindi provided about 62.2% of its loan portfolio to the trade sector, which
was significant in the local economy.427 Fixed income earners, including many
civil servants and private sector employees, received 20.8% of the loans, service businesses 9.8% and the remainder went to small industry. In distinction
423 Laporan Bulanan Realisasi Kupedes per Sektor Ekonomi tahun 2009 at BRI Unit Pagerageung.
424 Interviews with Endang Sumarna, BRI Unit Puteran, 3 March 2006; Kurniawan, BRI Unit Pagerageung, 8 March 2006.
425 Laporan Bulanan Realisasi Kupedes per Sektor Ekonomi tahun 2009 at BRI Unit, Puteran. 426 Laporan Bulanan Realisasi Kupedes per Sektor Ekonomi tahun 2009 at BRI Unit, Gebang. 427 Laporan Bulanan Realisasi Kupedes per Sektor Ekonomi tahun 2009 at BRI Unit, Cimindi.
to the rural and coastal areas, the BRI’s loan portfolio in Cimindi reflected much more closely the structure of the economy. In each of the three research areas, it is the self-employed traders who have the greatest access to microfinance. They are the entrepreneurs who have the ability to generate income and profits and sell products to the local market.
4.3.1. Culture and microcredit relationship
Robbins argues that culture and economics have causal relationships, where human activity to fulfil material needs is influenced by cultural practice and social values. In economic activities, human behavior is conditioned by the countervailing pressures of limited means, many alternative uses and limitless needs.428 For example, the scarcity of microfinance resources in the villages drives Muslim borrowers to accept loans with “non-shari’ah” conditions to fulfil their finance needs. There are patterns of human activity and traditional practices in community that need financing. Borrowers have a vested interest to apply traditional practices for their own benefit and to avoid social tension. This research indicates that BRI mantri and BPR officers are able to control the effectiveness of microcredit and they are wise to maintain commercial parameters without conflicting with borrowers’ sociocultural customs. Commercial consideration and sociocultural norms are two dynamically related aspects in microbusiness that need to be balanced in order to avoid deadlocks in business and social relations.
The capitalist economic system has penetrated into households in
villages for many decades. This is a system in which the idea of Homo
Economicus is applied as one of its basic assumptions.429Homo Economicus is
the human capability of rationally deciding to act in his or her best interest, which leads to the most personal gain when making decisions. This human
428 See Robbins, L. 1935, An Essay on the Nature and Significance of Economic Science, Macmillan, London, pp. 16-17.
429 The idea of Homo Economicus as we understand the concept nowadays can be found in the work of John Stuart Mill. The concept was developed in his Essays on Some Unsettled Questions of Political Economy (1844) and fully-fledged in his Principles of Political Economy (1848). See Peil, J. and van Staveren, I, 2009, Handbook of Economics and Ethics, Radboud University, Nijmegen, and Institute of Social Studies, The Hague, The Netherlands, p. 223.
behavior is guided by individual rational choice to maximize utility430. However, in a society where an individual still has close relationships with the family,
neighbors and community, such as in the Sundanese villages, Homo
Economicus needs Homo Sociologicus, where decisions have communal as well as individual interests431. This is consistent with the Sundanese ideals: to be kind-hearted and caring and value education (kudu silih asih, silih asah jeung silih asuh). As Muslims, Sundanese villagers also respect their Islamic beliefs. Following Max Weber's proposition that rationalism is a cultural concept, Islamic rationalism is suggested as an alternative that is consistent with the Islamic values of Homo Islamicus.432 The most important difference between
Homo Islamicus and Homo Economicus is the assumption of altruism. As with other pre-capitalist systems, Islam is preoccupied with the welfare of a community where every individual behaves altruistically and according to religious norms.
All borrowers in the research areas in this study are Muslims and they participate in the capitalist economic system, which has developed since the 19th century. It is the long course of history, during and since the colonial
period, when the Dutch government introduced capitalism under a series of policy frameworks, including the culture system (Kultuurstelsel), the liberal system and the ethical system, followed by the influence of Muslim business communities during the 20th century. These are significant contributions to change in many aspects of rural life. However, these economic policies and the Dutch rule in Java have had a strong tendency to conserve some degree of communal nature of the villages, as described by Furnivall, in that the villages
430This is rational choice theory. Lionel Robbins postulates that human behavior is guided by instrumental reason. Accordingly, individuals choose what they believe to be the best means to achieve their given ends. See Robbins, L. 1935, An Essay on the Nature and Significance of Economic Science, Macmillan, London.
431 Homo Sociologicus was introduced by German sociologist Ralf Dahrendorf in 1958, to describe human nature in some sociological models that attempt to limit the social forces that determine individual tastes and social values. See Dahrendorf, R. 1973, Essays in the Theory of Society, Routledge & Kegan Paul Ltd., London.
432 Homo Islamicus is discussed by Farooq, Mohammad Omar, 2006, Self-Interest, Homo Islamicus and Some Behavioral Assumptions in Islamic Economics and Finance, viewed 31 March 2007 http://globalwebpost.com/farooqm/writting/islamic/i_econ_fin/homo-islamicus.doc.
were left to manage their own affairs.433 After independence, village monetization permeated village households alongside traditional values. In financial practice the villagers are simultaneously challenged to synchronize
existing values as homo Economicus, Homo Sociologicus and Homo Islamicus.
The researcher observed how villagers think and act in using their microcredit when they combine these three concepts in order to create a synthesis, or maybe a compromise, rather than rejecting any of them, or flexibility to adapt the environment in order to survive as expressed in the traditional Sundanese
expression kudu bisa lolondokan.
It is believed that culture can be transformed into economic activity through creativity and organizing initiatives that produce economic value. Most districts in West Java produce cultural, artistic and social resources that provide microbusiness opportunities. In practice we can re-examine West Java’s culture, traditions and religion that can be turned into performances and business opportunities such as:
1. All along the coastal areas of Cirebon, the fishing communities
maintain yearly sea offering ceremonies (salametan sidekah laut). These
ceremonies occur also in other coastal areas of West Java such as Indramayu, Karawang, Pelabuhan Ratu, Pameungpeuk and Pangandaran. The local governments organize the ritual, which is listed on their tourist calendar guides. The ceremony attracts big crowds and has a lively bazaar (pasar kaget). The sugar cane refining ceremony (pesta giling tebu) has the same capacity to generate business opportunities for the local people.
2. The Sundanese traditional wedding ceremony has become an opportunity for families to display their wealth and social status. Managing Sundanese wedding ceremonies, including catering, provision of party equipment and entertainment has become good business.
3. The traditional Sundanese cuisine, usually cooked in the villages, is easily found in the many restaurants in urban areas, big cities and international hotels. It is a big business often complemented by Sundanese architecture, decoration and performance art.
433Furnivall, J.S. 1956, Colonial Policy and Practice, New York University Press, New York, p. 241.
4. The traditional Sundanese music angklung, wooden puppetry (wayang golek), gamelan, dancing, design and visual arts can be found in conservatories and galleries, and appears as commercial performances.
5. The handicrafts, batiks and embroidery in the district of Tasikmalaya have developed as an industry after they improved the quality and design to meet consumer tastes. All these cultural activities create business opportunities that require financing, capital for investment, production and marketing.
This analysis shows that culture, traditions and/or customs not only influence borrowers’ behavior and cost-bearing activities but also provide opportunities for business. The sociocultural aspects can be explored and developed with creativity into a practical operation, saleable commodity and financed by microcredit. The Sundanese expression is to get business and
money one has to do one’s best (mun teu ngopek moal nyapek, mun teu ngakal
moal ngakeul, mun teu ngarah moal ngarih). Certainly, culture is a business opportunity for microborrowers and can maintain sustainability of microfinance institutions.
4.3.2. Microcredit in a changing sociocultural environment
It is argued herethat the respondents’ behavior reflects their accommodation of
various values. It is found that monetization of the villagers’ economy strengthens capitalism and microcredit borrowers are required to perform cost benefit calculations in their decision making. However, their Sundanese norms and traditions are influenced by modernization, their Islamic religion and patterns of social and economic change which affect them. The villagers tend to maintain a balanced relationship with the community, nature and the environment, as reflected in the Sundanese expression: one has to be able to associate with anybody(kudu bisa ka bula ka bale).
Thus culture is a process of acculturation, in which cultural traits,
communication and openness make it a never ending process.434 The dynamics
of change in technology, culture, and economic, social and political activities via
434 Koentjaraningrat, 1975, Anthropology in Indonesia, S-Gravenhage-Martinus Nijhoff, The Hague, p. 5.
information technology spread easily, without much respect for political and cultural boundaries. The development of communication has made the villages open to an increasing range of information and cultural influences. This is a process whereby the existing culture and values including business ethics are influenced, and the microfinance institutions need to understand the subsequent impact on borrowers’ behavior. Some factors will be analyzed to see how they influence business ethics and behavior and to what extent.
The attitude of the villagers, especially in rural areas, is influenced by development in agricultural sectors and the level of poverty or prosperity. It was Dutch colonial policies that helped create a ‘dual economy’, where villages were left with subsistence economies and high levels of poverty. Boeke characterizes the indigenous agriculture as subsistence oriented and static in contrast to the capitalist, dynamic, foreign dominated plantation economy435. He argues that since social needs prevail over economic needs, the chance of a substantial
development of the indigenous economic sector is poor436. Geertz agrees with
Boeke’s assessment. He further argues that colonial policy creates a kind of dual economy: the stagnant indigenous economic sector and the rapidly growing, extremely profitable colonial plantation economy. Geertz introduces the concept of involution and shared poverty437. Involution is different from evolution in that it leads to refinement and increased output from irrigated rice paddy but not technological change. Involution took place when the Javanese economy was confronted by demands for increased production from the colonial Dutch government at a time of rapid population growth. Increased labour inputs into the paddy fields intensified cultivation, increasing output per hectare but not increasing output per head.
Geertz argues that it always seems possible to squeeze a little more out of mediocre paddy fields (sawah) by working harder.438 As a result, more and more people can gain their subsistence from the same piece of land. The
435 Boeke, J.H. 1953, Economics and Economic Policy of Dual Societies as Exemplified by Indonesia, Institute of Pacific Relations, New York.
436 Boeke, J.H. 1948, The Interests of the Voiceless Far East. Introduction to Oriental Economics, Universitaire Pers, Leiden.
437 Geertz, C. 1963, Agricultural Involution: The Processes of Ecological Change in Indonesia, University of California Press, Berkeley, California.
economic pie is thus divided into smaller and smaller pieces by applying the principles of shared poverty. According to Geertz, this process explains why Javanese village society could maintain a comparatively high degree of social
and economic homogeneity.439 Involution also prevents serious rifts developing
between small, but wealthy landowners and the majority of small landowners or those without land. The structure of land ownership in the villages indicates that peasants do not own sufficient land. Land reform introduced in the early 1960s by the Sukarno government did not succeed in changing the structure of land
ownership.440 Regarding this problem of landownership, Collier criticizes Geertz
because Geertz ignores the existence of a large number of landless peasants in Javanese villages, thus removing them from his analysis.441 In Geertz’s view,
the smaller land parcels are taken to mean the absence of large landlord groups, but to Collier, this inference is not substantiated.
Countless critics challenge Geertz’s conclusions on agricultural involution as his fieldwork was contained in one limited area which did not take into account various regions and shared poverty442. Collier comments on other
critics of Geertz’s work.443 Non-farming activities in villages are not observed
and analyzed decisively, thus making income per capita decline. The off-farm labor of Javanese peasants in fact needs to be accounted for because per capita income would then be rising instead of declining. Geertz takes insufficient account of the geographical diversity of the socioeconomic structure in Javanese villages and tends to over generalize regarding a single village in East Java. He exaggerates his impression of the chaotic period (the early 1950s) following World War II and the national independence revolution and thus tends to be too pessimistic in his conclusion. Benyamin White and Hiroyosi Kano point out a crucial weakness in Geertz’s position: Geertz fails to observe and analyze the actual state of affairs in landownership and thus ignores the
439 Geertz, C. 1963, ibid, p. 97.
440 Mortimer, R. 1974, Indonesian Communism Under Sukarno, Ideology and Politics 1959- 1965, Equinox Publishing (Asia), Singapore, pp. 63, 95.
441 Collier, W.L. 1977, Agricultural Evolution in Java: The Decline of Shared Poverty and Involution, mimeograph, Bogor, Indonesia, pp. 7-8. He is actively involved in conducting agricultural surveys in Java with Agro Economic Survey members at Bogor.
442 Geertz, C. 1963, ibid, p. 97. 443 Collier, W.L. 1977, ibid, pp. 3-6.
class divisions existing between landowners and non-landowners.444 Recent developments actually negate Geertz’s postulate that the involutional process of adapting to a rising population by applying more labor to a fixed land area has become institutionalized. These two criticisms constitute nothing less than a broad frontal attack on the relevance and usefulness of Geertz’s two fundamental concepts: agricultural involution and shared poverty.
Furnival, Boeke and Geertz argue that the backward economy in villages is the reflection of socioeconomic structure, where land is the main production factor and income derived from land utilization is the core of village economic activities. This study finds that although poverty still exists in the villages, the main role of income from agriculture in the research areas has changed.445
There are many reasons for change: aggressiveness of village monetization; disparity of value between agricultural and industrial products; no trading barriers in villages; intensive access to the urban market; villages are the suppliers of products and labor; and turnover is faster in the trading sector in comparison with the agricultural sector. All these linked factors create capital in the village as commodity with dynamic productive effects. Land as a factor of production remains important; but the increasing monetization through the provision of microcredit has created a more diversified local economy.
The arguments of Furnival, Boeke and Geertz provide the historical background of subsistence agriculture, patterns of landownership and the prevalence of poverty in rural Java including West Java. The economic structures of the three research areas plus the analysis of the BRI loan