The formal rural credit system in Dilam village is not so preferred by rural people, because of its unpopular characteristics. This type of rural credit system is characterised by high interest rates, long administrative procedures, and required one to have collateral to access the credit. Another reason is that information about how the formal credit systems work is not available in Dilam. Dilam people, most of whom are poor farmers, perceived the formal credit schemes as unreachable. They thought that borrowing money with high interest is impossible considering their incomes from crops and livestock are unstable and highly dependent upon natural and climatic conditions.
11
I
111 53 Providing collateral, which is usually in the fonn of proof of property such as land, buildings and vehicles is difficult for the poor. As one fanner stated:
To participate in a credit programme from the government with a high interest rate is difficult for us since we do not have a regular income. We can 't rely on our crops or livestock, since the harvests sometimes increase or decrease, and diseases threaten the livestock growing. We can 't provide collateral because we don 't have that kind of property. If the government really wants to help us, the credit scheme should be flexible and adapted to our conditions, such as the repayment should be made at harvesting time, the collateral should be based on trust or moral guarantee, and the interest rates should be lowered and, if possible, with zero interest (In-depth Interview, 20 January, 2004).
The long bureaucratic procedure is another problem encountered by poor fanners trying to access fonnal credit programmes from banks. This procedure is usually done through the Wali Nagari office, where the fanners register their names. The Wali Nagari then submits the names of candidates to the banks who verify these candidates according to their income, daily activities, and personal records. The candidates are invited to attend the interview process. Some candidates may not pass this verifying process because of their unstable incomes or their previous bad personal records. The accepted candidates should then submit a proposal. The bank staffs then examines the proposal, and if passed, the bank will give credit. Sometimes the proposal does not pass the examination, even though fanners have spent a lot of money to develop a proposal and to pay officials to process submitting the proposal, as happened to one fanner in Dilam:
I have developed two proposals in order to have credit in the form of revolving credit to raise cows. I have prepared the feed for the cows, since it is easy to find here. The first proposal was addressed to the rural bank (BRI). I have spent Rp 250,000 for developing this proposal, and it has been accepted at the sub-district level. But it was failed at the bank level because I could not provide collateral, either vehicle documents or a land certificate. The second proposal was addressed to the local government. In this case no collateral was needed, and I have spent Rp 300,000 to process it. It has
been two years since, but I have no progress or information regarding this proposal so far (In-depth interview, 1 4 January 2004).
1 54
The pessimism of Dilam people toward formal credit systems is also influenced by their bad experience when they were previously participants of the KUT credit programme. The KUT is a government credit programme and is specifically designed for poor farmers. At the policy level, this KUT scheme is adapted to the poor farmers' conditions in terms of low interest rates, simple procedures and practically no collateral. Interest rates for KUT credit scheme were less than 6% per three months, or about 2% per month. The requirements for accessing credit are simple; farmers need to associate in one group and make a group plan named Rencana Dasar Kebutuhan Kelompok
(RDKK). This plan and name of group members are submitted to the Wali Nagari
office, and the Wali Nagari then pass on them to the rural bank (usually BRI Unit Desa
or BUKOPIN). This proposal will be accepted after a short examination. The repayment procedure was also based on groups. In this case, it was the task of farmers' group chief to collect the repayment from the group's members.
In reality, however, the implementation was not as simple as outlined above. Often, the time of credit delivery was not matched with the farmer's needs. This affected the low quality of crops and therefore, caused the loss of harvests. Farmers usually need cash to buy fertilisers, and to pay labourers for land preparation and planting early in the rainy seasons. At that time, the seedlings are ready to be transferred to the field. However the credit is often received when the rainy season has passed, or in the middle of rainy seasons, when the seedlings are too mature, and the land has already hardened. One farmer complained about this situation:
Our problem in accessing formal credit such as KUT was that the credit frequently arrived late when we have finished preparing the land and planting, and the seedlings have overgrown. Thus, to fulfil our cash needs for purchasing fertilisers and paying labour, we borrowed money from relatives or moneylenders, who set up high interest rates. But we have no choice. When the credit is received later, we used it for other purposes such as buying a TV or motorcycle, or for costs of children 's education. (Focus Group Discussion, 1 2 January, 2004).
1 55
This situation is very common in Dilam, where the farmers do not always use the credit for farming activities. Often, they can't repay the credit on time or can't repay at all because they used the credit for non-renewable purposes, while the harvests have been used to repay their debt to the moneylenders or relatives. The situation becomes worst if the harvests have failed. The farmers are not only unable to repay the credit, but also are incapable of meeting their daily needs.
Lack of information on credit and banking systems, and farmers' experiences with previous rural credit programmes also caused the lack of success of formal credit
programmes in Dilam. Many farmers view formal credit programme as a grant from the government to the poor, so that they do not have to repay the credit. This perception emerged from their previous experience with the Bimas Credit Programme, in which the government forgave them and wrote off their credit defaults. Also, there was the IDT programme (Presidential Instruction on Development of Backward Village), a large scale poverty reduction programme created in 1 993, which delivered revolving funds to poor people in more than 20,000 under-developed villages in Indonesia. This IDT programme intended to give soft loans to the poor, but on implementation, the poor could not repay them, and the government also forgave them. During the Suharto regime, the government frequently gave grants to the poor farmers, usually in the form of farm supplies such as fertilisers, pesticides and seeds. This was the reason why most Dilam people preferred to choose Golkar, the Suharto party, in the legislative general election, hoping that this regime would return after the election. This perception was widely found among farmers I interviewed, as one farmer said:
During Suharto 's regime, the government spoiled farmers in Dilam with much assistance such as in the forms of farm supplies or extension services. We did not have to repay since the government granted them. I hope that the current or future regime would apply what President Suharto did, to be close to and to help the poor farmers like us. We do not need to repay the credit because we do not have enough money for that. Our money is only sufficient for fulfilling our daily consumptions (In-depth interview, 1 5
1 56
The lack of success of formal credit programmes in Dilam village was also apparently due to a lack of commitment by the local government to provide appropriate financial services or credit systems - especially for poor farmers. This is reflected by the absence of rural banks in the village, lack of training or extension programmes to educate rural people on rural credit, and the unavailability of extension workers. The remote location of Dilam village, and scare public transportation, mean that financial institutions hesitate to establish an office branch in Dilam. Another potential reason is that the majority of people's income is low and unstable since they are poor farmers and they depend for their livelihood only on agriculture. It is too risky for rural banks which have business oriented enterprises to count on the small farmers as their customers. I had an opportunity to validate this assumption by interviewing the director of a sub-district rural bank at the end of my fieldwork:
It is true that our rural credit policy could not reach the poor farmers, whose incomes come mainly from agriculture. Farming activities are highly dependent upon uncontrollable factors such as climate, pest outbreaks, and natural disaster. Poor farmers are also unable to provide collateral, and could not repay the credit with high interest rates. As we operate a bank as a profit oriented organisation, we can 't base our business on customers whose incomes are not regular. Thus, we prefer to channel the credit to petty traders or civil servants who have regular incomes. If the petty traders could not afford to repay the credit, their business capital could be used as a guarantee. We experimented by delivering the KUT credit to the farmers but it failed and many farmers could not repay (Key Interview, 2 1 April, 2004).
This finding refutes the current widely held assumption that rural banks in Indonesia are helping poor farmers and are working closely with them. Although many farmers in other areas in Indonesia may have benefited from credit programmes channelled by the rural banks, the situation in Dilam shows that the rural bank has not assisted the poor farmer in all cases.
1 57