City brings in cooperatives to manage cash aid

Adisti Sukma Sawitri ,  The Jakarta Post ,  Jakarta   |  Sat, 03/15/2008 11:57 AM  |  City

The administration is introducing cooperatives this year to increase accountability of the city's direct cash aid program, known as the Subdistrict Residents Empowerment Program (PPMK), an official says.

People Empowerment Board (BPM) head Budi Harjo said each cooperative was expected to better manage the program's existing cash aid, at a subdistrict level.

"Since the program's management will become a legal entity, we hope it will be able to reduce the amount of non-performing loans among members," he told The Jakarta Post on Friday.

The management of cooperatives, initially in 27 subdistricts around Jakarta, would consist of existing members of local subdistrict councils (Dekel), local youth groups and experts from universities.

PPMK was established in 2002 with aims to open bottom-up development initiatives from residents in each subdistrict in the city.

The program has delivered annual funding, with amounts ranging from Rp 200 million (US$21,000) to Rp 1 billion, to every subdistrict, and allows residents to decide what development projects are necessary. This may take the form of cash loans or development of physical or social infrastructure.

Until now, PPMK has been managed by Dekel which consisted of representatives from each neighborhood unit.

Poor administration and monitoring, however, has lead to widespread unaccountability, with many loans defaulting back into the hands of debtors.

Media reports show many residents thought loans were grants, while others moved away without repaying their loan.

The administration also reported several Dekel members to the police for allegedly using funds for their own personal gain. None had been imprisoned, however, since there were no legal grounds in the program to do so, the reports said.

As of 2007, the city reported around 16 percent of Rp 500 billion in revolving funds remaining unpaid by debtors.

With the cooperatives in place, the program management would derive rules and regulations from the cooperative law, Harjo said.

University of Indonesia management expert Budi W. Soetjipto said aside from establishing proper micro-finance institutions, like the cooperatives, residents who owned micro-businesses need supervisors who could monitor their activity.

"If they (residents) manage their businesses properly, they would not have problems repaying loans and could still earn profits for themselves," he said.

Many of the bad loans could have been caused by residents' inability to maintain their businesses properly, Soetjipto said.

Research conducted by the university's center for management studies found four in every five micro-businesses dies due to business owners poor cash-flow management, he said.

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