Despite the strategic position of agriculture in the economy, the country is still far away from establishing banks specifically designed to provide services to agriculture, a seminar concluded on Monday.
Although the agriculture sector provides jobs to around 41.3 million people, or about 40 percent of the country’s workforce, it only receives about 6 percent of total loans and financial credits from banks.
According to Agriculture Minister Anton Supriyantono, the total loans disbursed by banks to the agriculture sector only reached a cumulative total of Rp 1,200 trillion from Jan 2004 until Feb 2009.
And the growth is unlikely to pick up significantly any time soon as the lack of adequate legal foundations, capital base and political will are still preventing the country from developing special agriculture banks.
“Such banks will need a legal status, capital, management, ability to disburse credits in rural areas, and many other things,” he said.
According to the banking law, the status of a special bank is only given to sharia banks.
Therefore, Anton added, the best way at present to boost credits to the sector was by maximizing the roles of existing banks and other financial institutions to be more adaptable in working with farmers.
“The government actually already has special schemes for agricultural loans like the credit schemes for small and medium enterprises (KUR). The government can also solve the loan problem by maximizing the use of these schemes,” Anton said.
Muliaman Hadad, a central bank deputy governor, concurred with Anton.
“Building an agriculture bank is still an option. It is also possible to get non-bank financial institutions to provide loans for farmers. However, maximizing the current credit schemes would be more efficient for now,” Muliaman said during the seminar.
However, these statements did not satisfy Yusuf Effendi, the deputy governor of West Java.
“I think the government must have more political will on building an agriculture bank. If the government only wants to make a non-bank financial institution, it is just not enough.”
Sutrisno Iwantono, a commissioner for Bank Bukopin, said that it was hard or impossible for banks to give loans to farmers under the regulations as most of them are simply not bankable and cannot comply with existing lending procedures.
“The standard procedure was made by the central bank. If a bank violates the law and eases the standards, it could be penalized,” he said.
Anton agreed: “Farmers are unaware of standard loan procedures such as making a loan proposal with complete legal documents and collateral. Consequently, most of them rely on loan sharks instead of banks to access loans.” (mrs)
