Single-serving economy creates debt trap

Indah Setiawati ,  The Jakarta Post ,  Jakarta   |  Wed, 06/10/2009 1:02 PM  |  City

One at a time: A man smokes a cigarette bought from a street kiosk in Bendungan Hilir (Benhil), Central Jakarta. Many low-income earners purchase small quantities of goods, such as single cigarettes and sachets of shampoo, which end up costing them more money in the long run. JP/Indah Setiawati

Three-wheeled bemo vehicles have become a rarity in Jakarta. Their uniqueness, however, has not helped bemo drivers pay off their hefty debts.

Once a lucrative mode of transport, the Japanese bemo, which has been in the country since 1968, was phased out by the Jakarta administration in 2003. Despite the ban, it is possible to spot the odd seven-passenger bemo in some parts of the city, including Bendungan Hilir, Karet, Central Jakarta, Grogol, and West Jakarta. The bemo drivers must compete with motorcycle taxis (ojek), another three-wheeled vehicle (bajaj), public minivans and taxis. The tough competition means bemo drivers earn meager incomes ranging from Rp 25,000 (around US$2.50) to Rp 100,000 per day.

These limited incomes force bemo drivers to frequently live off credit in order to cover the costs of their daily needs.

The bemo driver spends an average Rp 40,000 a day on food, water and cigarettes.

Ahmad Subari, a bemo driver, said he could not afford to shop monthly to buy daily needs like shampoo, soap, detergent, cigarettes and drinking water. Instead, he said he purchased goods one by one from a nearby vendor.

"I buy sachets of shampoo, or one bar of soap once every few days. It's more economical for me to buy goods as I need them. It's burdensome to shop monthly," he said recently.

The 40-year-old said he could not save any money because his daily income was barely enough to cover the cost of looking after his family in Cirebon, West Java.

Ahmad and other drivers in the area usually buy cigarettes, one at a time, more than 10 times a day, which is actually more expensive than buying a single packet.

Most of them buy 600-milliliter bottles of mineral water sold by street vendors for Rp 2,500 each, spending up to Rp 15,000 a day, which is much more expensive than a 19-liter water gallon that costs Rp 11,000.

When it comes to clothing and electronic devices, the drivers said they chose to buy goods from creditors who offered daily installment payments even though this meant in the long run they ended up paying double the market price.

Creditors sell jeans - that actually cost around Rp 60,000 each - for Rp 150,000 to the drivers with an installment payment of Rp 5,000 everyday for 30 days.

"I know the installments are more expensive in the long run, but it's hard for us to spend Rp 60,000 in one go to buy a pair of jeans. By paying Rp 5,000 per day, we can have the jeans," Ahmad said.

Originally from Pekalongan, Nurdin, a bemo driver, said he had just bought a Rp 2.3 million TV set and would pay Rp 10,000 a day for the next eight months to pay it off. If he had been able to purchase the TV up front, it would have cost half the amount he will eventually pay.

Nurdin said four people in Bendungan Hilir sold goods through installment payments, while many others, dubbed as "cooperatives" offered cash loans with 20 percent interest. "They have many customers here because we don't have any choice but to borrow money from them," he said.

Daryono, another driver, said once he had to borrow money from a loan shark and paid an interest rate of 60 percent because he was in need of quick cash.

Few drivers manage to save money from their daily earnings. Nurdin is one of a few drivers who has a bank account. He said he saved Rp 200,000 every month for his children's needs in Pekalongan. Hendrik, another driver, said he did not have an account, but his wife put their money into three social gathering groups called arisan (community-based funding group).

"If there was a better job, I would give up driving bemo," said Usup Januari, a 52-year-old driver who has been driving a bemo for the past 20 years.

Financial advisor, Safir Senduk, said the drivers needed to be educated about finance to make them think about the long term picture rather than spending their money day by day. He said the level of urgency played an important role in the drivers buying sachets and being dependent on credit.

"They will usually choose small items when the goods are expensive and not urgent," he said.

Safir said it would take time to change the drivers' habits from buying in sachets and installments, but believed they could get into the habit of saving and then spending.

He said the definition of poor people was based on their way of thinking as they preferred credit over cash. "Rich people learn how to manage their money, while middle-income earners only try to be economical," he said.

He said bemo drivers always needed cash loans and as a result could not avoid borrowing money from loan sharks without the help of formal financial sectors like banks.

"If banks offer bemo drivers loans with weekly installment payments, they will be able to get many customers because their interest rate is lower than 20 percent," Safir said.

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