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Jakarta Post

Multiple loans make borrowers highly indebted

Fifty-nine percent of micro borrowers may be indebted as they face difficulties managing their finances to repay their mounting loans, according to a recent survey conducted in four cities in West Java

The Jakarta Post
Jakarta
Thu, October 6, 2016

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Multiple loans make borrowers highly indebted

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ifty-nine percent of micro borrowers may be indebted as they face difficulties managing their finances to repay their mounting loans, according to a recent survey conducted in four cities in West Java.

The survey, carried out by financial inclusion consulting firm MicroSave in cooperation with Indonesia Financial Access Forum (Pakindo), found that 87 percent of survey respondents are taking more than one loan.

They are asking micro lenders to be prudent in disbursing loans considering the high rate of take on loans that could negatively affect the borrowers’ ability to repay. The survey had 241 participants in Sukabumi, Bogor, Subang and Cianjur.

“It will endanger the micro finance industry and eventually hinder small and medium enterprises from growing,” MicroSave manager Grace Retnowati said on Wednesday.

The survey was conducted amid growing efforts from local authorities and the government to encourage micro loans for small and medium businesses, including the government’s flagship micro credit program (KUR).

Three formidable financial institutions; Mitra Bisnis Keluarga Ventura, Bina Artha Ventura and Mitra Dhuafa Cooperation (Komida) grew at 57.3 percent year-on-year (yoy) in terms of gross loan portfolio
and 30 percent yoy in terms of number of customers in the past three years. However, this growth is limited to Java, specifically to West Java province.

The main cause of indebtedness and the issue of multiple loans in the micro finance industry was aggressive promotion of financial institutions that aim to achieve high targets by recruiting a slew of customers without considering the financial viability of their customers.

“The staffers are usually burdened with an ambitious target without properly explaining risk, especially on interest rates, to the customers,” Grace said.

Pakindo chairman Slamet Riyadi said that customers take multiple loans because financial institutions and informal money lenders offer easy access to loans and had thus contributed to the number of people with multiple loans.

Slamet called for a plan to prevent massive non-performing loans by inviting micro finance industry players — from commercial banks to rural micro lenders (BPR) and multi finance companies to cooperatives — to join the association and work together to ensure sustainability of the industry through mix market and data sharing.

Data sharing is a form of transparency to ensure that the focus of microfinance distribution is not centered only in one specific area.

“There needs to be an information sharing mechanism, such as a credit bureau, to improve the quality of information on customers’ loans and to reduce the risk of bad loans due to over-indebtedness,” he added.

The Association of Rural Banks (Perbarindo) acknowledged that customers were taking multiple loans but said that such a phenomenon was inevitable.

Perbarindo chairman Djoko Suyanto considered the current figures to be manageable because of prudent supervision during verification in assessing consumers’ financial viability.

“We have fourteen million customers, and I can say everything is under control. The number of
non-performing loans has been slightly increasing recently, but it’s still under control,” he said, adding he had yet to learn details about Pakindo, hence why no decision had been made on whether or not to join. (fac)

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