Based on the government’s data, in 2017 and 2018 a total of 12 million land certificates were distributed, while in 2019, the government aimed to distribute another 9 million.

Though efforts toward land certification started since the passing of the 1960 Basic Agrarian Law, until 2014 only 46 million plots of land had been certified, equivalent to 36.5 percent of the total of an estimated 126 million plots in Indonesia.

So far, President Jokowi’s land certification program has increased the number of certified plots to 65.8 million.

Therefore, as many as 60.2 million plots (or 48 percent of all plots) still need to be certified. The government hopes that all plots of land in Indonesia can be certified by 2025. This policy has at least three benefits. First, it protects landowner rights illegal takeovers were rampant under the New Order.

When people are unsure about the legal protection of their land, they will not try their best to make it more productive. They will also fear to make long-term investments on their land; thus, it is hard to expect maximum productivity from the land.

Second, land certification can support financial inclusion by opening access to formal banking services as the land would provide people with collateral.

Small businesses can usually pay off debt but they lack good legal administration and collateral to make them eligible for formal bank financing. Quite often this exposes them to loan sharks.

The government usually tries to sort out this problem with more direct and instant solutions such as the microcredit program (KUR), a credit guarantee program conducted by credit insurer Perum Jamkrindo and other mandatory forms of credit for micro and small enterprises.

Although this approach may increase the total amount of credit available to micro and small enterprises, their effectiveness in improving the bankability of micro and small enterprises is questionable. After many years of being the target for KUR, only a very small fraction of the businesses have been able to access bank financing on their own.

To make small businesses bankable, we need a more long-term and indirect approach that solves the core problem: the lack of legal administrative requirements and collateral.

Legal administration can be improved by giving small businesses training and assistance, while collateral availability can be improved with land certification. Many small businesses, especially in rural areas, actually have immovable assets, such as land, but lack the certificates.

Land certification also can improve access to capital by giving small businesses a higher and fairer price for their immovable assets as the certified plots could be more easily sold or transferred.

These two accesses to capital, either through bank credit or by selling the land at a higher price, can open more opportunities for small businesses, such as access to better technology, the ability to recruit more employees or the chance to find more or better business locations.

Last, land certification can indirectly improve people’s political participation.

According to Hernando De Soto, a prominent economist from Peru, people are ignorant of the political process not because they are poor, but because they are not incorporated in the legal system.

Such “extralegal” status excludes such people from economic opportunities.

Extralegal individuals live as inhabitants without identity cards, driver’s licenses, or land certificates, leading them to lose many of the rights they would have as citizens to public services such as health and education.

Without licenses they cannot apply to be taxi drivers or become online transportation providers.

Shifting to a legal status such as by owning land certificates encourages political participation; the individuals would vote more considerately, for instance, as they would feel their choices would affect their lives much more.

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Economist at Finance Ministry. The views expressed are his own.

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