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Microcredit miracles UN Volunteers support small businesses in Indonesia
10 December 2002

"We don't bother about family names, just call me by my first name," says Mukhtar while processing and portioning some fresh dough. Mukhtar comes from a family of eight, who earn their living by manufacturing pan-fried snacks which they supply to shops and kiosks in the neighbourhood. They have set up shop in their home in the outskirts of Ciwidey, a town in West Java, Indonesia.

Six family members are actively engaged in the enterprise. Mukhtar and his wife prepare the dough and fry the snacks in the small kitchen of the family home. Mukhtar's father, Nandang, is the head of the company and responsible for buying the necessary ingredients and supplying the products to sellers nearby. His wife, Tati, does the company's bookkeeping. Deni and Itermawan, Mukhtar's younger brother and sister, who attend school during morning hours, pack the snacks into bags and boxes in the afternoons.

The family is proud of their company, which employs and comfortably sustains them all. They save their profits in a bank account and only recently allowed themselves the luxury of a radio-stereo set, a television and video.

A year ago, these luxuries seemed unattainable. Despite a high demand for deep-fried snacks in the whole of Indonesia, the family could not produce regularly because they lacked the cash to buy the ingredients. They thus had no regular customers for their produce. The family income was estimated below the poverty threshold.

Like many others, the family was hard hit by the 1997/98 socio-economic crisis in South-East Asia, which resulted in increasing unemployment and rampant inflation. The loss of consumer purchasing power resulted in a dramatic rise in the rate of poverty.

It was a microcredit obtained through the United Nations Development Programme's (UNDP) Community Recovery Programme (CRP) that laid the foundation stone to the Nandang family's recent prosperity. The CRP targets community members who live below the poverty line and opens up possibilities for self-employment and income generation. The UNDP provides the necessary funds for micro-credits to national community based organizations (CBOs), who identify beneficiaries and manage the funds and repayment schemes.

UN Volunteers support and counsel CBO personnel to manage this task efficiently by enhancing their expertise in human resources, accountancy, administration and business analysis. Together with CBO staff, the volunteers visit credit takers and support them in product marketing, establishing their personal repayment plans and training basic bookkeeping-skills.

"I love to see small businesses like Nandang's thrive through the microcredit scheme," says Shah Alam Mia. The UN Volunteer from Bangladesh with a background in accountancy and experience in raising capital for loans is the CRP field officer responsible for West Java. "Nandang received his first loan a year ago and managed to repay it within the six months according his business plan. Reliable credit takers like him normally receive four loans during a period of two to two and a half years."

"The microcredit helped us to overcome our cash-flow problem. It enabled us to regularly buy ingredients, produce and deliver to sellers," says Mukhtar. "But it was Mia who helped us to determine how much of the profits made should be reinvested in our business, how much should be used to repay the loan and what to save in the bank for emergencies."

"The beauty of the microcredit schemes is that they work in many different business and employment environments," Mia says. His work with 12 women who are employed as textile workers in the same factory and have joined together to form a spinning association is another model business Shah Alam Mia is particularly proud of. The women approached the community-based organization in their area for a microcredit to buy wooden spinning frames as well as purchase lumps of entangled thread at 7,000 rupiah per kg from their factory. With their wooden spinning devices they disentangle the thread, spool it onto rolls and then sell the thread back to the factory at 11,000 rupiah per kg. "They process about 5 kg of thread per day, making a profit of 20,000 rupiah," says Mia. "This is quite impressive for an association that has only been around for a few months. I am sure that they will repay their first loan without difficulties."

"I always encourage CBOs to give loans to associations. Members put a lot of social pressure on each other to repay their microcredit because they all want their association to be and remain a credible partner," says Ani Siti Kadir, an Indonesian UN Volunteer. She is one of 28 national UN Volunteers funded through the Dutch contribution to the Community Recovery Programme. In the town of Makassar, located in the south of Sulawesi island, Ani supports five CBOs in identifying, counselling and providing legal advice to suitable microcredit-taking associations such as rickshaw drivers, carpenters and street vendors. "The association of night kiosk owners has gone further than that," Ani explains. "In addition to organizing regular meetings on legal and business issues, such as cheap wholesalers and new products that sell well, the 27 members - 26 of which are women - meet once a month to speak about issues that concern them personally: family planning, contraception, HIV/AIDS."

The Community Recovery Programme's microcredit scheme also works in rural settings. Mohammad Tomo, an expert in organic farming, is an Indonesian UN Volunteer who works in Gowa region, South Sulawesi. "It all began with a farmers' association in Tompobalang sub region," Tomo explains. "Agriculturists there were getting increasingly afraid of health risks relating to the use and over-use of chemical fertilizers. They approached their CBO who in turn approached the Community Recovery Programme for a microcredit to these farmers. I helped them to reintroduce traditional ways of farming without employing chemical fertilizer."

Tomo, who wrote a book on organic farming before becoming a national UN Volunteer, has worked with them since, giving technical training in organic farming, advising them in management and organizational skills and, at the same time, counselling the community based organization involved on revolving fund management.

Faisal Daeng Kurung, a senior high school graduate, full-time farmer and elected president of the 50-member Tompobalang farmers' association, is very proud of achievements made so far: "We have managed to reduce chemical fertilizer as dunging substance to 30 per cent. Our main fertilizer - 70 per cent - is now self-produced compost." Faisal has plans: he wants to motivate farmers in neighbouring villages to become organic farmers too. "They should all know how much sense this makes," he says. "We save a lot of money by not buying artificial fertilizer and at the same time save our soil." The other members of the association are convinced that Faisal will succeed - after all, they elected him because he talks well, convinces people and is very smart.

Source: UNV News 94, December 2002