TIASA

A Belief in the Economy of the People

TIASA, the Unit Pemberdayaan Ekonomi Rakyat (UPER - People's Economic Empowerment Unit) of SNT, is a credit-based income generation and job creation project which serves the poor found in the growing informal sector of the city of Tasikmalaya, West Java, Indonesia. The fund provides loans and technical assistance to solidarity groups. Extensive world-wide research has shown that, given proper micro-credit programme design, these potential business persons can be good credit risks. However, the lack of affordable credit from banking institutions does not allow these businesses to prosper.

With Tasikmalaya’s population swelling due to increased in-migration aggravated by Indonesia’s recent economic crisis, the formal sector has not been able to absorb the influx. Consequently, the informal sector has filled the gap for many. It is toward this potential market that this fund is directed.

Above: TIASA staff in front of the SNT office

Why Micro-credit?

At SNT, we like to remind ourselves that the poor are often poor due to a very simple fact: they have no money! In more technical terms, small-scale, would-be entrepreneurs in the informal sectors of poor countries are severely restricted in terms of access to business liquidity, with their only sources of capital often being local moneylenders (who frequently charge interest rates in the range of 20-30% monthly!) The reason for this is equally simple. When such persons seek to start a business, their condition of poverty often means that, by definition, they have no collateral (land or property) with which to secure a loan, nor do they possess any form of publicly established credit history (since poor village dwellers generally function much of their lives outside the framework of pencil and paper, not to mention computer data bases). Consequently, they are often taken to be dodgy credit risks by most banks and formal financial institutions, resulting in their being given a wide berth in terms of necessary credit and credit services available. Formal loans are not forthcoming, resulting in their turning to local sources of informal credit as everyday capital needs come into sight.

In direct contradiction to such a widely-held perception of the poor, however, has arisen a good deal of research over the last twenty years – aimed primarily at the informal sector of the world’s tradition-based societies – which has shown that, given proper programme design, poor persons in these sorts of contexts can actually be very good credit risks. This being so, it stands to reason that if proper, user-friendly financial services could be established in the midst of these underdeveloped entrepreneurs, a significant social and economic service could also be provided in contexts of considerable poverty. It thus turns out that appropriate banking mechanisms designed for the poor can actually be very good undertakings in terms of local economic development efforts. The above, in a nutshell, is the rationale behind the concept of ‘micro-credit’ (such a design also sometimes carries the designation ‘revolving loan fund’). Micro-credit programmes seek to raise local household incomes by helping people start small businesses.

With this in mind, TIASA – the micro-credit portion of SNT – has begun operations in the midst of one of the primary local market places in the city of Tasikmalaya. We make available small-scale, short-term loans which are in turn supported by user-friendly feasibility study workshops, assistance in bookkeeping skills and on-going credit management training and guidance.

Right: The new SNT office, in the midst of one of the busiest markets in Tasik

Why TIASA?

One might ask, should this not be the government’s task? In fact, is not the Indonesian government already involved in assisting the poor in this way? Are they not most capable? While it is true that a wide variety of credit programmes implemented by the Indonesian government do provide long-term credit for investment in fixed assets – often allowing for capacity expansion of those businesses involved – these instruments are still not meeting the needs of the very small and poor. By design the government’s attempts are generally risk-averse in their lending practices while, ironically, showing high delinquency rates (we believe this often has to do with improper programme design based upon improper understanding of the context of poverty). By means of trade-licensing stipulations, cumbersome application procedures, and prohibitive collateral requirements, the poorest of the needy are effectively kept back from that which they most desperately need: liquidity and credit.

Left: TIASA staff leading a training session

Our present staff have been trained to understand the challenges inherent to such a context, with a view to appreciating both the needs of local would-be borrowers as well as the necessity for efficiency and good service. TIASA lends money at a competitive interest rate to the poorest of the community; i.e., those who have met certain pre-loan social obligations – what we at TIASA like to call ‘collateral substitutes’. Firstly, these loans are always issued to groups and not to individuals. Secondly, by means of staff involvement in the local community, TIASA is party to first hand local knowledge concerning community reputations of persons seeking to borrow. These reputations and consequent endorsements, as well as mutual group member accountability for repayment of loans on the part of all group members, serve as the collateral substitutes.

Right: A group of borrowers involved in the feasibility study training

Research has shown that, by employing a programme design similar to TIASA’s, group pressure, accountability, and mutual member support can contribute greatly to programme success. Hence, we look for TIASA to grant loans to credit-worthy persons long into the future, showing a maximum of impact with a modest level of delinquencies and default. In this way, we aim to help small-scale clients in our loan fund region to repay their loans, establish and/or strengthen their businesses, all of this aimed at upgrading their overall family welfare and, by way of a multiplier effect, that of their community as well.

For more information, contact: tiasa-snt@mrds.org