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Feature Story

Transformation of Deling Credit Body (BKD) into BUMDes

Wednesday, Jan 17, 2018 Author: Akhmad Fadli

Spokepersons at FGD on BKD Transformation held on October 11, 2016 in Banyumas
Spokepersons at Focus Group Discussion on BKD Transformation held on October 11, 2016 in Banyumas (Photo: Akhmad Fadli).

That Tuesday evening, November 8 2016, 22 people gathered at the Deling Village assembly hall, at Banyumas District, Central Java, for a deliberative meeting (musyawarah) at village level to discuss the handover of the Village Credit Body (Badan Kredit Desa, BKD) assets. The musyawarah was initiated by the village government, after Village Head Sutikno attended a meeting at Purwokerto about the Financial Services Authority (Otoritas Jasa Keuangan, OJK) Regulation on BKD transformation into a legal entity.

Some of the musyawarah participants—consisting of constituents from the village government, the Village Council (Badan Permusyawaratan Desa, BPD), the Village Community Empowerment Agency (Lembaga Pemberdayaan Masyarakat Desa, LMPD), and the committee in charge of the Village Enterprise (Badan Usaha Milik Desa, BUMDes)—were shocked when Sutikno explained that BKD is a financial institution lacking of owner, unclear status of asset ownership.

Mukromudin, was the Head of Hamlet 1 when the BKD in Deling was established in 1994, had always thought that the BKD belonged to the People’s Bank of Indonesia (Bank Rakyat Indonesia, BRI) and that villages only work together to funnel BRI money for business financing and other needs.

Syaikhu, official of the BKD Deling when it was first established, said that the BKD was like the front office of BRI, cooperate to give loans with sharing profits as agreed.

“All of the funds were from BRI. There was no capital placement from the village nor individuals. We only manage [the funds, and] look for potential borrowers. After that, we file to BRI,” said Syaikhu.

After this long, BKD already possess assets and capital from the accumulation of profits. But, this is what spurred the polemic about the ownership of BKD assets and capital.

To date, BKD is a financial institution with privileges. Regardless its lack of legal entity, BKD has been operating its financial services, equal with the People’s Credit Bank (Bank Perkreditan Rakyat, BPR) if it already fulfilled the requirements as mandated in the Government Regulation, as described in Article 58 of Law No.7/1992 on Banking. Thus far BKD only need the Ministry of Finance’s authorization, even many BKD in Banyumas that only have authorized by the Bupati. 

Finally in 2016, the OJK Regulation No.10/2016 and OJK Circular Letter No.19/2016 about Stipulation Compliance of the BPR and BKD Transformation into BPR are enacted. These regulations stipulated that the BKD should do institutional arrangements like the BPR entity, either as a limited company, a cooperative, a regional public company or a regional company. BKDs that cannot fulfill the BPR requirements have the option to transform themselves into a Micro Finance Institution (Lembaga Keuangan Mikro, LKM) or a BUMDes. In the OJK regulation, BKDs were given a deadline of December 31, 2016 to notify the OJK of their plan of action, and their revised plans—if any—by December 31st 2017.

In the same regulation, OJK also mentioned that the fulfillment of the BPR requirement by BKDs also follow the mechanisms stipulated in the Village Law 6/2014 and its derivative regulations.

Decreasing of non-performing credit
The BKD Deling is fairly new, was established in 1994, to enrich innovations to prepare for the village competition at the national level.

According to Afif Juremi, former village secretary of Deling who is currently one of the BUMDes supervisors in Deling, mentioned that the purpose of the BKD establishment was not only to support the village competition, but also to decrease rentier practices in the village.

Open only on Fridays, the BKD Deling took on an important role in providing financial access to its villagers, especially when it comes to paying for school fees and celebrations, according to Village Head Sutikno, who understood the whole process as he always had to sign off before any funds gets disbursed. 

“I know the ones who usually take loans in this village. Nowadays, the practice of rentiers either by loan sharks or even individuals are still happening, but the number of these practices has substantially decreased,” Sutikno said.

During the musyawarah in November 2016, BKD assets were handed over to the village head and the BKD was transformed into a BUMDes. The musyawarah forum also appointed Subur to manage the BUMDes and Afif Juremi to re-confirm the assets and execute a simple audit on the BKD operations.

On January 24, 2017, the village government, BPD, and officials of Deling BUMDes gathered again to hand over the BKD assets from the village government to the managers of Deling Jaya BUMDes. Subur became the unit manager of the BKD at Deling Jaya BUMDes. Previously, Subur was also reported the BKD audit results from the previous managers.

The number of non-performing credits was quite high, adding up to Rp. 60 million (37 per cent). Knowing this, Subur promised to solve this problem of non-performing credits and reorganize the BKD. As Subur also works at a private company in the sub-district during the day, Subur can only collect debts from non-performing borrowers during the evening. Besides that, Subur also utilized a financial application, revised the standard operational procedure, and created a new financial product named as “guaranteed loan” (providing guarantee for those who want to borrow money but could not fulfill formal requirements).

Per August 2017, few positive changes started to emerge following the BKD Deling that is now organized by the BUMDes. First, the level of non-performing credits dropped significantly from Rp. 60 million (37 per cent) to only Rp. 16 million (7.5 per cent). Second, profits jumped from only Rp. 2 million to almost Rp. 9 million, thanks to the new financial product. Third, the BKD got Rp. 50 million as placement capital from Deling Village on June 2017.

Nevertheless, there is a lack of oversight. According to BKD teller Sulistyawati, the administrative point person from BRI used to check the BKD’s books every Friday. On top of that, every three months, the manager orderlies appointed by BRI will also check the books and observe field situations. At the moment, however, the new BRI manager cannot regularly come, since he also works at a private company. Sulistyawati hoped that this lack of oversight can be solved soon.

“With increased oversight, I am optimistic that the BKD in the future can be better and can improve financial access for villagers to develop their business,” said Sulistyawati. 

Like Sulis, Deling Village Head was also optimistic with the future of the BKD. The Village Head hoped, that besides increasing financial access for villagers, the BKD could also be a revenue source to fund village development.

Unfortunately, some homework regarding the BKD transformation still exist, according to Kikis, manager of PNPM Activity Implementation Unit (Unit Pelaksana Kegiatan, UPK) at Kebasen Sub-district, who involved in the BKD transformation at several villages in Banyumas. In his opinion, BKDs that were transformed into BUMDes, have yet to be a lawful financial institution, if we refer to the current regulation. BUMDes is only a business organization formed with the village regulation and this creates risks.

“There was no guarantee that BKD BUMDes will be recognized by OJK as the financial institution at village level, which is able to operate and to collect funds and to distribute loans to the community,” as he said. 

He added that some BKDs that chose to transform themselves into BPR as limited companies, may also have no yet be enlightened. 

“OJK puts regional government’s stocks as the requirement. This condition means to transform BKD to be owned by the regional government, not the village. OJK has not yet take side to the village,” Kikis said.


Note: The names of villages and hamlets have been altered to maintain confidentiality.