Masril Koto
Ashoka Fellow since 2011   |   Indonesia

Masril Koto

Agribusiness Microfinance Institution (LKMA)
Masril Koto is meeting the financing needs of Indonesia’s poor farmers through a hybrid cooperative bank owned wholly by them. Through this structure, Masril is creating a sense of independence,…
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This description of Masril Koto's work was prepared when Masril Koto was elected to the Ashoka Fellowship in 2011.


Masril Koto is meeting the financing needs of Indonesia’s poor farmers through a hybrid cooperative bank owned wholly by them. Through this structure, Masril is creating a sense of independence, control, pride, and ambition in the mindset of rural citizens by building on a spirit of collaboration and camaraderie.

The New Idea

Masril initiated the Agribusiness Microfinance Institution (LKMA), dedicated to village farmers’ agribusinesses, in response to the lack of financial services for small farmers. The idea introduces capital agglomeration by combining banking financial products and a co-op system. It sells shares and collects deposits while also offering savings schemes. Through this model Masril has engaged over 100,000 farmers and mobilized more than US$12 million of their financial assets in over 550 LKMA branches in South Sumatra province.

What is most striking about Masril’s bank is the human resources structure. Farmers dictate the bank’s offerings through their equity position. The young people are the mobilizers and are trained as bank managers. This provides them with jobs, confidence, and meaningful employment, to keep them from migrating to cities. Elders and other respected citizens serve as advisors and mediators if disputes arise, thereby acting as guardians of the system.

Besides amassing capital from farmers, this new financial system is a channeling scheme for other programs for farmers that increase their confidence. In line with farmers’ seasonal and cash flow needs, credit schemes are set up to improve horticultural productivity and to develop post-harvesting small businesses. The bank also provides general loans to free farmers’ land, which is usually set as collateral to the moneylender. The credit is small and flexible in terms of the repayment period, making the service competitive with conventional banks. So far, the LKMA has realized a 90 percent repayment rate. However, to further minimize risks of non-performing credit, LKMA educates farmers in production techniques and household financial management, in addition to strengthening traditional values through regulation. New savings products are also developed, such as saving for pregnancy, education, marriage, or to pay a motorcycle tax. Loans are given to the whole family as a way to secure the rights of women.

The Problem

Indonesia is an agriculture-based country, recognized internationally for its macro and microeconomic successes. However, despite the government’s efforts at “farmer empowerment,” subsidized financial schemes, commercial microfinance institutions, infrastructure and agribusiness development, farmers constitute over 50 percent of the nation’s poor. Masril, a farmer himself, listened to other farmers and created a farmer-controlled solution that places the interests of the poor first.

Farmers account for 44.6 percent of Indonesia’s total population. For decades Indonesia has been lauded (by the World Bank and regional development banks) as an agricultural success story—for food security, for market rate microfinance programs, for “getting prices right.” However, despite their contribution to the nation, most farmers are living under the poverty line. Among the barriers to economic development, lack of access to capital is at the top of the list. The poorest, lacking any formal collateral, political or social clout, remain dependent on middlemen or moneylenders for financing. They receive advance payment before harvesting, which means loss of bargaining power. They also need financing for even simple post-harvest activities like drying and storage. Poor farm households often use the advance payment for consumption and are thus trapped in a vicious cycle of poverty and perennial indebtedness.

The current rural systems for finance and expertise upon which farmers depend are mostly city-based. Accounting for 80 percent of the financial sector, commercial banks actually have large amounts of loan funds. However, due to the high non-performing loans during the financial and economic crisis of 1998, loans to farmers became risk-averse. Furthermore, the threat of harvest failure due to pests, climate, and fluctuating prices has made the agriculture sector uncreditworthy in bankers’ eyes. The government has therefore offered subsidized loans to rural villagers, channeling the funds through banks that already have branches at the village level, however, due to complicated and inflexible credit application procedures, farmers cannot access this capital. Commercial banks strictly comply with prudential banking principles (e.g. character, capacity, capital, collateral, and condition of economy), which make farmers’ small, urgent and short-term loans seem economically unviable.

Alternatively, the government’s subsidiary loans for small enterprise development with no collateral requirements have also been channeled through commercial banks and microfinance institutions or cooperatives. However, the absorption of the loans in agribusiness is still low. In addition, many of the loan programs are corrupt and never reach farmer groups. Government-run cooperatives were developed, especially during the Soeharto regime, through a top-down and centralized approach. Therefore, farmers developed a strong aversion to cooperatives. Their experience was that cooperatives only benefited caretakers, and were synonymous with corruption and nepotism.

Microfinance was looked upon as an effective model in reaching out directly to poor people and many citizen organizations set up microfinance institutions. The government, realizing the need to make financial services more accessible to the poor, has begun to commercialize rural microfinance by encouraging viable and sustainable microfinance institutions. However, there are only a few that focus on providing financial services for developing farmers’ agribusiness. Improving farmers agribusiness skills are not part of the service either, let alone providing information or education to farmers. The central bank alternatively has encouraged commercial banks to open new microfinance units. Nonetheless, these new services are not yet trusted by the poor. The banks would seize collateral if loans default. Other banks would only be interested in mobilizing farmers’ savings, not in providing loans.

The Strategy

Masril intends to create national level impact through his work with the goal to grow the rural economy. The hybrid co-op/bank he has built employs a structure where farmers own the bank, famers’ children manage the bank, and well-respected local elders serve as advisors. Through this “hierarchy” of sorts, Masril encourages cross-generation respect and recognition while promoting a new role for youth in every village. In terms of governance, it endorses a value of transparency and incorporates provisions to ensure that part of the funds raised will be pumped back to the organization and the community. Coupled with farmer organizing and skill building, Masril created the co-op/bank to help farmers shift from conventional cultivation to agribusiness.

The co-op/bank services are both for savings and loans for agribusiness but not for consumer goods. Improved welfare is indicated by the savings farmers have in their LKMA account. Although most challenged by farmers’ lack of self-confidence, Masril has over time built their belief in, and capacity to, be able to develop their own LKMA.

Masril integrates bank features and a co-op system into local institutions using local wisdom. Established by farmers for farmers, consensus and local values are employed in shareholder meetings to determine share unit value, compulsory savings value, credit procedures, and everything related to institutional operation. Farmers’ receive double benefits from easy access to capital plus surplus-sharing and dividends. LKMAs develop local regulations and apply their own social sanctions for the “free riders.” The farmer groups are governed under the existing Nagari system (e.g. village-based traditional Minangkabau governance) in order to be strongly rooted to local customs. One LKMA serves one Nagari, which can consist of ten farmer groups, and each group has approximately twenty members. Currently, over 550 LKMAs have opened to serve over 110,000 farmers (around 550,000 people including famers’ family members) across fourteen districts in South Sumatra province.

There are often conflicts among village members over natural resources or positions at the LKMA. Masril promotes solidarity in bringing about conflict resolution. For youth, he unites them to come up with an idea to do something together. Farmers are united in farmer institutions. This is an application that Masril learned from his early youth, especially when he was a traditional market laborer. He learned that everyone should have tasks based on their capacity/skills. For LKMA, through strict regulations only the executive team holds shares, the operational team consists of farmers’ children, and the supervisory team is comprised of local leaders. To recruit the operational staff from the farmers’ children, LKMA sets some criteria: No gambling, willingness to get up early, not going out late at night, and willingness to work with no payment for the first six months. On average five young people are recruited by each LKMA. Each is now making a monthly salary of approximately IDR 500,000 (US$55). So far, LKMA has created employment for at least 2,500 young people.

Once staff members are recruited, they conduct inventories of different farmer’s agribusinesses. They allocate loans based on types of business needs, i.e. 30 percent each for horticultural production costs (e.g. seeds, labor, and a tractor), post-harvest home industry (banana chips, and so on), agricultural product trading and 10 percent for general loans, especially education. For the latter many young managers of LKMA use the education loans to further their university studies. For member recruitment they count on recommendations from the customary and Nagari leaders. In terms of start-up capital accumulation, LKMA sells shares at a value of IDR 100,000 each in addition to applying compulsory and main savings to the new members, all of which can be paid in installments. Besides voluntary savings of the members, LKMA also sells non-members deposits and social shares, including opening channels to government subsidy programs such as the National Program for Community Empowerment Mandiri. Masril plans to develop agribusiness insurance for farmers. To date, LKMA has accumulated financial assets of over US$12 million of which 90 percent is farmers’ savings.

LKMA becomes a way by which farmers learn about how to manage a financial institution. He also set up famers’ field schools where farmers become local experts. They conduct applied research in organic farming techniques and agribusiness and share their results at their regular meetings. LKMA links farmers with the Organic Farmer Alliance and local universities to facilitate knowledge-building. Farmers, at their own initiative, set up their own Learning Center in organic farming. This has moved other farmers’ groups to set up their own centers in organic goat farming and cattle farming. Every month representatives from each farmer group convene at the center to learn from each other. For technical references, Masril develops close partnerships with the Agriculture Office and Foundation of Agriculture Faculty Alumni of Andalas University. To increase the level of education and knowledge, Masril is developing libraries for farmers. To develop the library program Masril mobilized book donations from urban dwellers. “One Book for One Farmer” or “A Million Books for Farmers” campaigns are part of his strategy to build urban appreciation for rural contributions to the entire country. His message to urban dwellers is “You can eat because farmers are out there,” and “You can be healthy and beautiful because farmers are growing food.”

Masril is also developing another institution, Lumbung Pangan Rakyat (Community Food Stock), which will replace the impaired function of the government initiated BULOG in maintaining grain purchases and price control, with local food security in perspective. With the farmer group as a production unit, LKMA as a bank, and Lumbung Pangan Rakyat, Masril is preparing a new system for small farmer’s welfare and independence; to realize food sovereignty. He is also working to set up crop insurance and pension funds for farmers in addition to a financing scheme for organic farming. Masril’s farmers’ bank model of LKMA has inspired the Minister of Agriculture to develop a national program called Percepatan Usaha Agribisnis Perdesaan (PUAP—Rural Agribusiness Venture Acceleration) with financial support of IDR 100 million for a coalition of farmers’ groups. The West Sumatra government has even required farmers to establish a LKMA prior to accessing the PUAP funding.

The Minister of Agriculture adopted LKMA as a key agriculture-financing model for rural agribusiness and rural development in 2008. With a pilot goal of 10,000 LKMAs nationwide, Masril is overseeing the spread to Bali, Palembang, Bangka, Bengkulu, and West Java. He is preparing the association of LKMA at West Sumatra provincial level which will accommodate the needs for an intra-lending scheme and agricultural product transactions across LKMAs. Masril is also advocating for the adoption of the model by the central bank of South Sumatra province.

The Person

Masril was born in West Sumatra. His father was a carpenter and builder and his mother a farm laborer. He and his eight siblings led a rather nomadic life following their father’s opportunities for work. Due to financial hardship, Masril was forced to leave primary school after 4th grade. He began working at the age of 9 as a waste-picker. Even at a young age he saw the value of productive assets. Saving small sums of money, Masril finally accumulated enough to buy his mother a sewing machine. Together, in the afternoons, they worked on sewing orders after Masril sold fried banana snacks in the morning.

A natural organizer, Masril mobilized unemployed young people to run a fishpond business. He also turned them into experts in sewing buttons, and these activities evolved into youth groups. All their earnings went to fund youth activities in the village. Masril found that youth were most open to new ideas.

Masril encouraged young people to address conflicts created by inequalities between children who dropped out of school and those who were able to continue their education. He organized social activities such as tutoring classes for kids and collective work to build a basketball court, which was something completely new to the local youth. Masril encouraged the youth group to mobilize the whole community, donating one sack of cement per family. He also mobilized youth groups from the city to teach local youth how to play basketball. Basketball united all the youth and ended many conflicts. According to Masril, in order to be united people have to do things together. This idea evolved into a collective business venture and a revolving fund. The group did different small businesses prototyping, which eventually grew into a good business run by the youth group. With the profit and some donations they invested in building and renting six shop houses. They decided to share the profit from one shop house with orphans and the other profits went to the group. The program was a big success with membership growing to include one hundred young people. The shop houses became the collateral for future loans.

When he later moved to the provincial capital and started to work as a porter in the traditional market, he organized other porters to clean up the market. Seeing Masril’s organizational success, he was recruited by the market manager to determine the division of space in the entire market. The layout was vastly improved with full participation of the market stakeholders.

Fleeing the riots in Jakarta in 1998, Masril returned to a stagnant village economy. He began planting sweet potatoes and banana trees while starting a small home business in cooking snacks. When a banana disease epidemic hit, Masril and his friends sought expert help at the Agriculture Office. Masril was asked to organize and run farming field-classes for farmers to learn about horticultural, pest control, and post-harvest management with experts from the Agriculture Office. He understood that without capital farmers could never improve their lives. And even with capital, they remained weak in financial management, organizing skills, and farm knowledge. Thus, farmers needed their own bank. Masril and his four colleagues then organized to learn how to set up a bank. They received support from AFTA with links to the central bank of West Sumatra and the Agriculture Office. Masril faced difficulties from all sides. He felt it imperative to build on traditional values upgraded with a new emphasis on the role of young people. It had to be based on cooperation but the farmers wouldn’t hear of anything called a “cooperative.” They wanted a “real bank” but the authorities had never heard of poor people running their own bank. They wanted to teach accounting and kept insisting that Masril create a cooperative. Perseverance and stubbornness won out in the end and today the central bank comes to Masril to learn and spread the model.

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