Fellow Since 1996
Yayasan Kesejahteraan Masyarakat Indonesia
This profile was prepared when Gunardo was elected to the Ashoka Fellowship in 1996.
Gunardo is pioneering new forms of micro-lending in Indonesia through a scheme that taps the formal banking system. In addition to availing credit without physical collateral, the scheme creates a community fund that supports education and cultural activities.
The New Idea
Gunardo is convincing Indonesia's banks to lend directly to the urban poor at affordable interest rates and without requiring traditional forms of collateral. While others have had similar ideas with respect to loan criteria, none have been able to establish a connection to the formal banking sector. Gunardo accomplished this by presenting not only a plan in sufficient detail to capture the bank's attention, but also a strong demonstration of community support.In addition to creating the first vehicle for affordable small business credit for the urban poor, Gunardo's scheme includes a community development fund that is financed through a share of loan repayments. The Fund is used to support educational, cultural and bulk buying programs that affirm community and directly reduce family expenditures.
Indonesia's urban poor find it nearly impossible to escape the cycle of poverty that circumscribes their lives. The informal small-business sector represents a viable avenue out of poverty and unemployment, and studies suggest that 60 percent of the urban poor survive through the very modest income they earn through informal sector micro-business activities. For these micro-entrepreneurs, lack of affordable credit is a major constraint. Local moneylenders charge exorbitant interest rates of upwards of twenty percent a month, virtually ensuring that borrowers are unable to expand their businesses. The formal banking sector has not been available to them. And other options have yet to be created.
Through his organization, the Foundation for Community, Gunardo has developed a well designed, community based micro-credit program that organizes small businesses and mobilizes community action in a way that have attracted the commercial bank. He began by working with the leaders in his own community to gain their understanding and support for his detailed micro-credit plan. Having secured their support, he then persuaded the BPR Mataram, a bank with a reputation for being strongly service-oriented, to enter into a partnership with the Foundation. No bank had ever exposed itself to the poor in this way. In this pioneering case they did so because of the detail of Gunardo's presentation, which include written materials detailing every stage of the process of establishing and implementing the scheme.Gunardo offered the banks a relatively safe and efficient way to lend money to small business people. According to the scheme, the Foundation forms groups, called KPM Masra (meaning, "members of this community"), that become the unit that deals with the bank. Each group chooses a coordinator who is trained by the Gunardo's Foundation and the bank. For the first round of lending the bank representative investigates each individual loan proposal with a coordinator. Coordinators receive a small fee for their services and are responsible for keeping in close contact with group members. This is not difficult, as they are neighbors, and can easily alert the Foundation and the bank of any problems with loan repayments so that early consultation and motivation can be given to the member. Difficulties occur in only five percent of the loans and, with those, the coordinator almost always motivates them to overcome their difficulties. (In a very few cases where default has occurred the insurance component of the scheme has been used and these people are barred from receiving further loans through the Foundation). The coordinators, in consultation with Gunardo and the Foundation, work out the best repayment system for each member. These are either a daily or weekly payment, and are kept in a box by the member or stored directly with the coordinator.Loans average $85 and are generally for small businesses dealing with foodstuffs, sewing, handicrafts and small trade. The average repayment time is four months, and 90 percent of borrowers take out further loans, often, the second time around, for "non-earning" activities such as education, health or home improvements.The interest rate is set at five percent per month: two percent for the bank and three percent for the community fund, "insurance" against unavoidable loan defaults, and payments for the coordinators. According to the plan, each borrower opens a savings account at the bank into which twenty percent of the loan is deposited as a loan guarantee. This has the double benefit for the bank of reducing the bank's risk on the loan and bringing new customers into the banking system. The Community Fund is used for a variety of social and cultural activities with an overall emphasis on affirming community and reducing family living expenditures. There are sub-funds for emergency health and funeral expenses, educational assistance and cultural activities to preserve local traditions. Prizes are awarded twice a year for the most disciplined borrowers, with the prizes always relating to the economic activities of the borrowers. The Fund also covers the transportation costs of student teacher volunteers for tutoring. The tutoring program focuses on children in the sixth and ninth grades, who are studying to pass entrance examinations for better state schools. Once the children are in the state system one of the greatest expenses for most families is largely eliminated. Gunardo has also identified wholesale opportunities for street vendors to buy in bulk and sell their products at a higher profit margin.Since its inception in 1996, the micro-credit plan has already gone a long way toward proving that it can liberate people from corrupt moneylenders. In its first year in Yogyakarta, Gunardo had organized fourteen groups of 30 to 50 people each, for a total of 547 individuals. In addition to the direct material benefits that flow from the new credit, the participants exude a sense of achievement and pride. After all, they have, at last, "made it" onto the first rung of the formal economy by accessing a commercial bank. They are able to send their children to better schools. They are climbing out of the poverty trap.As his demonstration project grows in its persuasiveness, Gunardo plans to replicate his scheme in two ways. Firstly, he plans to build on the existing scheme by adding two new groups each month until approximately 10,000 people in the Code River area are involved. Secondly, he is marketing the scheme to other banks to convince them to implement it throughout Indonesia. He has attracted the attention of other private banks in Yogyakarta, Jakarta and as far away as Pontianak in the state of Kalimantan. As the project grows, his Yayasan will act as a consultant/ trainer for the community group partners that the banks will need to implement the scheme.
Gunardo is a graduate of the geography department of Gaja Mada University. He lectures at a teachers college in Yogya. Over the years he has worked a great deal with different cooperative schemes and is now very well known in the field of micro-credit. When he noticed the affect that extortionist moneylenders were having on both the local economy and on the social dynamics of his community, he recognized an important new way to put his previous experience to use. Thanks to his contacts and credibility, Gunardo has been able to work with both the formal and informal leaders of the community and adopted a citizen-based approach to the project. His belief is that better economic conditions will lead to a better socio-cultural life, so he has incorporated both of these aspects into his project. The project functions out of his home in the crowded urban slum area of Kali Code, located along the Code River, which runs through the center of Yogyakarta.