"Poor Man's Bank" helps Maluku farmers invest

Originally published
By Peter Biro

Braha, North Maluku, Indonesia 03 May 2007 - Haroun Mahmoud and his wife Jaina had a simple but good plan to boost their meager income: to turn cassava from a local supplier into papeda porridge, a popular staple in this part of Indonesia.

"We found that the demand was high for papeda, all we had to do was to buy a lot of cassava, prepare it and we would make a profit," says Haroun, who lives in a small wooden house in the village of Braha in the Indonesian province of North Maluku.

The problem was, as it often is, money.

"We couldn't go to the bank for a loan, because we are poor people and have no security," Haroun says. "But we knew that we could double our income if we only had some money to start up with."

Last month, Haroun's luck changed when he was granted a loan from a brand new financial institution in this sleepy village of 500 people: a bank for the poor.

The bank, set up in January by the Consortium for Assistance and Recovery toward Development in Indonesia (CARDI), of which the International Rescue Committee is a member, has already granted 16 loans in the range of 200,000 to 500,000 rupiah (US$ 20 to 50). The idea is loosely modeled on the micro-credit scheme for which Bangladeshi Grameen Bank founder Muhammad Yunus was awarded last year's Nobel Peace Prize.

Braha is located on the Indonesian island of Halmahera, which is slowly recovering from a bloody communal conflict which claimed hundreds of lives and displaced some 200,000 people. Hostilities here began in 1999 between the indigenous Muslim people and mainly Christian migrants from a nearby island. Disputes over land and work opportunities soon took on the character of a religious war, pitting Christians against Muslims. Thousands of people were forced to flee to the neighboring island of Sulawesi and the northern part of Halmahera. Most have since returned and slowly begun rebuilding their broken lives. Braha and other villages with a mixed Christian-Muslim population had no inter-religious grievances before the conflict tore communities here apart in 1999. And as people have finally returned, mistrust is still lingering.

"We have assisted Braha and many other villages here with various income-generating projects, like onion farming and fishing," says CARDI's Turmizi Ali, who coordinates the project. "The problem was that there were no credit and savings institutions for the people here once they started earning, or if they wanted to expand their business. So we created this village bank. And because the bank's board consists of both Christians and Muslims it also serves as a way to bring the two communities closer together. It has been very successful."

The idea is simple: Those villagers with enough money to set aside for saving can deposit the money in the fund, which is overseen by the board, consisting of both Christians and Muslims. All bank customers will have to deposit at least 10,000 rupiah (US$ 1) each month and will receive a small interest. And those who need loans will be charged five percent interest, which is used to increase the amount of money in the fund. As the fund slowly grows bigger, the more loans it can grant to poor villagers. CARDI helped organize the system and train the board, but the terms for repayments, interest rates and grace periods have all been determined by the board members themselves.

"The bank is really helping a lot of people here already," says Alex Rahayaan, a Christian who heads the bank together with his Muslim counterpart. "Villagers who had no money have already started small kiosks, carpentry shops and vegetable stalls."

Haroun Mahmoud borrowed 300,000 rupiah. Once the interest is paid, he estimates that he will be able to pay back the loan and start making profit within a couple of months.

"Perhaps I can even increase my business," he beams. "I hope to slowly build up a business and sell tomatoes, chili and watermelon as well. Maybe I will become a big farmer one day."