[page 80↓]

6.  The Financial Proposals, Possibilities and Realization

6.1. Theory (before and after) and requirements

To commence a sericultural activity the farmers need a "kick start" capital. In chapter 4 it was shown that requirements of capital depend on the farm area. A small size farm needs USD 404, a middle size of farm needs about USD 600 and a larger size of farm needs USD 823.00.
The need of financial support for sericulture investment can be reduced if the farmers themselves can supply parts of items in the investment, e.g. organic fertilizer, bamboos or woods for the racks and silkworm shed. Available family labour can be utilised to reduce about 20 percent of the budget. Mulberry cuttings could be supplied from the Banyumas Sutera Alam.
Table 20 shows the requirement of financial support for sericulture investments of farmer and his family undertook some of the work.

Table 20: The Requirements of financial support for sericulture investments after cost reducing by the farmers capital self (in USD)



Mulberry section

Silkworm section



Small size of land

(0,30 ha)





Middle size of landland

(0,5 – 0,9 ha)





Larger size of land

(1,0 – 3,0 ha)




Details of calculation can be seen in Appendix 4.1 to 6.2
Banyumas Sutera Alam, which as a Non Government Organization, has in this project the functions of coordinator, young worm producer and purchaser of fresh cocoons, needs financial support to realize the project.
Budget of financing from Banyumas Sutera Alam is shown in table 21.

[page 81↓]

Table 21: Budget of sericulture project BSA











Office equipment, machinery, vehicles






Other operational expenses (transport, office)






Fund for Farmer








Source: BSA (1999), abridged

Explanations of expenses:
The construction part is including silkworm sheds for eggs—hatching room, for early instar silkworms and buildings for cocoon processing to silk clothes. The office equipment includes that necessary for silkworm rearing and for first cocoon processing equipments. Vehicles are required for transport of early instar silkworms to farmers, as well as motorbikes for farmers surveys. Training part is for costs of training 1000 farmers in house which means 3 days training and advanced training in fields. The Funds for farmer are for 500 farmers in the form of revolving funds.

Because the farmers' financial capacity is not sufficient, the farmers have to be provided with an adequate credit program. The credit programmes can be additionally provided from the following credit institutions: Government's Commercial Bank; Private Commercial Bank or NGO-International as funds.

6.2. Institutions and their conditions

The following credit institutions which have credit programmes especially for small farmers:

  1. Bank Rakyat Indonesia (BRI) 8

Bank Rakyat Indonesia (BRI) was established in Purwokerto, Central Java, by Raden Aria Wirjaatmadja, under the name of Hulp-en Spaarbank der Inlandsche Bestuurs Ambtenaren
[page 82↓]or the Bank Assistance and Savings of Indonesian Native Elites. Established in the 16th of December 1895 which later on was marked as the birth date of BRI.

Vision of BRI
To become a leading commercial bank which constantly place customers' satisfaction as priority.

Missions of BRI

As a government’s commercial bank BRI gives the credit for farmers, not only in sericulture activities. One of the programmes from BRI is General Rural Credits – Kredit Usaha Pedesaan (KUPEDES) which is distributed to almost all areas in Indonesia.
KUPEDES loans were introduced in February 1984. The instrument was designed to meet borrower's need as shown in field studies and through "Credit Mini" and "Midi". These studies and experiences consistently showed that prompt availability and convenience of the location are the most important criteria to the borrower. The level of interest rate charged is also important, but ranks below availability and convenience. This relative ranking has remained the same through the same repeated studies over the years.
KUPEDES is a general instrument, as opposed to target. Loans are given to individuals rather than to groups and can be given to support any ongoing creditworthy productivity activity. Loans are not available to start new ventures, because of the much higher credit risk in supplying venture capital. The flexibility of KUPEDES lending is important when surveyed the wide range of family activities (Field observations).
KUPEDES is a credit facility which is available in Unit BRI (not in BRI branches) to develop and support the eligible small-scale business.

The aim
The aim of KUPEDES is to extend small loans to individuals or enterprises considered eligible, and also members of a group or community with fixed incomes such as civil servants or state employees with a rank of II/D (not functionaries), employees of well-established [page 83↓]regional companies, pensioners on fixed incomes and others.
Different kinds of grants:

Sectors funded by KUPEDES:

Conditions and requirements:
The minimum amount of a loan by KUPEDES is Rp. 25,000 (about 3.00 USD and the maximum amount is Rp 50,000,000 (5,000 USD). There are two kinds of loans that can be given at the same time as long as the amount does not exceed the maximum amount of Rp. 55, 000,000. The minimum loan term period is one month and the maximum is 24 months, for working capital loans. Fixed asset KUPEDES loan terms may be up to a maximum of 36 months.
The instalment pattern:

Unique features of the KUPEDES loan product:
There is a PRI (IPTW; Prompt Repayment Incentive) for customers who regularly pay their loan instalments on time during a certain period. KUPEDES interest rates were set at a 1.5% flat per month for working capital and 1% for investment loans. The flat rates are calculated on the borrower’s original balance and work out to annual effective rates of 33% and 22%
respectively 9, if loans are paid on time. KUPEDES borrowers must provide sufficient collateral to cover the value of the loan, usually in the form of land titles, but also by the [page 84↓]pledging of buildings, motorcycles or other property. The maximum loan size has gradually been raised over the years from 1,000 USD at the start to 10,500 USD today.

  1. Bank Danamon Indonesia (BDI) 10

Bank Danamon was established in 1956 under the name of PT Bank Kopra Indonesia. In 1976, the Bank’s name was changed into its current name PT Bank Danamon Indonesia. The Bank continued to expand and at November 5th 2002, became the first Indonesian private foreign exchange bank after obtaining its foreign exchange license from the Central Bank (Bank Indonesia).
Credit allocations to small enterprise and micro finance (UKMK) segment by Bank Danamon Indonesia are focused in financing personal or legal entities for productive businesses with priority in trade and manufacture, agricultural business and service sectors with credit allocation per debtor maximum Rp. 10 billion.
To be the nationwide bank of choice in the consumer and small-and-medium enterprise sectors.
To be a bank that delights its customers.
Credit Application Process
Applicant submits a credit proposal to the nearest Bank Danamon branch;

  1. Complete data of the applicant are requested by the branch/marketing, data gathering;
  2. The applicant completes all required data and documents (credit proposal);
  3. Credit processing;
  4. Credit proposal is handed over for approval to Credit Committee (credit decision);
  5. A proposal letter is given to the applicant;
  6. Realization (credit withdrawal);

Credit Acceptor Requirements and Criteria:

Facilities provided by BDI
In allocating credit to UKMK sectors, BDI provides several services to help applicants submit their credit application proposals to BDI (specially for small/ medium enterprises). The
services are as follows:

  1. Consultation on Credit Proposal;
  2. Consultation on Management & Development of UKMK;
  3. UKMK credit guarantee;
  4. Credit insurance;
  5. Information on UKMK website (via internet);
  6. Assistance to UKMK segments.

Programs for Small Medium Enterprises Offered by Bank Danamon:

[page 86↓]


1. Kredit Kepada Koperasi Primer untuk Anggotanya (KKPA)

Investment loans & working capital provided by the bank to local cooperatives to be channelled to their members to fund a productive business.
General Requirements
For the agribusiness, trade and service industries.
Interest rate 16% pa (flat) including cooperative fee 2% pa.

Type of loan
1. Investment (max. 15 years)

2. Working Capital (max. 4 years)

Credit loan maximum Rp. 50 million per member & for trade cooperatives a maximum of Rp. 10 million per member.

Financing type: Executing & Chanelling

2. Kredit Kepada Pengusaha Kecil & Mikro (KKPM)

Provided for financing investment and/or working capital

General Requirements
For individuals, businesses or micro business organizations
Interest rate 16% pa.

Type of Credit
1. Investment (max. 5 years)

2. Working Capital (max. 1 year) extendable maximum 2 times

Credit loan maximum Rp. 25 million for investment & maximum Rp. 5 million for working capital, for both parallel maximum Rp. 30 million (for financing and working capital < investment)

Financing type: Executing


3. Kredit Ketahanan Pangan (KKP)

Provided for the investment and/or working capital for the farming, livestock & fishing industries
General Requirement .
For groups (Farmers, breeders, fishermen) or cooperatives
Interest rate 12 % pa. & 16 % pa. (depending on the type of business)

Type of Credit
Investment and/or working capital
Loan maximum Rp. 15 million for farmers, breeders, and fishermen & maximum Rp. 500 million for cooperatives to sponsor the harvest of rice, corn or soy´.
Financing type: Executing

  1. Credits for Sericulture programs/Kredit Usaha Tani Perusteraan Alam (KUTPA) 11

KUTPA is a credit facility from Government of Indonesia. Founded 1997 with a letter of legalisation number: 50/Kpts: II/1997 Menteri Kehutanan (Forestry of Minister) and
continued with a legal of letter by Direktur Jenderal Reboisasi dan Rehabilitasi Lahan (General Directorate of Reforestation and Land Rehabilitation).

The aims of KUTPA are :

KUTPA doesn’t give credit directly to the farmers but to Mitra Usaha (company or industry) which is working together with farmers.
The requirements for Mitra Usaha to get the credit are:

Budget of credit for silkworm farming is Rp. 4,356,000 12 (USD 518) for one hectare of mulberries, and that amount is for:

The credit has an interest of 6% p.a, maximal for 5 years with a grace period of one year.

  1. Catholic Relief Service (CRS) 13

Catholic Relief Service, founded 1943, is the official overseas relief and development agency of the United States Conference of Catholic Bishops (USCCB), working in over 80 countries to alleviate poverty, hunger and suffering, with programmes that uphold the dignity of the human person and recognize that we are united into one human family. CRS supports the programmes and projects including health, agriculture, microfinance, education, human capacity development, humanitarian assistance in Africa, Asia, Eastern Europe and the Caucasus, Latin America and the Caribbean and the Middle East.

  1. Misereor Germany14

Misereor was founded in 1958 as an agency “against hunger and disease in the world”. In its capacity as the overseas development agency of the Catholic Church in Germany, it offers to cooperate in partnerships to promote development, fight worldwide poverty, liberate people from justice, exercise solidarity with the poor and persecuted, and help create “One World”. On the basis of such partnerships, Misereor has succeeded since 1959 in promoting over 80,000 development projects which were planned and implemented under responsibility of national partners, the legal holders of the projects.

  1. The Australian Agency for International Development (AusAID) 15

The Australian Development Assistance Agency (ADAA) was established in 1974, bringing together functions performed by different departments since the aid program to Papua New Guinea began in 1946.

In 1976 ADAA was replaced by the Australian Development Assistance Bureau (ADAB) within the Foreign Affairs portfolio. In 1987 the name was changed to the Australian International Development Assistance Bureau (AIDAB), and in 1995 to AusAID, the Australian Agency for International Development. The head office is in Canberra and has representatives in 25 Australian diplomatic missions overseas, including Indonesia.
The Australian Government's overseas aid program is a Federal Government funded program that seeks to reduce poverty in developing countries.
[page 89↓]The program uses a variety of delivery approaches. There are bilateral projects, also channel funds through United Nations agencies, International Financial Institutions (IFIs) and International Non-Government Organisations (INGOs). It also directly supports local Civil Society Organisations (CSOs) and other community groups. All activities require the Indonesian Government's endorsement.

  1. Department for International Development (DFID)- British Government 16

Department for International Development, founded 1997, is the British government department responsibility for promoting development and reduction of poverty.
DFID seeks to work in partnership with governments which are committed to the international targets and seeks to work with business, civil society and the research community to encourage progress which will help reduce poverty.

AS well as its headquarters in London and East Kilbride, DFID has offices in many countries. DFID works through staff based in British embassies and high commissions.

6.3. Practical realization

Most of credit providers have difficulty in the process of administration, higher interest of loan and need collateral. This is the problem which prevents small farmers from getting credits. To avoid this problem Banyumas Sutera Alam looked to International Non Government Organization – founder other for credits.

Farmers who are interested in the silkworm farming will be surveyed by Banyumas Sutera Alam officers to give possibilities for sericulture on their cultivated land. The farmers can apply for credits from Banyumas Sutera Alam if land and labor are available for the sericulture activities.
The credit is given in a few steps. In the first month, farmers get credit for planting, cultivating the mulberries and organic fertilizer. After about six months, farmers get the next credit for building materials for the rearing house and equipment for rearing.
The amount of credit varies with the farmers. It depends on the farmer’s application and the Banyumas Sutera Alam decision is based on the size of the farmer’s land and his social economy.
Credit repayment for basic instalment and interest rate 7.5%, paid in four years, including two years of grace period. The credit repayment system is a direct repayment from their cocoons sale. The amount of credit repayment depends on the income of farmers from these cocoons sale, and agreement between farmer and Banyumas Sutera Alam.
The farmers in one district should have a group and choose one of them to be a leading sericultural farmer. The group has functions to coordinate the activities and communication between Banyumas Sutera Alam and the farmers. The groups should have meetings periodically to discuss the problems and find solutions for themselves first.

Footnotes and Endnotes

8 Source: http://www.bri.co.id

9 Based on a twelve month loan with monthly instalments of equal principal amounts according to the following formula [ix2xt/(n+1]x12, where i=monthly flat rate, t=loan term in months, n=number of monthly instalments.

10 Source: http://www.danamon.co.id

11 Source : Departemen Kehutahan (Forestry Department) in Sutera Alam Indonesia (2000), page 284-287

12 Exchange rates January 2004 : 1 USD = Rp.8,400.00

13 Taken from http://www.catholicrelief.org

14 Taken from http://www.misereor.de

15 Taken from http://www.ausaid.gov.au

16 Taken from http://www.dfid.uk

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