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Beware the wolf in sheep’s clothing

By Bitra Suyatno - posted Thursday, 29 July 2021

In February this year, Indonesia's Minister of Cooperatives and Small and Medium Enterprises (SMEs) attended the launch at the launching of a book titled "The 100 Big Indonesian Cooperatives", and expressed his gratitude. The book tells the success stories of 100 large Indonesian business cooperatives. These SMEs were able to accumulate assets of up to 66.6 trillion rupiahs (about US$4.6 billion) with a business volume of 59.7 trillion rupiahs (more than US$4.1 billion) and they served almost 5.5 million members (probably also non-members). These are huge numbers and a huge amount of money, especially since the minimum wage in Indonesia is quite low. The minimum wage per month ranges from about Rp1.7 million (around US$117) to about Rp4.4 million (around US$302) depending on the province.

The large business cooperatives in Indonesia claim their success is due to a focus on caring for their members. These cooperatives distinguishes themselves through member ownership, member benefits, and a control model which puts authority into the hands of the members rather than a single owner or small group of elites.

However, we need to beware of such claims.


Large, reputable – but vulnerable

In 2012 Cipaganti Karya Guna Persada (CKGP), a large cooperative, defaulted on paying its obligations to its customers. According to a trusted informant, the Ministry of Cooperatives and SMEs had earlier been warned of a potential Ponzi scheme committed by the CKGP.

However, Government Regulation # 9/1995 stipulates that a Savings and Loan (S&L) cooperative is restricted from transacting with non-members, but may still transact with non-members if the latter agree to become a candidate member within a specific time frame, and then become a full member. This proviso was often misused by several large S&L cooperatives to transact with non-members who were dubbed "candidate members" without a limited time frame, thus mimicking the microfinance approach, which is basically debt-based.

Citing this regulation, the Ministry of Cooperatives and SMEs in 2012 claimed that CKGP's operations and organisation were sound and legitimate. Moreover, CKGP had been recognised as a model of a successful cooperative by the Cooperatives and Small and Medium Enterprise Office of Bandung, West Java in 2012. Later in 2014, ironically, CKGP failed to pay its obligations to its customers.

A default occurred again in February last year, when the Indosurya Savings and Loans Cooperative (ISL), another large cooperative, failed to pay obligations to its customers.

Before its default, news reports had emerged to the effect that ISL had estimated earnings of trillions of rupiahs collected from around 5,700 members and potential members. To attract people to join, ISL offered a high interest rate on savings, 1.5 to 2 times higher than that on average bank deposits. The default had started around 2019, when ISL was estimated to have collected funds from its members or potential members of up to Rp.10 trillion (more than US$689 million), while at the same time it had to pay its members to around Rp.14.6 trillion (more than US$1 billion).


Besides CKGP and ISL, many other large cooperatives have cost the public trillions of rupiahs in lost savings in the last decade. These defaults have occurred again and again, ruining the image of cooperatives in Indonesia. That these large S&L cooperatives could offer high returns at little or no risk without being able to be detected early by the authorities raises the issue of weak supervision.

Exaggerated claims

It seems that many large S&L cooperatives in Indonesia exaggerate their claim that they benefit the community, using the slogan "social-function, not profit-oriented", in order to avoid the prudential regulations and supervision (R & S) that is imposed upon them. Many large S&L cooperatives oppose the idea that they should be placed under the Indonesian Financial Services Authority (OJK)'s R&S. They claim that their businesses differ from other financial institutions. While the latter are profit-oriented, the large S&L cooperatives have a social function – or so they claim. It seems they would prefer to be regulated and supervised by the Ministry of Cooperatives and SMEs. Since this ministry's current R&S are lenient, a moral hazard is created which then undermines market discipline.

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Article edited by Margaret-Ann Williams.
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About the Author

Bitra Suyatno ( is a Doctor of Business Administration who graduated from Victoria University, Melbourne, Australia in 2018. Currently he is working at the Ministry of Finance the Republic of Indonesia. His posts represent his own views. He blogs at

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