Badan Kredit Kecamatan (BKK)
Abstracted from the Daily Yomiuri Newspaper, February 10, 1995
The Badan Kredit Kecamatan (BKK) is a project of the provincial government of Central Java that lends tiny sums of money at low interest rates to rural people who want to start or expand their business. No collateral is necessary. Only a letter of recommendation from the village chief and a simple one-page form is needed.
What is most remarkable about BKK is that most of its clients are women, largely petty traders selling fruit and vegetables. BKK itself is to a large extent staffed by women as well. Ninety percent of tellers and 10 percent of branch managers are women.
Women not only manage economic activities better, but also use the income more wisely. Women use the increase in income to send their children to school, to look after their children's health, whereas men are likely to spend it on themselves - they may waste it on cockfights,or if they ever use it for their children, they buy toys etc.
Unlike commercial banks, BKK usually takes less than a week to process the application. Monthly interest is about 3% while credit from money lenders often costs more than 20 percent a day. It is indeed the fastest, cheapest, most productive, and, according to a World Bank report, the most successful credit system of this kind in the world for the rural poor.
Started in 1970, the BKK now has 510 branches and more than 3000 village agencies, covering about 40 percent of 8,491 villages with a total population of 28 million people. Although the bank is funded and advised by the provincial government, each BKK is basically an independent financing unit which handles both credit and saving. Each BKK branch is also making profits - there are now 320 branches that have their own office building, 76 of which are equipped with computers.
BKK gives credit to small-scale businesses. The loans are large in quantity, but too small in value to be dealt with by commercial banks. The average loan extended to its 500,000 customers is around 80,000 rupiah (or about $370 - 1995)
BKK enjoys a surprisingly high repayment rate. In almost a quarter century of history, more than 95 percent of loans have been repaid. In some BKK branches, the performance has been even better. Siti Machmudah, a BKK teller says, "Since this office opened 20 years ago, only 0.7 percent of our loans have been defaulted upon. If a debtor does not pay, we just keep visiting her house and ask what the problem is. Sometimes, together with the village chief, we discuss the rescheduling of the loan. But if we visit the debtor's house too often, the debtor feels ashamed and eventually agrees to repay in most cases".
......to be expanded.