Who Should Control the Savings and Loan Cooperatives in Indonesia? – Opinion



Bitra Suyatno (The Jakarta Post)

Jakarta ●
June 23, 2021

savings, loans, cooperatives, fraud, OJK, supervision, clients, regional government, bill, SMEs
Is free

The systemic problem of the cooperative business sector is associated with very weak oversight and requires disruptive policies and strategies for strong enforcement. Many pseudo-cooperatives have cost society trillions of rupees in lost savings over the past decade.

Fraud took place at the grassroots level, for example in the cooperative enterprises Cipaganti Karya Guna Persada and Langit Biru. From 2008 to May 2014, the two cooperatives defrauded their customers for 3.2 trillion rupees ($ 228,500).

Thus, the government’s current financial sector reform and reform bill should stimulate a revision of a number of prudential regulation and supervision (R&S) regulations for savings and credit cooperatives (S&L).

Government Decree No. 9/1995 states that S&L cooperatives are prohibited from doing business with non-members, but they can still do business with non-members if they agree to become a candidate for membership within a certain period of time and then become full members. This clause was often abused by several large JMC cooperatives to enter into transactions with non-members, who were called “candidate members” without time constraints, in order to mimic a largely borrowed microfinance approach.

The lack of proper oversight by the Ministry of Cooperatives and Small and Medium Enterprises (SMEs) has resulted in many QMS cooperatives turning into pseudo-cooperatives that have failed to repay client funds, damaging the image of the cooperative movement.

We propose a two-tier R&D institutional structure. First, the Financial Services Authority (OJK) must regulate and supervise medium and large S&L cooperatives at the national level. The OJK will define regulations and delegate actual regulation to the Ministry of Cooperatives and SMEs and regional governments, but any draft regulations from these government agencies must be approved by the OJK to ensure nationwide consistency in the prudential management of savings and loan cooperatives.

There are several reasons why the OJK should be the oversight body for medium to large S&L cooperatives.

Banks, rural banks (BPR), multi-finance companies, peer-to-peer (P2P) lenders, and S&L cooperatives are engaged in similar activities, offering similar products and services (for example, savings accounts, loans and checking accounts).

These financial institutions provide services to individuals, and many also provide banking services. The larger S&L cooperatives are more like commercial banks and therefore should be subject to equal treatment under the supervision of the OJK.

The policy should create a level playing field for financial cooperatives (FCs) among financial service providers and prevent regulatory arbitrage. Members of depositories of financial cooperatives must be protected through prudential analysis and research and enforcement of these rules.

OJK may also levy fees or charge fees from medium and large loan and investment cooperatives. Supervised institutions are increasingly paying for supervisory services. On the other hand, neither the Ministry of Cooperatives and Small and Medium Enterprises, nor the regional governments have this flexibility in the collection of fees or in the recruitment of staff.

A system with two different supervisory regimes could potentially solve the problem of poor supervision by the Ministry of Cooperatives by placing large S&L cooperatives under OJK supervision.

While we agree that many differences persist between financial cooperatives and other depository institutions, and that cooperatives are non-profit enterprises that only serve their members, this latter statement can be misleading.

Savings and Loan cooperatives must make a profit in order to run, maintain and grow their business. In addition, they must implement good corporate governance, international accounting standards and transparency, and be more entrepreneurial in order to survive in the business world and gain people’s trust. Under the supervision and supervision of the OJK, medium and large S&L cooperatives can learn to use sound business practices.

If we place S&L cooperatives under the jurisdiction of OJK, they will have to comply with prudential regulations in line with international best practice and be no different from any other depository institution. OJK will create a level playing field for all depository institutions, including medium to large cooperatives, and prevent any regulatory arbitration.

Most importantly, OJK has the resources and DNA as a financial supervisor to detect any financial misconduct as early as possible.

Studying the experience of other countries, the article by R. Coelho, J.P. Svoronos, J.A.Mazzillo and T. Yu is entitled “Regulation and supervision of financial cooperatives”(FSI Insights, 10 January 2019) indicates that the implementation of a tiered R&S system and the subordination of financial cooperatives to financial supervisors is common practice around the world.

Different structural models are used to oversee different types of financial institutions. In Australia, the Australian Prudential Regulation Authority (APRA) is responsible for overseeing small financial institutions. In China, the supervision of rural small and medium-sized financial institutions is administered by the China Banking and Insurance Regulatory Commission (CBIRC). In Ireland, a division of the Central Bank of Ireland controls financial cooperatives (FCs). In Brazil, a special unit of the Central Bank of Brazil oversees financial institutions and non-bank financial institutions. In other countries, such as Kenya and the United States, a specific agency is responsible for overseeing the FC.

In conclusion, we suggest that a revolutionary system of two different surveillance regimes could solve the current problem of poor quality QMS surveillance in Indonesia.


The writer is an official of the Ministry of Finance. The opinions expressed are personal.


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