Farmers Bank - Bringing Financial Inclusion to Poor Farmers Family
Farmers Bank, bringing financial inclusion to poor farmers and family.
About Your Organization
Bank Tani - Lembaga Keuangan Mikro Agribisnis
Country where this project is creating social impact
Is your organization a
How long has your organization been operating?
Has the organization received awards or honors? Please tell us about them
Danamon Award 2010 for social contribution
Indonesia Berprestasi Award 2011 for social contribution
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Select the stage that best applies to your solution
Growth (your pilot is up and running, and starting to expand)
How long have you been in operation?
Operating for 1‐5 years
Which of the following best describes the barrier(s) your innovation addresses? Choose up to two
The Need: What problem are you trying to solve?
Financial service access for farmers, particularly lack of access to capital. Being financially illiterate and lacking formal collateral, poor farmers rely on loan shark to finance farm operation. They receive advance payment before harvesting, which drain into operation cost and daily consumption.Thus they’re trapped in a vicious cycle of indebtedness.
Institution wise, the threat of harvest failure due to pests, climate, etc. has made agriculture sector not creditworthy for commercial banks. Additionally, due to complicated procedures, banks are not friendly to poor farmers. An example: to apply for credit or even open saving account farmers have to fill in pages of forms, while in fact most of the poor farmers are illiterate.
The Solution: What is your solution? Be specific!
Farmers Bank is a hybrid of banking and coop system established by and dedicated to small farmers. Farmers Bank sells shares through “share ownership installment” to small farmers. In return they receive dividend at the end of financial year and eligibility for loan.
Farmers Bank also introduces financial literacy through various saving schemes. For example, responding the high maternal mortality rate, the bank offers Pregnancy Savings. There’s also Marriage Savings, Motorcycle Tax Savings, etc. To encourage savings the bank gives bonus such as baby care package, farming equipment, etc. Bank officer collect the savings door to door on daily/weekly basis.
The Model: Walk us through a specific example of how your solution makes a difference; include your primary activities
Farmers Bank started with an assembly of farmers groups in a Nagari (village), which can consist of ten farmer groups of approximately twenty members each. Consensus and local values are employed in shareholder meetings to determine share unit value, compulsory savings value, credit procedures, and everything related to institutional operation. Farmers Bank employs a structure where farmers own the bank, farmers’ children manage the bank, and well-respected local elders serve as advisors. For example, to apply for credit, a farmer should have recommendation from ninik mamak (local elders). The elders also act as guarantor, i.e. to ensure proper use of the investment to the extent of taking over the debt in case of payment failure. Social sanctions apply for ‘free riders’- for example public announcement in village mosque.
Farmers Bank is also coupled with farmer organizing and skill building to help farmers shift from conventional cultivation to agribusiness. For example, farmers field schools where farmers become local experts, conduct applied research in organic farming techniques and agribusiness and share their results at their regular meetings. Farmers Bank then links farmers with the Organic Farmer Alliance and local universities to facilitate knowledge building from farmers.
The Marketplace: Who are your peers and competitors? Identify others also working to address the needs you are and what differentiates you from them. What challenges could these players pose to your success or growth?
Peers & competitors:
Bank Perkreditan Rakyat (BPR) – private sector entity offering banking service, legalized as bank by government
Baitul Maal Tamwil (BMT) – Islamic saving and loan entity, established by either government or private sector.
Tribe-based cooperative – a clique of usually well-off figures of certain tribe, aim usually to serve business development of members
Loan shark – individuals offering collateral free loan with very high interest.
Farmers Bank is different in that it’s specific targeting farmers and agriculture business, and established by farmers to farmers & family. All rules, regulation, procedure is determined together. Farmers Bank has unique capital structure (hybrid of bank and coop), which consist of share, compulsory saving, other saving products.
This Entry is about (Issues)
Founding Story: We want to hear about your "Aha!" moment. Share the story of where and when the founder(s) saw this solution's potential to change the world.
As a farmer way back in year 2003, I met artist cum farmer Rumzi Sutan, singing ballad about the dream of farmers’ independence. The song inspired me to find ways of realizing the dream. I started learning in farmer field school of West Sumatra Office of Agriculture. Here I realized that our biggest problem as small farmers is access to capital, which is not yet provided by banking sector, and not yet solved by most coop (due to the negative image of most corrupt coop). Thus the idea to create ‘our own bank’ started. After a long journey and rejection, we met officials and consultant who recommend us to start as microfinance institution.
Please describe the goal of your initiative; outline what you are trying to achieve
Small farmer’s welfare and independence, and food sovereignity.
Welfare can be achieved through education, among which financial education, organizational, and technical skill. Using these, farmers can organize their financial and other resources more effectively, reduce dependency to exploitative external parties, and smartly find creative way of adding values to the crops they produced. Rather than relying every problem to the government (as instilled by the previous new order regime), farmers learn to solve their own problem and direct their own future. As farmers regain their pride and improve their welfare working in agriculture sector, rural youths will begin to see the prospect of rural development.
Which barrier(s) to financial inclusion does your solution seek to address? (select all applicable)
The lack of affordable financial products tailored to the needs of underserved and excluded communities,.
If you selected 'other' above, please specify which other barriers to financial inclusion you solution seeks to address:
For which underserved or excluded communities will your solution create access to valuable, affordable, secure and comprehensive financial services?
Farmers and farmers family. Farmers account for 44.6 percent of Indonesia’s total population. Despite their contribution to the nation, most farmers are living under the poverty line. Farmers constitute over 50 percent of the nation’s poor.
Farmers Bank is targeted to develop this group by introducing financial literacy and service flexible and simple enough for farmers to access. Aside from providing financial service, the bank develops local economy and job opportunity for local youth/ farmers children, who otherwise would likely migrate to cities.
Could your solution work in other geographies or regions? If so, where?
Apakah solusi Anda dapat diterapkan di daerah lainnya? Jika ya, di mana? [125 kata]
Nationally it begins to spread. End of 2013 it’s targeted that in every province there’s one farmers bank as a learning center for replication in every village. The model has been adopted by ministry of agriculture, however the government’s top-down funding mechanism made the replication unsuccessful to carry its initial mission.
If your solution is dramatically successful, how will things be different in 10 years?
The culture of saving is already instilled among farmers, with the introduction of financial literacy and financial service. Thus the dependency on loan shark for emergency financial need can be sharply reduced.
The bank is projected to diversify its product and business, among which agro business units (e.g. storage, post-harvest, and other processing unit to increase the value of the harvest) with profit sharing scheme. It’s expected that this will lead into the increase of overall rural agriculture welfare in less than 20 years span.
What will have had to have changed to make this happen?
Human resource capacity of the manager. Capacity building is needed so that they can creatively design more financial products.
Financial literacy/ household economy education has to be intensively implemented through group meeting/ training.
Information technology related to financial field need to be introduced.
What has been the impact of your solution to date?
From around 580 unit of Farmers Bank in West Sumatra, around 200,000 farmers and their family has been reached. They have begun a culture of saving, and improved welfare is indicated by the savings farmers have in their bank account. Dependency on loan shark is sharply reduced.
Aside from welfare, the organizational skill in Farmers Bank has increased their self-confidence in dealing with other institutions or government officials.
Farmers Bank has also created job employment for at least 2,500 young people, children of the farmers. To recruit the operational staff the bank sets some criteria for example, no gambling, willingness to get up early, not going out late at night, and willingness to work with no payment for the first 6 months. On average five young people are recruited by each bank, with a monthly salary of around IDR 500,000 each.
What is your projected impact over the next five years?
Replication on national level. Currently Farmers Bank has been established in around 10 provinces. The target is to have at least one Farmers Bank in every province, as a learning center to replicate the bank in villages.
What barriers might hinder the success of your project? How do you plan to overcome them?
Internal: Recruitment of human resources: many youths tend to seek employment to urban areas.
Solution: intensify training center and promote managerial position of farmers bank as better job alternative.
External: legal status from government – Farmers Bank is a hybrid of bank and coop, but its legal status as either bank or coop is still being a subject of debate by bank governor or cooperative department.
Solution: compromise using coop as legal status, while lobbying to change policy.
Winning entries present a strong plan for how they will achieve and track growth. Identify your six-month milestone for growing your impact
Establish provincial consortium of farmers bank
Identify three major tasks you will have to complete to reach your six-month milestone
consolidating farmers bank within a province
planning consortium system
establishing the consortium to focus on capital (acting as holding company)
Now think bigger! Identify your 12-month impact milestone
piloting consortium business unit, e.g. Post-harvest Community Food Stock unit
Identify three major tasks you will have to complete to reach your 12-month milestone
creating land data inventory
Tell us about your partnerships
Farmers Bank have started some short term partnership, for example Bank Nagari (a rural commercial bank) provide a credit of 25 million to Farmers Bank.
Are you currently targeting other specific populations, locations, or markets for your innovation? If so, where and why?
Targeting agriculture communities in other provinces for replication on national level. Currently Farmers Bank has been established in around 10 provinces. The target is to have at least one Farmers Bank in every province, as a learning center to replicate the bank in villages.
What type of operating environment and internal organizational factors make your innovation successful?
Strong social cohesion and trust in the community.
Please elaborate on any needs or offers you have mentioned above and/or suggest categories of support that aren't specified within the list