Financial Services Authority, Jakarta, May 23, 2016: Financial Services Authority (OJK) Chairman Muliaman D. Hadad attended a seminar on the theme of Value Chain Innovation in Agro-industry to Support Financial Inclusion among Farmers, which was held at Balai Kartini, Jakarta, on Monday (May 23). In his welcome speech, he described the difficulties that Indonesian farmers faced.
Agricultural sector is known as a sector that plays a significant role in Indonesian economy. Its contribution to the country's GDP reached 13.6 percent, the second highest after the processing industry whose contribution amounted to 20.8 percent. More than half of the latter's contribution came from agricultural-based commodities. In addition, the agricultural sector is the nation's largest employer, with 35 percent of Indonesian manpower work in this sector.
When the agricultural sector's value chain is seen from holistic point of view, from upstream industries (on farm) to (downstream) industries, the sector has made around 55 percent aggregate contribution to GDP. If the value chains of agricultural commodities—whose types and amount are abundant in Indonesia (such as food crops, plantation plants, garden plants, and husbandry)—are developed by means of technology and modern logistic systems, not only will the country's GDP be higher, but farmers and other rural economy players will also enjoy better welfare.
"The problem is, out of 26.1 million farm households across Indonesia, 56 percent of them (14.6 millions) only have lands less than 0.5 hectare. Produce generated from such small pieces of lands are far below economies of scale," Muliaman said.
He added that the biggest challenge confronting Indonesian farmers was lack of capital. Their relatively small, uncertified agricultural lands prevented them from receiving formal financing, which was much more efficient than loans from moneylenders or loan sharks.
Capital issues have hindered farmers to utilize quality agricultural input or apply new technologies. If no serious efforts are made to address these obstacles, Indonesian agricultural commodities' productivity and competitiveness will be stagnant and this could create a harsher climate for farm households that wish to achieve better welfare.
"Therefore, it is time to give farmers wider access to formal capital sources. We are grateful to the government who has launched people's business loans (KUR) and opened access to these loans to farmers," Muliaman said.
Nevertheless, other financing schemes also need to be developed further in order to offer more financing access to farmers. Steps should be taken to accelerate and expand financial inclusion to reach them and other economic players along agricultural commodities' value chains, especially those living in rural areas.
"The public should know that about two thirds of Indonesia's poor people reside in villages. Concrete steps to allow farmers and other rural economy players access capital resources will result in higher business performance and income for the farmers and those players, which in turn could play a major role in ongoing poverty alleviation measures," the OJK Chairman stated.
