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The birth of the Village Units

    (Electronic version)

    a personal account by

    Klaas Kuiper


    “Wachten is ook een werkwoord”

    („waiting works too‟)


Copyright ? Klaas Kuiper


Permission is granted for reproduction in part or full of this material for educational, scientific

    or development related purposes except those involving commercial sale, provided that full

    citation of the source is given. For all other purposes prior written consent of the copyright

    holder is required.


    Microfinance, green revolution, agricultural credit, trade loans, village banks, cooperative,

    micro-enterprise, rural finance






    4. YOGYAKARTA PROVINCE, some background data 10

    5. RICE PRODUCTION PROGRAMS 1957-1968 11

    5.1 From JABATANI and Paddy Centers to BIMAS and INMAS 11 5.2 Farm input distribution 13

    5.3 Credit 13

    5.4 BIMAS planning system 14

    5.5 Main problems 15

    6. BIMAS GOTONG ROJONG (BIMAS-GR) (1968-1970) 16




    9.1 Problems defined 22

    9.2 Development proposal 22

    9.3 Results 23

    10. THE BRI-FAO CREDIT PROJECT („Village Units‟) 25

    10.1 Problems defined 25

    10.2 Developing the project proposal 26

    10.3 Use of pre-war information 28

    10.4 Main aims and BRI policy 29

    10.5 Designing the Village Units: making choices 31

    10.5.1 Village Bank (BKD) or BRI sub-branch? 32

    10.5.2 Mobile or fixed? 35

    10.5.3 Involvement village head? 36

    10.5.4 Involvement DIPERTA 37

    10.5.5 Location choice criteria 38

    10.5.6 Target clients 39

    10.5.7 Group or individual lending? 41

    10.5.8 Loan purposes 43

    10.5.9 Loan terms 44

    10.5.10 Loan package or free choice? 45

    10.5.11 Credit in cash and/or kind? 46

    10.5.12 Interest rate policy 47

    10.5.13 Loan supervision system 49

    10.5.14 Administrative systems 50

    10.5.15 Staff: permanent or temporary? 53 10.6 Pre-start activities and starting date 53

    10.7 Phase 2 activities and budget 54

    10.8 Other activities/experiments 55

    10.8.1 Storage loans 55

    10.8.2 Savings 56

    10.8.3 Trade loans 58

    10.8.4 Grouping borrowers 59

    10.8.5 Institutional development 60


    10.9 Estimated system costs and benefits 62

    10.9.1 Turnier‟s estimates 63

    10.9.2 Rice survey estimates 64

    10.9.3 FAO-FFHC-FP estimates 64 11. RESULTS OF THE VILLAGE UNITS (1969-1971) 66

     11.1 Village Units established and area covered 66

     11.2 Loans 67

     11.3 Workloads 70

     11.4 Income and expenditure 72

     11.5 Loan repayment 75

    12. RESEARCH 78

    12.1 Predicting default 78

    12.2 Preference for large farmers? 80 13. DISCONTINUATION OF BIMAS GOTONG ROJONG 83


     14.1 Expansion of the BRI Village Units 85

     14.2 Expansion of the BUUDs 88



    18. EPILOGUE 100


    A. List of Tables 102

    B. Abbreviations 103

    C. Indonesian and Dutch (NL) words 104

    D. Bibliography 105

    E. List of persons 108

Exchange rate used: 1 US$ = Rp 375 (average in pilot project period, 1969-1971)



On 28 June 1971 I wrote to my mother-in-law in New York: “As such the credit project

    begins to become rather unique now.” The credit project referred to was the pilot project of

    the Village Units (VU) of Bank Rakyat Indonesia (BRI) in Yogyakarta province in Indonesia.

    Why involve one's mother-in-law in an introductory sentence?

Over the years many people have written about the Village Units in Indonesia, most

    publications referring to the period after their „rehabilitation‟ after the 1983 change in

    government policy and the start of the KUPEDES program. In many of these publications

    reference is made to a pilot program in Yogyakarta province, sometimes with a wrong starting

    date (including BRI publications!), some clearly not knowing why they started there, most not

    knowing what the experiment was all about and nobody mentioning the three publications

    about the experiments, two published by the Food and Agriculture Organization of the United

    nations (FAO) and one by BRI. (34, 63, 64) One would expect that at least authors writing

    from BRI offices should have been able to find these publications in the BRI library. As a

    result, many later authors writing about the Village Units seem to copy from earlier

    publications by others and also seem to have not made own efforts to trace publications about

    that period. An internet search in e.g. the library of the Royal Tropical Institute in Amsterdam

    produces all three publications! I have not found anywhere any reference to the involvement

    of FAO in Bank Rakyat Indonesia (BRI) and the Village Unit experiment, except of course in

    the above mentioned three publications.

This publication is not an attempt to claim the Village Units as an FAO invention. Many BRI

    staff and others were involved in its development as this document will show. In fact, one

    may ask oneself whether the Village Units were planned deliberately as an innovative and

    new approach or whether the Village Units just developed as a result of actions or non-actions.

    Putting the name of one person to its origin, as with the Grameen Bank in Bangladesh, does

    not seem justified.

“…textbooks hail Professor Mohammed Yunus in Bangladesh with his Grameen Bank and

    BRI with its Unit Desa network as the pioneers of microfinance in Asia….. However, the

    birth of microfinance in Indonesia dates back more than a hundred years.” (GTZ/Bank

    Indonesia, 1)

    “I initially thought that personalities were the explanation for the successful reforms; some

    good people in BRI, talented technical assistance, and a supportive and strong Minister of

    Finance……It may be hard to believe, but the Indonesians were doing microfinance before

    Grameen Bank.” (Dale W. Adams to Devfinance, 22 August 1999)

It may therefore be useful to give some of the details of the experiments then carried out in

    Yogyakarta province, not just for the record, but also to correct some incorrect statements as

    to what they were aiming at.

One may ask: why tell the story now? The answer to that is simple. I am now retired and there

    is time to write, rather re-write what was written about the Village Units in the period 1968 to

    1972, and what the intentions and first results were and within what framework all this took

    place. Fortunately, I found some old and dusty boxes in my attic in the Netherlands with

    documents about the start and the first years of the Village Units including two draft final

    FAO project reports (34, 63), correspondence with people closely involved in the Village

    Units, many BRI provincial reports as well as some articles written by others referring to the


    problems of those days, articles not always quoted in the better known Village Unit publications.

    My personal feelings about what was going on in Yogyakarta (I was stationed there from mid-1968 till December 1971) and nationally and my work there found its reflection in letters which my wife and I wrote to my mother-in-law in New York, a fortnightly correspondence, mainly about the progress of our young kids (two were born during our stay there), but regularly also about the FAO Freedom From Hunger Campaign Fertilizer Programme (FAO-FFHC-FP) of which I was the project leader in Yogyakarta province and about the experiments that were carried out with BRI, PN Pertani (state agricultural input supply organization) and the Ministry of Agriculture Extension Service (DIPERTA).

    When my mother-in-law passed away in 1991 it was a great surprise to find that she had kept all our letters! As a result I can date many of the activities exactly, as well as my thoughts and reactions to what was happening around us. My quotes from these letters may prevent me from interpreting things now with the benefit of hindsight. I am aware of that risk when writing about things that happened about 35 years ago. For the most I could rely on data, letters, articles and texts earlier written and/or published by myself, colleagues and others.

    My own rural credit experience at that time was very limited, in fact, non-existing. I knew a bit of the theory and history about it from Wageningen University, The Netherlands, where I had followed some of the lectures of professor Ballendux, the last president of the Algemeene Volkscredietbank (AVB), established in 1934, the Dutch colonial predecessor bank to BRI. When confronted with the agricultural credit problem in Yogyakarta, I started reading many of the pre-war publications by Fruin (31, 32) and others as well as articles in the pre-war monthly credit magazine „Volkscredietwezen‟ (Popular Credit System) going back to the beginning of the 20th century. Also, some of the older BRI staff in Yogyakarta and its Jakarta Head Office knew about the pre-war AVB system and the independent village banking system (BKDs, village banks and rice banks) in that period.

    Three months prior to my posting in Yogyakarta, another FAO department had posted Raymond J. Turnier to BRI Head Office in Jakarta. He was a senior credit and cooperative expert, whereas my educational background was rural engineering and planning. My work experience was limited to two and a half years in a FAO-FFHC-FP project in Eastern-Nigeria (cut short by the Biafra civil war) and one year experience at FAO Headquarters in the same FFHC program as assistant to its American program manager, Prof. Dr Robert A. Olson. I was 29 years old when I started work in Indonesia.

    A close cooperation was established with Turnier during the full contract period as far as the BRI credit experiments and the BRI grain and cassava storage experiments were concerned. He also assisted at times with the PN Pertani project developments. To complement this, a Danish associate-expert, Palle C. Andersen, was posted in 1969 to the project in Yogyakarta. He was mainly engaged in the project fertilizer and crop field demonstrations and trials with the Ministry of Agriculture in the province and played a major role in processing the vast amount of data locally.

    Writing this article was not without problems. During my stay in Indonesia there was political and positional fighting within and between government agencies, there were serious disagreements about how to develop a national food policy and how to implement it; there was disagreement about the use of foreign multinationals in the implementation of the


BIMAS (agricultural rice extension) program; there were great differences of opinion between

    Jakarta and the „field‟; there was disagreement about the place of foreign aid programs; there

    were factions pro and anti the military leadership; and at one stage there were serious attempts

    to have the two FAO-FFHC-FP programs (there was another one in East Java) stopped.

Most of these activities were Jakarta/Bogor based fortunately and in Yogyakarta we either

    heard them late, second-hand and most times it couldn't bother us. Living in Yogyakarta, it

    was difficult to verify stories and facts, even more so now. Above does not materially affect

    the story I want to tell. This publication is not an attempt to put a belated blame on anyone.

In the following chapters I will quote from the earlier mentioned publications and those of

    others so as to try to give as much as possible an unbiased and verifiable story. My quotes

    from draft reports and letters can be verified in my personal library. The internal FAO project

    correspondence about the project could not be traced anymore in Rome in spite of the

    assistance of FAO‟s Richard Roberts, which is not too surprising after more than 30 years. BRI couldn‟t help me either and informed me that they kept their documents only for a period

    of 25 years, which had also expired.

Quotes from the (translated from Dutch) letters to my mother-in-law by me and my wife and

    of my correspondence with others have been printed in italics. The same applies to non-

    published articles or reports or where I am not sure of publication. References to the 52

    personal family letters with references to the project in Yogyakarta have been numbered as L1,

    L2 etc. Reference numbers listed in the bibliography at the end of this document in Appendix

    D refer to published or non-published articles or books or parts thereof. Quotes either list the

    reference number in brackets only or the name of the author followed by the reference number.

    Some quotes refer to draft papers/reports or parts of them. These papers/reports are only

    quoted from when the final version was not in my possession or, as with the FAO final project

    reports by Turnier and Kuiper c.s., the final FAO report was much shorter than the draft report

    submitted to FAO. The report editors at FAO Headquarters did not always do a good job in

    selecting the right sections when shortening the report to some pre-set number of pages. For

    example, the total seasonal loan volumes in Yogayakarta, not unimportant in a credit project,

    were deleted in the editing process at FAO Headquarters!

At the end of some (sub) sections I have noted in boxes certain issues that are related to the

    content of that (sub)section, either in history or after the FAO project ended in 1972. They

    might provide some insight into certain historic connections or allowed for a comparison with

    later developments. For those not fully acquainted with Indonesian history I have added a list

    of persons mentioned in this document in Appendix E.

I have used the spelling checker of my computer, however, citations have the original spelling

    of their authors, including errors. Some Indonesian words had spelling changes since I left

    Indonesia, e.g. Jogjakarta is now Yogyakarta, ketjamatan is now kecamatan etc.

    Readers interested in the BRI-FAO credit („Village Unit‟) project only can start reading at section 10.



    The staff members of the Ministry of Agriculture and Bank Rakyat Indonesia in Jakarta and Yogyakarta province were already acknowledged in the final FAO reports by Kuiper, Andersen and Turnier. Specific persons mentioned in this document but not mentioned in the FAO reports I would like to thank here, although admittedly, a bit late, and for two of them, Rik Molster and Bob Olson, even too late.

    In writing this report particularly my wife and children have stimulated me to finalize it. Writing it helped me in adjusting to my new life after retiring from my busy work from the Dutch international technical assistance program (DGIS). They were supported in this by various friends and in-laws.

    I would especially like to thank Mr. H. Chandra, a rural finance consultant in Jakarta, who was very helpful in providing me with translations of documents used in the Village Unit project and of translating some Indonesian terminology. Thanks are also due to Dale Adams, Johan Leestemaker and Dirk Steinwand for their suggestions and useful comments on the draft report.

    Thanks are also due to the International Visitor‟s Program (IVP) of Bank Rakyat Indonesia in going into their archives and supplying me with the correct spelling of the names of past BRI presidents and directors and the periods they served in their positions.

    Finally, I would like to invite those that have comments and/or suggestions or note clear mistakes not to hesitate to contact me. I have done my best to be as accurate as possible but cannot exclude the possibility that my memory or personal project records give a less than full and correct picture. Those taking advantage of this offer I thank in advance.

Doorn, The Netherlands, 2003

Klaas Kuiper

e-mail address:



The „Fertilizer Programme‟ (FP) was one of many activities under the FAO Freedom from

    Hunger Campaign. The program was financed by contributions from large international

    fertilizer and chemical industries and bilateral donor governments. (FAO, 28) The program in Yogyakarta province in Indonesia was financed by the „Centre d' Etude de l'

    Azote‟ (C.E.A) (Nitrogen Study Center) in Switzerland and the Danish government, which

    financed an associate-expert as from 1969. The official counterpart agency for the project was

    the Indonesian Ministry of Agriculture, the official counterpart the Director-General of that


The FAO-FFHC-FP was being carried out in countries in Africa, Latin America, Middle East

    and Far East and had the following standard components:

     (i) a field program showing farmers the effects of new crop varieties, various

     fertilizer applications and pesticides by way of demonstrations and trials on

     farmers' fields. Such demonstrations included current farmers‟ practice;

     (ii) activities in respect of the storage, supply and marketing of agricultural inputs,

     ranging from seeds, fertilizers, pesticides, equipment etc;

    (iii) activities related to the supply of credit, either through financial intermediaries or as

     supplier credit to support the use of the inputs promoted;

    (iv) activities related to the storage, processing and marketing of farm produce.

Which activities were to be included in a particular country project depended on the local

    conditions. In Yogyakarta province activities were to be planned in respect of all four


    This meant that, in addition to the Ministry of Agriculture (DIPERTA), a close working

    relationship was also established with PN Pertani, the state agricultural input supply agency,

    and Bank Rakyat Indonesia (BRI) for the credit component of the project.

“Time is short. Planting starts 1st October. Everyone is very enthusiastic and everyone

    expects so much in a short time. I prefer to work with less attention but this is the situation. It

    makes the challenge only bigger. I will not be seduced to an ‟all or nothing‟ approach and

    surely some people will be disappointed in the beginning. Development is not being made by

    developers but by the reactions of those to be developed. The Javanese farmer, and that's

    what matters, will decide in how far we will have a successful project. His attention and

    willingness will be the measure of progress, in spite of all our good wishes and intentions.

    (L1, 23 June 1968)

4. YOGYAKARTA PROVINCE, some background data


Yogyakarta province was the smallest of the four provinces on the island of Java, in size,

    population and rice area. It was the only province that had no military governor in 1968.

    The province was divided into five districts („kapubaten‟) one of which was the city of

    Yogyakarta. The four rural districts were sub-divided into 60 sub-districts („ketjamatan‟) and these into 393 villages („kalurahan‟). A village could consist of several „desa‟ (hamlet, usually

    also translated as „village‟).

The total population of the province was about 2.675 million in 1969 (6), annual population

    growth had been two percent in the previous years. Population densities in the rural areas of

    the province varied from 500 to 2,000 per square kilometer.

According to the 1963 census there were about 325,000 farms covering about 190,000

    hectares, giving an average farm size of 0.6 hectare. Irrigated farms numbered 185,000

    covering a maximum of 93,000 hectares in the wet season (October-March), an average of

    0.28 hectare irrigated land („sawah‟) per farmer or an average of 0.5 hectare per irrigated farm.

    During the dry season (April-September) the maximum irrigated area was 28,000 hectares. (2)

    Most irrigation water came from rivers and streams running down Mount Merapi, an active

    vulcano. No large reservoirs existed. This made irrigation mainly dependent on rainfall.

    Ninety percent of the farms were fragmented with an average of 3.5 parcels per farm. Farms

    were generally operated by their owners who might rent additional land. Tenants also existed

    (some people protesting the Green Revolution called this group „landless farmers‟).

The province had a strong presence of national party (PNI) supporters as well as communist

    party (PKI) supporters prior to the abortive coup of 1965 and subsequent army take-over in

    1966. In PKI controlled areas there had been programs for the redistribution of land. Some

    villages in the Bantul district also had to rent their land for a one year period to the local sugar

    factory at regular multi-year intervals, a colonial inheritance.

Average provincial annual per capita income was estimated at US$ 12 in 1969. Rice

    consumption in 1969 was 60.7 kilogram/head in the rural areas and 80.7 in urban areas. The

    province had had a rice deficit for many years. Provincial imports during the 1960s had

    ranged from 20,000 to 50,000 tons of white milled rice annually.

In addition to BRI with its district branch offices and BRI supervised village banks (BKD),

    there were a total of 18 state owned pawnshops with a total funding of Rp 50 million in

    November 1969, using an interest rate of 7% per month. Illegal pawnshops also existed and

    charged between 10 and 20% per month. (6)



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