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  International Fund for Agricultural Development

A farmer ploughing his rice fields in Lombok. The project aims at producing non-rice subsidiary crops to help small holders who cannot benefit from advances in the rice sector.
IFAD photo by Lucilla Salimei

Name of the project
Income-Generating Project for Marginal Farmers and Landless in Indonesia (P4K II)

Location of the project
Indonesia, 18 provinces

Responsible organisation
International Fund for Agricultural Development (IFAD)

Description

In Indonesia of the mid-1980s, nearly 37 million people lived in absolute poverty with incomes below the equivalent of 320 kg of rice per year. Millions of smallholders, farmers, farm workers and fishermen were materially and financially unable to tap into the opportunities offered by 20 years of economic growth in the country and, with no collateral, there was no hope of obtaining a bank loan.

The first Income-Generating Project for Marginal Farmers and Landless (P4K I), carried out between 1980 and 1986, showed that low-income farmers and fishermen are creditworthy and show economic initiative if they are organized into self-help groups. It is important to note that agriculture is a crucial activity in Indonesia, employing 57% of the labour force in 1990 and contributing 17% of GDP in 1994 (as compared to an average 10% and 3% respectively in industrial countries).

In 1987, IFAD agreed to scale up this pathfinder project and implemented P4K II between 1988 and 1997. A third phase began in 1998. The objective of IFAD’s P4K II project was to raise the standard of living among the poorest rural families in 18 provinces of Indonesia by means of credit-supported farm and non-farm activities. It aimed to promote the formation of 32 750 self-help groups, strengthen 2 000 such groups already in existence and help group members obtain loans once they had developed solid savings habits and prepared a group business plan. These loans were granted at market rates to finance a wide range of activities that involved relatively small investments in terms of cash and labour.

Group members selected approximately 200 different types of investment activities. Carried out mostly on an individual basis (although some collective endeavours were involved as well), activities ranged from livestock-raising to small-scale trade, food processing, handicrafts and microenterprises.

The project’s success is attributable, first and foremost, to the groups’ newly found self-determination; participants have learned not only to save and invest their earnings but also how to manage their own affairs, build self-confidence and become self-reliant.

Results achieved

  • Over 48 000 small farmers groups were set up by the Ministry of Agriculture extension services, 37% of the groups being made up exclusively of women and 25% mixed.
  • Some 38 000 groups received at least one loan from the Bank Rakyat Indonesia (BRI) and nearly all of them received training in financial planning and management. Total savings stood at IDR 8.1 billion (USD 3.3 million) and total borrowing amounted to IDR 113 billion (USD 47 million), with a loan repayment rate of 86%.
  • The incomes of participating families rose between 41% and 54% on average.

Lessons learned

The P4K methodology is a dynamic and evolving mechanism that comprises a series of steps, by which a village is identified, potential group members contacted and the process of training towards self-reliance begins. This effective, practical and economic methodology developed for rural poverty alleviation in Indonesia could, given suitable management, be replicated through out most of rural Indonesia with good results.

IN THE WORDS OF OUR CLIENTS

In 1997, Indonesia was hit, like other Asian countries, by an unprecedented financial crisis. The banking crisis and the instability of the financial markets brought the collapse of small enterprises in both urban and rural areas. The most publicised victims of the crisis were the urban dwellers and their unprecedented reversal of fortune. However, the worst hit are the small and marginal farmers, rural families, small-scale entrepreneurs, and indigenous people, who lived in marginal areas of the country and who saw in the economic growth the chance to rise out from poverty.

In the words of Ibu Cacih from Cingambul, Java, a 31 year old woman who had never taken part in a credit project prior to joining the Sari Mawar P4K group: ''I had to borrow money from a middleman and he was the one who set the prices for the items I made. Most of the time, once I’d paid back the loan, I didn’t have enough money left over and I’d have to borrow again. Since I joined the group, I sell my products for a good price and to whomever I want. I no longer depend on middlemen and I don't have to borrow money. I feel better now because my children have shoes to wear to school and I have some savings. I also can associate with others in the community, and I can voice my opinion at meetings. I'm not poor anymore. I see my future much better.''

Ibu Sahnun belongs to the ''Tiga Serangkai'' Association in the village of Montong Ara. Ibu narrates, ''like the other members of the association, I sell clothes, cooking plots, plates and other household goods, that I’ve bought from the market. Before joining the group my life was much more difficult, because the few things I used to sell were not enough to live, so I also had to work in my grandmother’s paddy plot during the rainy season. When I received a loan of 50,000 rupiahs from the project, my life changed as I could afford to buy more goods and then I could sell them in the village. Moreover, I could take part in activities organised by the Association and I had the opportunity to learn how to read and to write. Now the situation has changed once again because the prices of rice, and oil have gone up, so it has become difficult to buy enough things for my activity.''

Ibu Normah, heads the ''Pungang women’s small farmers group'' whose members’ main activity is to process tepeh (fermented cassava). Ibu explained, ''since I was 15 years old I’ve been making tepeh. Before getting the loans, I could never do enough tepeh because the cassava, necessary for this, was very expensive for me. When we started getting the loans my production of tepeh increased considerably, because I could afford to buy large quantities of cassava from my cousins. Unfortunately, the loans have stopped and the price of cassava has increased while its supply has reduced because farmers have started to eat cassava themselves as a substitute for rice. This has made it more difficult for me to produce tepeh. People still ask for it, but I can’t satisfy everybody anymore.''

Ibu Ayat, a woman from the village of Desa Rembitan, describes her story as follows, ''Before becoming a member of the Sadar small farmers group my life was quite difficult, particularly because I left my husband many years ago, and I have a son of 13 years old. Since I got a loan, I could buy cotton, thread and dyes to make clothes and show my kain ikat (weavings) and ''ready to wear'' clothes to visitors who come to the village. This helped me to increase my income and to have a better life, especially for my child and my parents''.

* The interviews were conducted in March 1998.

IFAD Operations in Indonesia | IFAD Through Photography - Indonesia


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