New Law to Protect Customers from Unscrupulous Cooperatives

New law to protect customers from unscrupulous cooperatives. A new law is to provide clear guidelines and regulations to improve the service of the country’s 130,000 cooperatives.

The bill, which is now being revised, will soon be taken to the House of Representatives for deliberation.

The Cooperatives, Small and Medium Enterprises Ministry’s undersecretary overseeing institutions, Luhur Pradjarto, said the bill would also explain the details about sanctions for those engaging in unfair practices.

Koperasi simpan-pinjam (savings and lending cooperatives) have traditionally controlled finance for people on low incomes for decades in Indonesia, making the bill essential to regulate their activities, Luhur said.

“We have a big cooperatives community, at least 130,000 of them. If they aren’t organized, we will have businesspeople who will put our people at a disadvantage,” said Luhur on the sidelines of a press conference.

Such loan sharks usually charge high interest rates as well as offer fast and easy loans to attract new customers, who will then have their money swindled by cooperatives, Luhur explained. The act violates the cooperatives’ main principle that prohibits them from obtaining funds from nonmembers.

However, after the bill is made into law, he said the ministry would first help to legally establish unlicensed institutions, which would otherwise be punished if they refuse to comply.

According to the bill’s initial draft in 2015, the people controlling cooperatives that misuse their authority could be imprisoned for a maximum of five years or fined up to Rp 1 billion (US$70,706).

But the bill was being revised, Luhur explained, as lawmakers were taking on board insights from relevant ministries and organizations. Luhur expressed hope that the bill would be ratified in July.

Initially set for 2016, the bill was previously listed as one of the 55 national legislation programs between 2014 and 2019. Three years later, however, the government has yet to ratify the bill, which Luhur sized the delay down to “schedule matters”.

The bill is expected to replace the 1992 law on cooperatives that is considered outdated by many, including Luhur. The law had been amended in 2012 but the Constitutional Court annulled it two years later after deeming it excessively procorporation, contradicting the institution’s core principle of civil collectivity.

While waiting for the bill’s ratification, the ministry will supervise cooperatives through a collective task force supervising investment with the Financial Services Authority (OJK). According to an OJK report, the group has followed up on 11 cases related to fraud between 2015 and 2018.

But National Cooperatives Council of Indonesia (Dekopin) secretary-general Muhammad Sukri instead pushed the institution to have a spin-off that would partially separate the institutions into a network of social conglomerates.

He claimed that President Joko “Jokowi” Widodo had agreed to recruit members of cooperatives and the general public for the new joint supervision effort.

The step, he said, was crucial to complement supervision from the government, which had struggled to identify unlicensed institutions. Even local agencies, he claimed, have yet to devote a specific department to oversee cooperative activities.

As an endorser of the spin-off, cooperative expert Suroto said while the bill’s revision was critical the provision should maintain globally recognized values and distinctions, including its self-regulating tax principles and independent stances.

As such, he sharply condemned the involvement of Dekopin in the provision as he accused the organization of having a conflict of interest among its members for demanding government subsidies.

To bolster growth, he also recommended the government unlock opportunities in public services for cooperatives, similar to the National Rural Electric Cooperatives Association in the United States.

“After the law is all clear and done, the government can then immediately act upon loan sharks who use cooperatives as their modus operandi,” Suroto said. “But [the bill] needs to stay true to the cooperative’s integrity.”

Previously, Cooperatives and Small and Medium Enterprises Minister Anak Agung Gede Ngurah Puspayoga had issued a decree to close 43,000 inactive cooperatives. He also deemed 75,000 others unhealthy for lacking a growing number of members and having irregular annual membership meetings.

Albeit with declining popularity, various savings and lending cooperatives have partnered with financial technology lenders. For instance, Koperasi Syariah Benteng Mikro Indonesia partnered with nonprofit crowdfunding platform Kiva in 2014, helping to double its cash from Rp17.6 billion in 2014 to Rp42 billion the following year. New law to protect customers from unscrupulous cooperatives (Made Anthony Iswara, The Jakarta Post)