Arisan+

An Indonesian Revolving Savings Credit Association

Based on the Traditional Arisan System

Stephen DeMeulenaere, 2003

Problem Statement:

Many communities in the global south lack a sufficient supply of means of exchange in order to facilitate trade in locally-produced goods and services.  These problems can be effectively solved throught the introduction of a Community Exchange System.  Further, many communities also suffer from a lack of capital for starting enterprises, which can be solved by introducing a Micro Credit Program.  Unfortunately, this often involves borrowing external funds to use as a loan base which usually has a high rate of interest.  One solution is to implement a Revolving Savings and Credit Association (ROSCA), which is a system for accumulating member savings and redistributing it according to a particular method.  ROSCAs are based on ancient economic systems in many countries, for example in India and China where they have been in use for well over a thousand years.  In Indonesia, the Arisan system is a traditional Indonesian savings collection and loan distribution system, similar to the ancient Chinese design.  Although it is usually thought of as just a “lottery club” for women, some simple modifications to this system can turn it into a ROSCA, in which relatively small amounts of savings are accumulated and lent out for productive enterprise activities at the local level.

Summary:

The Arisan+ system collects funds from participants who wish to receive a loan in national currency to start a local enterprise or cooperative.  Participants bid on loans by making presentations on their business idea.  A list is created and members take turns receiving and repaying loans with a repayment rate of a flat 15% on the amount of the loan.  Each participant is responsible for ensuring the success of each business that is started so that each borrower can repay their loan.  Through successive cycles, the Loan Fund grows larger in order to broaden the range of micro-loan borrowers, or to provide larger-scale loan amounts, depending on the local economic situation.

Background:

The Arisan System

The Arisan is generally known as a women’s “lottery club” popular in many parts of Indonesia.  Each week, often in the late afternoon, a group of women will gather and contribute 1,000 rupiah (10 US cents) each.  Each of the participants names are written on a piece of paper which is rolled up and put in a bottle.  One name is drawn each week until all the members have won, at which time the game ends and the participants decide whether or not to start the next game.  Each week, some lucky winner takes home between 20,000 and 100,000 Rupiah (3-11 dollars US).  Each participant is required to contribute 1,000 rupiah weekly until the game is over.  Such events are usually accompanied by tea and cakes, chatter and joking between the women.  It is a time to come together and enjoy each other’s company, catch up on local news and gossip, with one lucky person winning the week’s prize.

Rationale:

Unfortunately, with the typical Arisan game not enough capital is generated in order to be able to start an enterprise, or a series of local enterprises.  The winnings are usually spent on temporary luxuries such as a nice dinner, or repayment of local debts.

By modifying the Arisan to become a ROSCA, a game that most Indonesians are familiar with can be come a powerful generator of capital as well as new successful local enterprises.  Rather than seeing this as yet another economic development program dropped from outside, or as a trick to get people to generate their own capital rather than seek funding from abroad, this system is known as their own.  They know the rules, and they know how to control and manage it.

Advantages:

v      The participants self-generate their loan capital, which can be loaned at much lower rates of interest than Banks because the risk premium is much lower and the funds are not repaid to the original contributor, but instead used to increase the loan fund amount.

v      In order to be able to repay the loan received, each business must succeed, and all participants are responsible for helping the enterprise to succeed.  Each member also has a say in deciding which enterprises are started.

v      Therefore the community is creatively involved in brainstorming new business ideas and assessing the ability of each enterprise to succeed.

v      Individuals as well as groups are encouraged to work together to build local supply chains, as well as to support local level exchange through a Community Exchange System to mobilize local resources to meet local needs.

Project Outline:

Project Goals:

v      Facilitate the creation of a ROSCA based on the traditional Arisan system.

v      Generate sufficient amounts of capital to start a series of local enterprises.

v      Ensure the success of each enterprise in repaying the loan, and over the long-term.

Project Results:

v      A minimum of 10 successful local enterprises are created in each Arisan+ cycle.

v      At least one cooperative enterprise is initiated in each cycle.

v      All 10 businesses are functioning sustainably one year after the loan has been received to start the enterprise.

Process:

Startup Process

1.      Each Arisan cycle is comprised of at most 10 participants.

2.      Each participant submits a brief, 1-2 page description of their business idea, together with a 125,000 rupiah non-refundable deposit, or approximately 5-10% of the initial loan amount.  A general Business Idea description form is provided (appendixed at the end of this document).

3.      It is OK if an existing local business submits a proposal in order to expand their activities.

4.      Loans for the First and Second Cycle will only be made to Productive Enterprises, and not, for example, for education, health, home repair or other expenses.  These expenses can be financed in later stages of the Program, through the Community Fund.

5.      The coordinator receives the Business Idea forms, and writes them down on a sheet of paper like this:

List of Contributors

Name

Amount Contributed

Business Idea

Budget

       

6.      In the first Arisan cycle, Each proposal must have a budget of between 1 million and 2.95 million rupiah, and this amount must cover all startup costs.  If it does not, any additional costs, such as for staff, sourcing of materials, transportation, etc. must be accounted for through other means such as training and employment of young people, community exchange, bartering, etc.

First Arisan Cycle

1.      The Coordinator of the Cycle receives the Business Idea Descriptions and organizes them according to Budget size, starting with the smallest budget and ending with the largest budget. 

First Business Idea List

Name

Business Idea

Budget

     

2.      A meeting is called. The Business Idea List is presented to each of the participants to see where they stand in the list.  Next, each participant is asked to make a brief presentation of their Business Idea.  After this is complete, each member votes secretly on which business idea is most likely to succeed.  Each member is not allowed to vote for their own project, thus a special ballot is made for each participant which does not include the option of being able to vote for their own Business Idea.

3.      The list is rearranged according to those businesses which are most likely to succeed according to the vote, and through discussion the list is reorganized according to Budget, from the smallest budget to the largest, so that as each loan is repaid, the capital returned plus interest increases the loan size for the next borrower.

First Arisan Cycle List (Example)

Budget Range

Business Idea

Initiator (s)

1,000,000

Juice Business

 

1,150,000

Sambal / Bumbu Business

 

1,300,000

Domestic Fish Business

 

1,450,000

Ketchup Business

 

1,650,000

Snack Business

 

1,850,000

Motorcycle Repair Business

 

2,100,000

 Home Repair Business

 

2,350,000

 Electrical & Water Utilities Business

 

2,600,000

 Warung Business

 

2,950,000

 Handicraft Production Business

 

-other business ideas include, wood-working, clothing, kite-making, stone-carving, concrete work, brick and tile production, natural medicine production, soap and detergent production, flower and plant essence gathering for aromatic and medicinal purposes, mushroom production etc.

4.      People are asked if they agree with the new list, at which time some negotiating or discussion may take place about which businesses should receive loans first, on the basis of the likelihood of success and speed in repayment of the loan.  This discussion continues until everyone is in agreement with the list.

5.      The Coordinator makes it clear that each member must pay a flat 15% fee on each amount borrowed, and that each person must agree to support each business that is created, and explains the reasons for this.  Firstly, this is how the loan size grows over time, and secondly this is how each person will receive their funds.

6.      If all of the loan sizes are small, it may be possible to initiate a second loan within the first group of 10 people.

7.      The first loan is disbursed, following the signing of a Loan Contract Agreement, based on a standard Bank Loan Format.  Once the borrower is able to repay their loan, a meeting is held at which the loan is repaid, and the next borrower receives the funds. 

Positions:

Arisan Coordinator:  The Coordinator prepares the documents, organizes the meeting, keeps accounts of payment and is responsible for facilitating the success of the cycle.  Each cycle may have a different coordinator.  The coordinator receives 450,000 rupiah for their facilitation of the first entire cycle (15% of the last amount borrowed), with half paid up front and half paid at the end of the cycle.  The coordinator of the second cycle receives 15% of the last amount borrowed in that cycle, with half paid up front and half paid for successful completion of the cycle, and so on, as the amounts involved and management become more serious.

Arisan Cycle Accounting Sheet, First Cycle (Example)

Borrower (s)

Amount Borrowed

Interest (flat 15%)

Remainder

Total Capital

   

Initial balance:

250,000

1,000,000

Person 1

1,000,000

150,000

250,000

1,150,000

Person 2

1,150,000

172,500

272,500

1,300,000

Person 3

1,300,000

195,000

317,500

1,450,000

Person 4

1,450,000

217,500

335,000

1,650,000

Person 5

1,650,000

247,500

382,500

1,850,000

Person 6

1,850,000

277,500

410,000

2,100,000

Person 7

2,100,000

315,000

475,000

2,350,000

Person 8

2,350,000

352,500

527,500

2,600,000

Person 9

2,600,000

390,000

567,000

2,950,000

Person 10

2,950,000

442,500

760,000

3,200,000

The Remainder is any small additional amount above the income received, which goes towards payment of the Facilitator.  In this First Cycle, the Facilitator receives 450,000 payment, and there is a budget of 310,000 for printing and other costs, the remainder of this amount after expenses goes into the Total Capital available for the Second Cycle, or into the Community Fund.

Arisan Cycle Accounting Sheet, Second Cycle (Example)

For the Second Cycle, the Initial Loan Capital is 3,000,000 Rupiah, provided from the end of the First Cycle, with 200,000 going to the Remainder.

A group of 10 participants is sought for loan sizes ranging from 3,000,000 to 7,500,000 Rupiah.

Each Participant pays 250,000, generating 2,500,000 in additional capital, which goes into the Community Fund for Community Projects and loans of other types such as health, education, Home and Compound Repair, etc.

Borrower(s)

Amount Borrowed

Interest (Flat 15%)

Remainder

Total Capital

   

Initial balance:

200,000

3,000,000

Person 1

3,000,000

450,000

150,000

3,500,000

Person 2

3,500,000

525,000

175,000

4,000,000

Person 3

4,000,000

600,000

275,000

4,500,000

Person 4

4,500,000

675,000

450,000

5,000,000

Person 5

5,000,000

750,000

700,000

5,500,000

Person 6

5,500,000

825,000

1,025,000

6,000,000

Person 7

6,000,000

900,000

1,425,000

6,500,000

Person 8

6,500,000

975,000

1,900,000

7,000,000

Person 9

7,000,000

1,050,000

2,450,000

7,500,000

Person 10

7,500,000

1,125,000

3,075,000

8,000,000

In the Second Cycle, the Facilitator Receives 1,125,000, and there is a Remainder of 1,950,000 with a Total Capital amount of 8,000,000.  The remaining budget, minus administration expenses, can go towards the Community Fund (see below) and be used for loans in Health, Home and Compound Repair Loans, Business Improvement Loans, etc.

One can see how quickly the Capital Loan Fund can generate capital.  The Third Cycle can actually be split into several smaller cycles again, such as 4 small cycles starting with 1,000,000 each and still be able to start another large cycle starting with 4,000,000 rupiah.  By the end of these 5 cycles, the community economy may be saturated with low-level capital, and future cycles may aim towards much larger industries., which could happen by Cycle Eight, where loans in the area of 20 million Rupiah or more would be available.

Potential Risks:

1.      Not enough businesses register in order to form a cycle.  Is it because the loan amounts in the first cycle are too small?  Is a little capital injection necessary?

2.      Loan requests exceed available capital. Are people thinking too big?

3.      Loan repayment takes too long. Is the local economy slowing down, are the businesses not going so well?

4.      Loans are not repaid. Was the group mistaken about the success of each business?

5.      There is heated disagreement about the list of borrowers. Although this should have been resolved in the meeting, sometimes complaints may arise later.  The group should consider devising rules for when the chain of borrowers begins to break.

6.      add your potential risks here

Meeting Discussion Topics

In addition to the regular business of the meeting, the following topics should be discussed.

v      Sourcing local goods, services and labour through the Community Exchange System.

v      The Community Fund, what should it be used for?

v      Community Discussion Forum topics.

v      Personal Accounting, Business Accounting, Financial Planning, etc.

The Community Fund

The Community Fund is a fund for community projects and loans in the area of health, education, etc.  Community Projects are decided upon through a process of soliciting villager’s ideas for necessary projects.  These projects can be carried out through the Banjar, in a process of Community Cooperation in which each Banjar Member contributes equally to the project, or managed by the Community Fund Board.

Community Fund Board

The Board may be comprised of, but not limited to: Village Mayor, Banjar Head, Religious Leaders, Community Leaders, Village Credit Unit, Youth and Women Representatives who agree on Community Projects, necessary expenses (such as providing cheap medicine) or a loan fund for general loans.  The head of the Board is determined through election by the entire community, men and women, young and old, from age 14 and up.

The Board receives suggestions from the villagers about necessary projects, and discusses each project at the board level, and does an initial prioritization of projects.  The list of projects is brought to a community meeting and voted on by the participants.

The Community Tax

From the Community Exchange System and the Arisan+ system, a Community Tax is drawn for the Community Fund in both Community Exchange Coupons as well as National Currency, in addition to any other contributions to this fund that may be made, after the administration expenses have been paid.

Generally, the Community Tax will be drawn as a flat amount from each loan made.  However as this system is untested, the amount of the tax will be decided by the community later.

Conclusion:

The Arisan+ system ties together with the Community Exchange System, traditional governance and social cooperation systems, and the local financial institution into an integrated local economic development engine.

As we have seen in the above examples, from small contributions made by participants which go towards productive loans in the first two cycles, a significant capital base can be generated relatively quickly.

In addition to this, a Community Fund is generated which can fund Community Projects as well as other necessary community efforts in health, education, youth, employment, etc.

Appendix 1:  Business Idea Form

Proposed Business Name:

Proposed Busines Type:

Description of Business:

Inputs Required and where they can be sourced

            Land:

            Labor/staff:

            Building:

            Equipment

Outputs Delivered and where they can be sourced

            Products

            Services

            Potential Buyers

Loan Amount Required:

Repayment Period:

Appendix 2:  Loan Contract Agreement