How HARA helps banks help farmers
Financial institutions and companies operating in the blockchain sphere are often portrayed pitted against each other as mortal enemies, like Batman versus the Joker. However, nothing could be further from the truth. In fact, a better analogy would be the Avengers and the Guardians of the Galaxy. We might come from a different place, but HARA is proving that a mutual cooperation can be in everyone’s best interest — including the people both HARA and banks try to reach.
There is a lot of demand for microcredit in Indonesia. The most prolific form of this microcredit is the Kredit Usaha Rakyat (KUR). The KUR is a state-sponsored credit or investment financing scheme specifically dedicated to micro, small, and medium enterprises (MSMEs), which are unable to meet certain requirements set by banks for regular loans.
The main aim of disbursing the KUR is to support the economy by increasing the competitiveness of MSMEs. MSMEs make up 98.8% of all businesses in Indonesia, and employ over 104 million people. Together, the estimated 56.6 million MSMEs contributed to more than 50% of the GDP in 2014.
For banks, actually disbursing the microcredit is often problematic. 203 million Indonesians, 81.5% of the total population, find themselves at the bottom of the economic pyramid. These people need access to financial services in order to find opportunities to improve their lives and their communities.
However, millions of these Indonesians are basically immediately disqualified when applying for microcredit. Apart from often lacking proper documentation, they are generally considered too risky for loans or simply live in locations too remote for formal financial services.
The wide rift between the supply and demand of the KUR has given rise to a wide range of actors that try to bridge the gap. A multitude of fintech companies has sprung up that used the sluggishness of the current system to launch P2P lending systems that have become widely used and successful.
In rural areas, on the other hand, people in need of credit often have no choice but to approach black market loan sharks, who leverage the precarious position these people are in to charge extortionate interest rates.
According to the OJK, the Financial Services Authority, there are simply not enough banks in Indonesia to keep up with the existing demand as it is. In the entire country, there are only 40,000 bank branches that cater to the communities in Indonesia’s 13,000 islands.
Banks need partners that help them streamline the KUR disbursement. Apart from making sure that people do not fall victim to black market lenders, it is also in the banks own best interest to issue KUR in a quick and reliable way as it can be highly lucrative.
In recent years, BRI was the Indonesian bank that lead the pack in disbursement of microcredit to MSMEs due to their wide geographical spread and focus on micro-finance. In 2014, BRI’s net interest margin (NIM) was almost double of the Indonesian average at 8.5%.
This is where blockchain companies like HARA come in. HARA helps both the banks and the MSMEs to profit off of each other.
The data collection HARA does reduces the risk for the banks and helps them to quickly separate the chaff from the wheat. Currently, HARA’s involvement has resulted in a 100% repayment rate on a total of 573M IDR in disbursed microloans.
On the other hand, HARA also unlocks access to financial institutions for the MSMEs, like smallholder farmers. Apart from earning an extra income through the HARA ecosystem, this also prevents them from having to approach black market lenders.
Through companies like HARA, banks get easy access to a lucrative untapped market, with the option to disburse their loans in a cheap and productive way. The involvement of HARA also means that a new influx of capital and confidence in the world of blockchain, which is especially important in a bear market.
Currently, HARA is partnered directly with BNI and is working together with BTPN through a different partnership. Both banks have been able to disburse the KUR microcredit at an unprecedented rate. In the virtuous ecosystem that HARA creates, everybody profits.