The Informal Financial Institutions Based Social Capital (A Case Study in Baitul Mal Wa Tamwil District Agam West Sumatra)

Abstract

Economic activity in the countryside in general is dominated by small-scale farms with the main actors of farmers, farm workers, traders and agricultural inputs, agro-processing, and home industries. However, businesses in general are still faced with the classic problem of the limited availability of capital, capital constraints may limit the space for agricultural activities in the rural sector (Hamid, 1986).

Weak capital economic actors in rural areas has been recognized by the government, with the state government launched several programs for credit to farmers and small farmer entrepreneurs. Starting with the credit Bimas 1972, then followed Credit Small Investment (Kredit Investasi Kecil/ KIK) and the Permanent Working Capital Loans (Kredit Modal Kerja Permanen/KMKP), Income Generation Project Farmer / Fisherman Small (P4K) Farmer Business Credit (Kredit Usaha Tani/KUT), and to date they occurred People's Business Credit (Kredit Usaha Rakyat/KUR). Although the government has implemented a variety of loan programs, but the performance results are deemed still not in line with expectations. This is reflected in the performance of financial institutions has not been satisfactory, especially on the financial institution as the executor.

According Martowijoyo (2005) the weak performance of financial institutions as financial intermidiasi institutions can be viewed from three aspects: (1) low levels of loan repayment; (2) low morality of the implementing agency, and (3) low level of mobilization of public funds. The disadvantage of these has consequences for not continuing financial institutions set up after the program is completed. As a result, program participants generally will again experience a shortage of capital.

To answer the problem of limited capital and banking institutions are difficult to access for small farmers, it is necessary to further optimize the potential of financial institutions which can be an alternative source of funding for farmers and rural communities. One of the financial institutions that can be exploited and encouraged to finance micro segment is Baitul Maal Wa Tamwil (BMT), which includes one of the Informal Financial Institutions (IFIs), yet can not be used optimally.

BMT built by the Government is able to exist and contribute to serve the capital needs of low-income rural development although in these institutions received government assistance. BMT existence in the countryside could play a role serving the needs of small farms, although it is still limited in scope particular group. This shows their internal capital mobilization in the communities of farmers / rural, so the issue of capital is not always small farms can only be solved by relying on external capital mobilization.

Fukuyama (2002) argues that social capital, focused on the importance of the relationship  in economic affairs. Furthermore it is said that companies, industries, regional, and national economies can function more efficiently if there is respect for one another and the relationship of trust  between citizens. Putnam (1993), has also shown evidence that economic growth is positively correlated with the presence of social capital. Economic development in a community and economic development of rural  would be good if the following characteristics are owned by economic actors in a synergy between the activities of the community, namely: (1) The presence of close relationships in a village with other village between members people, (2) the presence of leaders who are honest and egalitarian who treat themselves as part of a community, not as rulers, and (3) the existence of mutual trust and cooperation among the public.

The study Nuwirman (1998) mentions the raising of capital in the form of principal, mandatory, voluntary savings  or sadaqoh activity of group institution and House of  Village Fund  (Lumbung Pitih Ngari/LPN) in West Sumatra.

People who have high social capital will open up the possibility of resolving the complexity of the problems more easily. Mutual trust, tolerance, and they can build networks of cooperation both within community groups as well as with other community groups. Traditional communities, are known to have informal associations were generally strong and has the values, norms, and ethics collectively as a community interconnected.