The Neighborhood Endowment Fund (NEF) as Grassroot Income Generating Model in Java, Indonesia

May 31, 2009

Nicholas Taranto & Akbar Oedin Arif

Key Take-Aways:

• RMF-KOMPIP developed a bottom-up model to enhance family income.• More than 6,000 members spread across 190 neighborhoods.
• Since 2007 KOMPIP has distributed US$32,900. After two years, the fund has grown to US$52,452.• We are excited by funding commitments from the local government and the opportunity to achieve large gains in the fight against Indonesian poverty.

Neighborhood Endowment Fund (NEF)

Supported by the Real Medicine Foundation since 2006, KOMPIP has developed a bottom-up model to generate and enhance family income. What we translate as “the neighborhood” is in fact a unique Indonesian grass root organization consisting of 20 to 40 families. Neighborhoods (Rukun Tetangga in Indonesian) are formal institutions proscribed by the National Government of Indonesia. In most areas in Indonesia, Neighborhoods have been playing the role of administrative support to village governments for the past three decades. When Indonesian citizens living in rural areas need identification cards or property certificates, they must apply and register through their neighborhood head. Neighborhoods also have their own tradition of social cohesion. They have routine monthly meetings to discuss security, sanitation, and other pressing needs.

The Neighborhood Endowment Fund is simply a community savings and loan model which is designed for a lifetime of membership. By being based in neighborhoods, NEFs can directly serve the poorest of the poor. Starting with a village named Mlese, KOMPIP is now replicating its model in seven other villages. More than 6,000 people have become members in NEFs spread across 190 neighborhoods.

The KOMPIP-RMF partnership supports these neighborhoods by distributing seed grants for about US$250 per neighborhood. Members in each neighborhood fund then add capital by contributing membership fees starting at US$.50. Members also contribute regular monthly savings as additional capital. Circulated as community follow-on loans, NEFs grow as borrowers pay interest of 1 to 2% per month until repayment of the principal. Since 2007 KOMPIP has distributed Rp329.000.000,- or US$32,900. After two years, the fund has grown to US$52,452.

Tabel 1.5. Capital growth in seven villages (in ’000s Indonesian Rupiah*)

Village  Seed grant  Membership savings fee Monthly saving Individual saving   Early capital  Collected interest  Others Total May 2009
Brangkal 44.000 4.753 5.615 1.721 2.300 4.048   62.437
Mlese 47.500 37.049 13.358     21.520 28.829 148.256
Tirtomarto 38.000 9.595 6.773 2.318   5.164   61.850
Kalangan 84.000 5.531 5.373 2.520   1.940 765 100.129
Sumopur 48.000 3.391 4.726     5.897 1.010 63.025
Birit 42.500 4.577 3.983     4.151 660 55.871
Sawit 25.000 1.910 2.783     3.174 87 32.954
Total 329.000 66.806 42.611 6.559 2.300 45.896 31.352 524.525

* Exchange rate at time of report was 10,000 Rp to 1US$

Local Government of Surakarta/Solo is interested in replicating and scaling the Neighborhood Endowment Fund (NEF) model.

In late 2008, based on KOMPIP’s success, the Local Government of the city of Surakarta/Solo expressed interest in replicating the endowment fund model to all neighborhoods in Surakarta. However, due to its limited local funding capacity, the Government is seeking a continued partnership with RMF. Assuming that RMF can provide support for human resource mobilization, the Government has committed to provide seed grants to all 2,628 existing neighborhoods in Surakarta. The Mayor, Mr. Jokowi has passed his letter of partnership interest to RMF and has committed to provide US$262,800 in funding – a 5X expansion over KOMPIP’s current loan portfolio.

Despite its small initial size, we believe this partnership will make dramatic improvements in the lives of poor people. As the Mayor plans to continue allocating additional seed funds in the future each fiscal year, the opportunity to achieve large gains in the fight against Indonesian poverty is very exciting.