Covid-19 Pandemic and Cooperatives in Indonesia: Impact and Mitigation

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Introduction

Statement of the problem 

In Indonesian there are three types of companies, namely state-owned enterprises (BUMN), private owned enterprises (BUMS), and cooperatives. A cooperative is an organization that is formed for the welfare of its members. According to article 1 of Law no. 25/1992, cooperatives in Indonesia are business entities whose members are individuals or cooperative legal entities by basing their activities on the principles of cooperative as well as people's economic movements based on the principle of kinship. The most popular type of cooperative in Indonesia is saving and loan cooperative (KSP), which is also known as credit cooperative. The number of KSP

is far more than the number of other types of cooperatives, namely production cooperatives, consumption cooperatives, and multi-business cooperatives. As the name implies, a KSP provides money loans and a place for its members to save their money. Thus, it is a business organization that engages in accumulating savings from its members to be lent back to its members who need capital assistance for their business or for other uses.

The Coronavirus (Covid-19) outbreak has had a very bad impact on the Indonesian economy, as on the world economy as well, due to declined consumption and production as a direct consequence of government ‘ anti-Covid impact’ policies, i.e. social/physical distance, work and schools from home, and the necessity for companies in non-strategic sectors to stop their activities. Suryahadi et al. (2020) estimated that the Covid-19 pandemic would weaken Indonesia's economic growth rate to around 1% to 4%. Whereas the Financial System Stability Committee (KSSK) predicted that the spread of Covid-19 would hit the Indonesian economy in 2020 to reach around 2.3% to - 0.4%. Whereas, according to Indonesia’s Central Bureau of Statistics (BPS), Indonesia’s GDP grew in the first quarter of 2020 by only 2.97 percent compared to the same quarter in 2019 or slowed down 2.41 percent on a quarterly basis when compared to Quarter IV-2019.

Many field findings from such as Rahman (2020), Santoso (2020), Tambunan (2020) show many companies, including small and medium enterprises (SMEs) have been seriously affected by the Covid-19 pandemic crisis. By April 2020, there were 212,394 laid-off workers and 1,205,191 workers who were sent home but still paid (not full) from 74430 companies. From the informal sector, the number of workers affected and losing their jobs reached 282,000 people from 34453 companies enterprises, mostly from the micro and small enterprise category (Kompas, 2020a,b).

In times of this crisis, cooperatives are expected to function as a last resort for their members. With respect to KSPs, members who are experiencing financial difficulties because they are laid off from their jobs or their own businesses declined as a direct consequence of the implementation of the anti-Covid impact policy can get loans from their cooperative. However, based on the findings above regarding the impact of the crisis on many companies, it is estimated that many cooperatives, including KSP, will also be seriously affected, which could make KSP unable to carry out this role optimally. Unfortunately, no studies have been conducted yet on the impact of the crisis on cooperatives in Indonesia.

 

Research questions

Based on the above identified problem, this study has the following two questions.

1. How was the effect of the economic crisis due to the Covid-19 pandemic on KSPs and through what transmission channels?

2. Second, what were the main business risks faced by KSPs in this type of crisis and what were their widely adopted CMMs?

 

Aim of the study

The main aim of this study was to:

(i) examine the impact of the Covid-19 pandemic crisis on KSPs,

(ii) to explore the CMMs most widely adopted by the crisis-affected KSPs.

 

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