Biological Assets as Mudharabah Based Loan Collateral Alternative for Smallholder Farmers in Indonesia
Gita Fitria a), Sugiharto Soeleman b), Tengku Rita Hariania), Etty Susilowatic
a )PT Bank Mandiri (Persero) Tbk, Jakarta, Indonesia
gitagifi[at]yahoo.com
tengku.ritahairani56[at]gmail.com
b) PT Lintang Jati Kencana, Yogyakarta, Indonesia
ss_aei[at]yahoo.co.id
c) PT Jasa Tirta Energi, Jakarta, Indonesia
ettysslwt[at]gmail.com
Abstract
1. Introduction Lack source of fund is one of critical issues being faced by smallholder farmers. Despite of having teak trees in their yards, such trees as biological assets are not accepted as loan collateral for bank-s loan. In general, smallholder farmers fulfill their daily needs by cutting down their teak trees of five years old for sale. This research explored the feasibility of postponing teak harvesting time and analyzed the financial impact. By postponing the harvesting time, it is expected the tree grows in diameter and height, thus increase the volume. Combine with the price increases, it is expected that the value of the asset is increased. 2. Methods This research was carried out in Gunung Kidul Regency, Yogyakarta, Indonesia between 2008 to 2018 in an area of 30 hectares. The method being employed was enterprise budget in which the costs of maintenance, the growth of the trees, and the sales of the harvested trees over time were considered. For the purpose of the valuation, a profit sharing as a result of value increases due to harvesting delay is shared between the owner of the asset and the investor through mudharabah financing arrangement. 3. Result The result suggests that the annual return for the investor (such as a bank) is well above the current interest depending on the investor-s profit sharing and the duration of harvesting delay. Specifically, for a five years delay of harvesting time and an investor-s share of 40%, the investor-s annual return is well above 30%. 4. Conclusions, implications and significance It is concluded that teak trees as biological assets should be justified as a bank collateral. References (Selected) Bazza, M.I., Bashir, Y.M., Bashir A.D. (2014). Islamic Financing: A Panacea To Small and Medium Scale Enterprises Financing Problems in Nigeria. European Scientific Journal, 10(10), 432-444. Sugiharto, S., Lestari, S.D. (2014). The Role of Sukuk Financing for Sustainable Development of Smallholder Farmers. Australasian Accounting, Business and Finance Journal, 8(5), 79-92. Svoboda, P. Bohusova, H. (2016). Biological Assets: In what way should be measured by SMEs?. Procedia- Social and Behavioral Sciences. 220. 62-69.
Keywords: enterprise budget, loan collateral, mudharabah, teak plantation
Topic: Finance and Risk Management