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Draft Research ReportDraft Research ReportDraft Research ReportDraft Research Report

DEMAND AND ACCESS TO FINANCIAL SERVICESDEMAND AND ACCESS TO FINANCIAL SERVICESDEMAND AND ACCESS TO FINANCIAL SERVICESDEMAND AND ACCESS TO FINANCIAL SERVICESIN ENDE AND NGADA, EAST NUSA TENGGARAIN ENDE AND NGADA, EAST NUSA TENGGARAIN ENDE AND NGADA, EAST NUSA TENGGARAIN ENDE AND NGADA, EAST NUSA TENGGARA

(NTT)(NTT)(NTT)(NTT)

Authors:Widjajanti I. SuharyoBambang SulaksonoMeuthia Rosfadhila

Nina ToyamahWawan Munawar

Field Research Team:Bambang Sulaksono

Wawan MunawarEsnesta Leha

Mansur Abdul HamidPaskalis Xaverius Hurint

Translator:Kate WeatherleyBudhi Adrianto

The SMERU Research Institute

July 2007

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ACKNOWLEDGEMENTSACKNOWLEDGEMENTSACKNOWLEDGEMENTSACKNOWLEDGEMENTS

This report was completed with the assistance, support, and cooperation from variousparties. Our appreciation and thanks are extended to Goetz Ebbecke and LucaPredetti from Swisscontact Jakarta as well as Etih Suryatin and Elvie Torres Gayosa

from Swisscontact Ende for the support they have given throughout theimplementation of this study.

Our unlimited thanks goes to all the household respondents in the ten samplevillages in Kabupaten Ende and Kabupaten Ngada, for their readiness to provideinformation and opinions both during interviews and group discussions. We alsoespecially value the assistance provided by the management of the Regional CreditUnion Coordinating Body (BK3D) and several credit unions in Ende and Ngada. Ourappreciation is also extended to the various parties who have given their valuabletime to give information, as well as their attendance and active participation in thediscussions carried out during this study.

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ABSTRACTABSTRACTABSTRACTABSTRACT

Developments in the use of financial services is one indicator for communityeconomic development, as the use of financial services tends to advance themodernization process of community economies. However, to date, the imbalance inaccess to financial services is still a cause for concern. If this imbalance is notovercome, the imbalance in community welfare will be exacerbated. The poor havemuch lower access rates to financial services in almost all countries, and variousprograms and initiatives have been undertaken to increase the access of the poor tosuch services.

This report presents the results of a study on demand and community access tofinancial services in ten villages (four urban or semi-urban and six rural villages) inKabupaten Ende and Kabupaten Ngada, East Nusa Tenggara. The data andinformation collected during this study from interviews with 200 households and fourfocus group discussions provide a picture of household financial management

patterns, choice of financial services (savings, loans/credit, insurance, and fundstransfer, and the various factors that influence these patterns. Once again, the resultsof this study clearly show that the richer community benefits more from financialservices, especially those provided by formal financial institutions; while the poor arerarely serviced by formal financial institutions, and in fact some are also not servicedby informal financial institutions.

ABSTRAKABSTRAKABSTRAKABSTRAK

Perkembangan pemanfaatan jasa keuangan merupakan salah satu indikator perkembanganperekonomian masyarakat, karena pemakaian jasa keuangan akan cenderung meningkat sejalan

dengan modernisasi aktivitas ekonomi masyarakat. Namun, hingga saat ini, ketimpangan aksesterhadap jasa keuangan masih sangat memprihatinkan dan dikhawatirkan jika ketimpangan ini tidakdiatasi justru akan semakin memperburuk ketimpangan kesejahteraan masyarakat. Sangat kurangnyaakses masyarakat miskin terhadap jasa keuangan terjadi di hampir semua negara di dunia, dan berbagaiprogram dan inisyatif telah dilaksanakan untuk meningkatkan akses masyarakat miskin terhadap jasakeuangan tersebut.

Laporan ini menyampaikan hasil penelitian mengenai permintaan dan akses masyarakat terhadapjasa keuangan di 10 desa (4 desa perkotaan/semi-perkotaan dan 6 desa perdesaan) di KabupatenEnde dan Kabupaten Ngada, Nusa Tenggara Timur. Data dan informasi yang dikumpulkan dariwawancara dengan 200 rumah tangga dan 4 diskusi kelompok terarah dalam penelitian ini

memberikan gambaran mengenai pola pengelolaan keuangan rumah tangga, pilihan-pilihanpenggunaan jasa keuangan (tabungan, pinjaman/kredit, asuransi, dan transaksi pengiriman uang),dan berbagai faktor yang mempengaruhinya. Sekali lagi, hasil penelitian ini memperlihatkan secara

nyata bahwa jasa keuangan, khususnya yang diberikan oleh lembaga keuangan formal, lebih banyakdinikmati oleh masyarakat yang lebih kaya. Sedangkan masyarakat miskin hampir tidak terlayanioleh lembaga keuangan formal, dan bahkan sebagian juga tidak terlayani oeh lembaga keuanganinformal.

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EXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARY

There is a general understanding that access to financial services is an importantfactor to support the development of small and medium enterprises, however, theprovision of financial services in rural areas is still inadequate. There are at least three

studies examining community access , especially low income groups, to financialservices in NTT: the study by JANIC (2004), SMERU (2005), and the LivelihoodStudy funded by Swisscontact (2005), which shows the low access rates of poorcommunityies to formal financial institutions. The availability of formal institutionsis concentrated in urban and semi-urban areas. As a result, Swisscontact, incooperation with the Credit Union network and under the leadership of PuskopditBEN, are planning an effort to widen access to financial service in Kabupaten Endeand Kabupaten Ngada.

This study aims to find sufficient and structured understanding of the need andpotential need or rural households in Ende and Ngada to financial services. Using a

quantitative and qualitiative approach, this study will create a profile of demand andneed for financial services, use of financial services currently provided by variousformal and informal institutions, household welfare, financial management, financialbehavior, and choices as well as interest in financial services.

Field research was conducted from 14 January to 6 February 2007 in ten samplevillages (four villages in urban and semi-urban areas and six villages in rural areas) inKabupaten Ende and Kabupaten Ngada, NTT. The field research involved theinterview of two hundred households (100 in each district) using a standardquestionnaire, and four focus group discussions (FGDs). The following is a summaryof the results of the field research:

Household Financial Management Characteristics and PatternsHousehold Financial Management Characteristics and PatternsHousehold Financial Management Characteristics and PatternsHousehold Financial Management Characteristics and Patterns

A large proportion of households in the sample villages work in the agriculturalsector, except those in and urban village (Tanalodu), where many households areprivate or government employees or work in the service sector. A large proportion ofhousehold income is received and expended in the form of cash. Household produceused for personal consumption at most only contributes 2030% of total income.Salary or wages are the most dominant sources of income in semi-urban areas, whilethe sale of agricultural produce contributes the most in rural areas, although salary orwages also make a significant contribution. In several villages, contributions fromgovernment assistance reach 1116% of cash income.

The highest levels of cash expenditure are used for (in order of significance) foodconsumption, fuel and communications (including fuel, electricity, transport, andcommunication), expenses for adat (customary traditions) and celebrations,education, and debt payment. Significant cash expenditure for working capital (morethan 10% of total cash expenditure) only occurs in fishing villages and urban villageswhere many community members are traders. In rural areas, most business activitiesare not paid in kind, however are worked on by individual enterprise holders or withmutual cooperation, so that cash expenditure for working capital is small.

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An estimate of household income and expenditure shows that on average all villageshave a surplus of cash income. Nevertheless, in certain months income surplus ordeficit fluctuates. Deficits are generally experienced in the months of JuneJuly andDecemberJanuary. These deficits are caused by additional expenditure foreducational fees, expenses for adat or celebrations, and agricultural enterprise costs.

Households also suffer financial difficulties if they experience failed crops, the deathof a family member, illness that require high medical costs, and if their children wishto continue schooling. To overcome these difficulties, households in semi-urban areasgenerally borrow money from formal financial institutions, especially cooperatives,draw on savings, or sell livestock. Households in rural areas generally borrow moneyfrom neighbors, relatives, or take up casual work.

Uses and Demand for Financial ServicesUses and Demand for Financial ServicesUses and Demand for Financial ServicesUses and Demand for Financial Services

In the last five years, more than half of sample households have held savings outsidethe home and have borrowed, and around 20% have held insurance policies and

conducted funds transfers, both sending and receiving money. Fixed-incomehouseholds use savings, loans and credit, and insurance services more often thanirregular-income households. Agricultural households have the lowest usage rates ofthese financial services.

The proportion of households with savings varies greatly between villages. In villageslocated in the subdistrict capital and those close to the inter-district road, thepercentage of households with savings is rather high. Households in these villagesusually have more than one source of savings and a large proportion of them havemade transactions in the last year. In isolated villages, very few households havesavings. Approximately 46% of savings is held in the bank (especially BRI), and42% is held in cooperatives. The remainding share is held in informal organizations

or groups, including arisan1 groups. Savings deposits in banks are generally thehighest at Rp186,0001.6 million, whilst savings in informal institutions are thelowest at arount Rp35,000112,000. The main reasons for choosing institutions as aplace to store savings are related to the need to obtain a loan, the ease of withdrawingsavings, security, and proximity to the branch or service center. The proceeds fromsavings are mostly used to pay for educational expenses, adat and celebratory costs,and for home improvement. Around 20% of respondents plan to open new savings inthe future, and 14% plan to invest in a business. Banks are the most commonlychosen financial institution for planned savings, followed by cooperatives. Most ofthese savings will be colledted from profits of agricultural enterprises, tradeenterprises, and a small proportion from salaries and wages.

The proportion of households with loans or credit is spread evenly across all samplevillages, with the exception of isolated villages, which have very few. Of the variousavailable financial institutions, loans are most often provided by cooperatives,followed by banks and informal groups which have similar percentages. However, thevalue of loans from banks is far higher, at almost three times the value of loans from

1Arisan is acommunity gathering that also collects money from its members and holds regular

community draws.

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credit unions and ten times the value of loans from informal groups. The mainreasons for choosing these financial institutions are the ease of obtaining a loan,already being a member of the institution, the division of profits (profit sharing), andthe provision of a death benefit. Most loans are used for working capital,consumption, and educational expenses. Very few loan applications have beenrejected and most of these rejections were from informal institutions and individuals,

and were rejected as the borrower was not considered to be capable of repaying theloan. Approximately 25% of sample households plan to apply for a loan, and half ofthem will apply to cooperatives. Around 40% of these loans will be used for non-agricultural loans, the remainder being used for consumption, education, homeimprovements, and for agricultural enterprizes.

Although less than 20% of sample households have insurance, almost all villageshave households that hold policies, except for the most isolated village. In severalvillages, one household in fact may hold more than one policy. A large proportion ofthis insurance is provided by national private insurance companies and is for socialinsurance, especially health insurance. Only 17% of sample households have used

funds transfer services, however this is spread across all sample villages. The main aimfor funds transfers is for educational needs and to provide assistance to family. Only asmall amount of transferred funds are used for business requirements. Around 60% ofmoney sent and 48% of money received is transferred by banks. Public transportdrivers are also frequently used by households to transfer money to people in nearbylocations.

Access to Financial InstitutionsAccess to Financial InstitutionsAccess to Financial InstitutionsAccess to Financial Institutions

Almost half of sample households in this study have not yet used the services offormal financial institutions. Around 22% of all sample households have not usedeither formal or informal financial institutions, and around 26% have only accessed

informal financial institutions. Or the remainder, 8% have only accessed formalfinancial institutions, and 44% have used the services of both. Fixed-incomehouseholds such as those who are private or government employees, most often usebanks (47% savings and 38% loans) and credit unions (34% of savings and 33% ofloans). Agricultural households are more often serviced by informal institutions.

Non-agricultural households with irregular incomes are more inclined to use banksand credit unions for savings, but obtain loans more often from informal institutions.

FGDs in Mautenda (Ende, isolated location) and Tanalodu (Ngada, urban area)revealed that village location also influences community awareness of and access tovarious financial institutions. The community in Tanalodu is more aware of formal

financial institutions such as BRI, BPD, Pawnshop, and Credit Union, while thecommunity in Mautenda is more aware of the presence of informal financialinstitutins, especially individuals, like ijon

2, land mortgagers, usurers, traders and shop

owners, friends, neighbors, family, and rice mill owners. The evaluations by the mensand womens groups of usage levels and ease or proximity to access financialinstitutions also differ.

2Ijonan advance sale of crop or agriculture produces, usually to a grain buyer or middlement.

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An analysis of the type of formal financial institution accessed by sample householdsshow that: 1) 35% of sample households are bank customers. 89% of these havesavings and 43% have a loan. Men dominate bank customer numbers; 2) 16% ofhouseholds have used pawnshop. Currently around 50% of these have pawned goldjewelry. A large share of pawnshop customers are women; 3) 40% of samplehouseholds have accessed cooperatives, mainly credit unions. Cooperative services

most often used are savings and loans, however a portion of members also useinsurance services of cooperatives. The Salt Cooperative also has a service thatprovides production equipment and produce marketing for its members.

The main reason given by households who have never become bank customers orcooperative members is that their income is small and irregular. The main reasongiven for never becoming a pawnshop customer is because they do not have valuableitems to pawn and they feel they do not need to use the service.

The use of various informal financial institutions (not including individuals) likemicrofinance institutions, savings and loans groups, religious associations and other

community organizations as well as arisandiffers. The scope of microfinance servicesin sample areas is quite small as there are not many foundations or civil societyorganizations that provide them. Membership of savings and loans groups was notedat 20% of total sample households in eight villages (Two sample village in Ende werenot respondents for savings and loans group purposes), and are dominated by women.A large proportion of savings and loans group members (82%) have loans, while only58% follow savings activities. Apart from these services savings and loans groups alsooffer assistance programs. The absence of microfinance institutions or savings andloans groups in the region is the main reason why households have not accessedthem.

In general, participation of respondents community or religious associations and

arisan in all villages is relatively high. More than 50% of sample households arecurrently members of an association and more than 60% have been arisan members.However participation levels are different between villages. Men dominatemembership in community and religious associations and arisan.

One responsibility of community association members is to deposit or paymembership fees. The frequency of these payments differ, both between villages andassociations, and also among members of the same group. A large proportion ofhousehold members in villages stated that they pay monthly fees. Communityassociations usually have activities such as providing assistance to families that havesuffered a death in the family, or religious activities, mutual assistance, and arisan.

Several villages also have associations that have savings and loans activities, and thatprovide assistance to the elderly or the poor. The main reason why households havenot become association members are because there are no associations in their villageor that they do not wish to become association members.

A large percentage of sample household members(80%) participate in arisan withfinancial activities. Some villages also have arisan for goods. The total number ofarisan members for each arisan varies greatly, ranging from four to one hundredpeople per group. The size of the contribution per meeting also varies greatly, and is

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highly dependent on the ability or capability of each member, and starts fromRp1,000 per meeting and ranges up to Rp2 million per meeting, however generallythe maximum monthly contribution ranges between Rp100,000 and Rp200,000. Thevalue of the arisan each period (disregarding meeting frequency) ranges fromRp40,000 to Rp14 million. A small proportion of arisan groups, especially in Ngada,have savings and loans activites, as well as prayer activities and providing death

contributions. The main reasons given by households for not participating in arisanare because their income is too low, they do not have fixed income, because there isno arisangroup in their village, or because they do not feel they need to participate.

The results of the analysis also show that the use of various financial institutions isrelated to household welfare levels. Formal institutions tend to be used by relativelywell-off households. Banks and credit unions are mostly used by the wealthiest 60%of households. However, several households in the poorest 40% of households alsouse credit unions and a significant number use other cooperatives. An econometricanalysis shows that:

- Ownership of savings accounts in formal financial institutions, such as the bank,is significantly influenced by household welfare levels, as well as by possession ofloans and use of funds transfer facilites in banks and post offices, and householdparticipation in arisan activities. As is the case with ownership of savings, the useof bank loan and credit facilities is influenced by household welfare levels. Otherinflencing variables are ownership of savings in these two institutions and havinga household member overseas.

- A relationship is evident between households who use bank transfer services andhousehold welfare levels. However, if other variables are calculated, the analysisresults show that the use of funds transfer services is influenced more byownership of savings accounts in the bank, and participation in arisan activities.

Other influencing factors are membership in savings and loans groups and otherassociations, as well has having family members overseas.

- A relationship is evident between possession of savings in credit unions andsample household welfare levels. However, when other varieable are included inthe analysis, it becomes evident that household welfare level is not the mainvariable that influences possesion of savings in credit unions. Rather, the maininfluencing factors are village location in a semi-urban area, having a loan fromthe credit union, and membership in a savings and loans group or otherassosiation, and household participation in arisan. Nevertheless, standing alone,household welfare levels also influence possession of a loan or credit from a credit

union. However, if other variables are included in the analysis, other variablesinfluencing posession of loans from credit unions are possession of savings in thecredit union, membership of a savings and loans group and other communityassociation, and the distance from the village to the district capital.

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Development of Baseline DataDevelopment of Baseline DataDevelopment of Baseline DataDevelopment of Baseline Data

Principle Component Analysis (PCA) can measure household welfare levels by usinginformation on asset and non-asset ownership. This method is superior as it is moresensitive to local conditions without using household consumption expenditure data.

The results of analysis of household level data from all respondents in the study showthat satellite dish and motorcycle ownership have the highest positive coefficients,meaning that ownership of these two assets are the most significant indicators ofwelfare. Households with household heads working in the agricultural sector, withthe household head only having a primary school education, and household headshaving a secondary school education, having a minimum of one school-aged childwho works, and a female household head, are inclined to have lower welfare levelsthan those households who do not have these characteristics.

The following variables are good indicators for observing welfare in semi-urban areasin both sample districts: asset ownership, sex of the household head, education level,

employment, consumption patterns, and housing conditions. A comparison of therichest 10% and poorest 10% of households shows a clear difference mainly insatellite dish, motorcycle, and radio ownership. Signficiant differences between richand poor households seen from the indicators also include housing conditions, mainlyownership and usage of private toilet and bathing facilities and living in a house withfloor coverings (non-earth), as well as household head education level.

Asset ownership in rural areas is almost the same as that in semi-rural areas; thedifference is only in the household meat consumption pattern. Comparison of therichest and poorest 10% of households shows a large discrepancy concerningownership of assets. Not one poor household owned a satellite dish or motorcycle, orlivestock such as cattle, buffalo, or horse. In addition there is also a difference

between household head education levels, source of water used for food and drink,and possession and use of private toilet and bathing facilities. Almost all richhouseholds also live in houses with solid flooring (non-earth). The two variables withinsignificant sensitivity to differentiate houshold welfare are sex of the householdhead and ability to buy clothes at least once in the last year.

ConclusionConclusionConclusionConclusion

The results of this study show the existence of a need for financial services that havenot been provided, especially for households living in isolated areas and the weakeconomic classes, mostly farmers. In addition, an imbalance of access to financial

services exists between villages and between households with different welfare levels.The analysis of household financial management shows there is a potential for cashsurpluses and fluctuating financial conditions, confirming the need for the provisionof financial services, especially in the research area.

Apart from household welfare levels, household involvement in community groupactivities and arisan also influences ownership of savings accounts and use of fundstransfer services in banks and post offices, both formal financial institutions.Possession of savings and loans from credit unions is more influenced by the variable

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of village location and membership in savings and loans groups, arisan, or otherassociations. Hence the need for innovation in financial services that are inaccordance with community need and easily reached by communities. Efforts thatcan be made include: 1) make formal financial services accessible to communities inrural regions, and 2) make use of existing community groups including arisan tobridge poor communities access to formal financial institutions.

For the compilation of baseline data on household welfare, especially in KabupatenEnde and Kabupaten Ngada, it is recommended that variables such as asset ownershipvariables (satellite dish, motorcycle, radio), livelihood of the household head, meatand egg consumption patterns, housing facilities (toilet and bathing, majority of floorcoverings, clean water facilities, State Electricity Company electricity as a source oflighting), and education level of the household head should be used.

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CONTECONTECONTECONTENTSNTSNTSNTS

Page

ACKNOWLEDGEMENTSACKNOWLEDGEMENTSACKNOWLEDGEMENTSACKNOWLEDGEMENTS iABSTRACKABSTRACKABSTRACKABSTRACK ii

EXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARYEXECUTIVE SUMMARY iiiCONTENTSCONTENTSCONTENTSCONTENTS xLIST OF TABLESLIST OF TABLESLIST OF TABLESLIST OF TABLES xiLIST OF FIGURESLIST OF FIGURESLIST OF FIGURESLIST OF FIGURES xiiiLIST OF APPENDICESLIST OF APPENDICESLIST OF APPENDICESLIST OF APPENDICES xivLIST OF ABBREVIATIONS AND GLOSSARIESLIST OF ABBREVIATIONS AND GLOSSARIESLIST OF ABBREVIATIONS AND GLOSSARIESLIST OF ABBREVIATIONS AND GLOSSARIES xv

I.I.I.I. INTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTION 11.1. Introduction 11.2. Study Aims 21.3. Research Methods 31.4. Report Structure 7

II.II.II.II. CHARACTERISTICS ANDCHARACTERISTICS ANDCHARACTERISTICS ANDCHARACTERISTICS AND PATTERNS OF HOUSEHOLPATTERNS OF HOUSEHOLPATTERNS OF HOUSEHOLPATTERNS OF HOUSEHOLD FINANCIALD FINANCIALD FINANCIALD FINANCIALMANAGEMENTMANAGEMENTMANAGEMENTMANAGEMENT 8

2.1. Sample Household Characteristics 82.2. Household Income and Expenditure Patterns 102.3. Vulnerability and Coping Strategies 15

III.III.III.III. USE OF AND NEED FORUSE OF AND NEED FORUSE OF AND NEED FORUSE OF AND NEED FOR VARIOUS FINANCIAL SEVARIOUS FINANCIAL SEVARIOUS FINANCIAL SEVARIOUS FINANCIAL SERVICESRVICESRVICESRVICES 173.1. Savings 183.2. Loans and Credit 223.3. Insurance 283.4. Transactions 29

IV.IV.IV.IV. ACCESS TO FINANCIAL INSTITUTIONSACCESS TO FINANCIAL INSTITUTIONSACCESS TO FINANCIAL INSTITUTIONSACCESS TO FINANCIAL INSTITUTIONS 314.1. The Use of Formal Financial Institutions 34

4.1.1. Banks 34

4.1.2. Pawnshops 364.1.3. Cooperatives 37

4.2. The Patronage of Informal Financial Institutions 394.2.1. Micro-Finance Institutions 394.2.2. Savings and Loans Groups 404.2.3. Religious Associations and Other Community Organizations 424.2.4. Arisan 44

4.3. Factors that Influence the Patronage of Formal Financial Institutions 484.3.1. Banks and Post Offices 494.3.2. Credit Unions 52

V.V.V.V. DEVELOPMENTDEVELOPMENTDEVELOPMENTDEVELOPMENT OF BASELINE DATAOF BASELINE DATAOF BASELINE DATAOF BASELINE DATA 555.1. Formulation of Local Welfare Indicators 55

5.2. Welfare Indicators for Semi-Urban Areas 585.3. Welfare Indicators for Rural Areas 60VI.VI.VI.VI. CONCLUSION AND RECOMMENDATIONSCONCLUSION AND RECOMMENDATIONSCONCLUSION AND RECOMMENDATIONSCONCLUSION AND RECOMMENDATIONS 63REFERENCESREFERENCESREFERENCESREFERENCES 65APPENDICESAPPENDICESAPPENDICESAPPENDICES 66

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LIST OF TABLESLIST OF TABLESLIST OF TABLESLIST OF TABLES

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Table 1.1 Sample Research Villages 4Table 1.2. Summary of Sample Village Characteristics 5

Table 2.1. Sex, Marriage Status, and Place of Residence of Household Head 8Tabel 2.2. Age OF Household Head and Spouse and Education Level of HouseholdHead 9

Tabel 2.3. Length of Time Living in Village and Total Number of SampleHousehold Members 9

Table 2.4. Occupation of Household Head and Household Members 10Table 2.5. Sample Household Cash Expenditure Patterns, 2006 12Table 2.6. Occurrances that Often Worsen Household Financial Conditions 15Table 2.7. Household Strategies to Overcome Financial Shocks 16Table 3.1. Households and Household Members who have Savings in the Last Five

Years 18Table 3.2. Financial Insitutions for Savings Accounts 19Table 3.3. Reasons for Choosing Financial Insitutions for Savings Accounts 20

Table 3.4. Uses of Savings 20Table 3.5. Plans to Save and Invest 21Table 3.6. Source of Income for Savings Plans and Investment 22Tabel 3.7. Institutions for Savings and Investment Plans 22Table 3.8. Number and Status of Loans/Credit in All Sample Villages, Last Five

Years23

Table 3.9. Institutions Providing Loans/Credit 24Table 3.10. Uses of Loans/Credit 25Table 3.11. Loan/Credit Application Rejections 26Table 3.12. Plans for Loans/Credit 27Table 3.13. Three Main Reasons Why Respondents do Not Plan to Apply for

Loans/Credit27

Table 3.14. Planned Uses for Loans/Credit 28Table 3.15. Insurance Membership in the Last Five Years 28Table 3.16. Usage of Funds Transfer Services in the Last Five Years and Planned

Usage29

Table 3.17. Institutions Used for Transactions 30Table 4.1. The Significance and Distance of Various Financial Institutions for the

Communities of Mautenda and Tanalodu33

Table 4.2. Household History as a Bank Customer 35Table 4.3. Financial Services Used by Bank Customers 35Table 4.4. History of Pawnshop Transactions for Sample Households 36Table 4.5. Goods Pawned by Sample Households 36

Table 4.6. History of Household Cooperative Membership Status 37

Table 4.7. Sample Household Cooperative Members based on Membership Period 38Table 4.8. Knowledge of Cooperative Activities, Sample Household Members 38

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LIST OF TABLES (Continued)LIST OF TABLES (Continued)LIST OF TABLES (Continued)LIST OF TABLES (Continued)

PageTable 4.9. Sample Household Members based on Type of Cooperative Services

Used39

Table 4.10. History of Household Microfinance Institution Membership Status 40

Table 4.11. History of Household Savings and Loans Group Membership Status 41Table 4.12. Household Members Based on Savings and Loans Group MembershipPeriod

41

Table 4.13. Household Members Based on Savings and Loans Group Activities 42Table 4.14. History of Household Community Association Membership Status 42Table 4.15. Household Members Based on Community Association Membership

Period43

Table 4.16. Household Members Based on the Occurrence and Frequency of

Contributions in Community Associations

43

Table 4.17. Activities of Community Associations and the Benefits Obtained byMembers (Based on Information from Household Members that areMembers of a Community Association)

44

Table 4.18. History of Household Participation in Arisan 45

Table 4.19. Household Members based on ArisanMembership Period 45Table 4.20. Sample Households based on Type of Arisan, 2006/2007 46Table 4.21. Household Members based on the Number of ArisanParticipants,

2006/200746

Table 4.22. Contribution Amount at Each Arisan Meeting, 2006/2007 47Table 4.23. The Value of Arisan Obtained in each Term, 2006/2007 48

Table 4.24. Other Activities besides Arisan and the Benefits Obtained 48Table 4.25. Analysis Results of Factors that Influence Ownership of Savings in a

Bank50

Table 4.26. Analysis Results of Factors that Influence Possession of Loans andCredit from a

51

Table 4.27. Analysis Results of Factors that Influence Use of Funds TransferServices through a Bank 52

Table 4.28. Analysis Results of Factors that Influence Ownership of Savings in aCredit Union

53

Table 4.29. Analysis Results of Factors that Influence Possession of Loans andCredit from Credit Unions

54

Table 5.1. Welfare Indicators of Ende and Ngada, East Nusa Tenggara 56Table 5.2. Characteristics of the Richest and Poorest 10% of Households in Ende

and Ngada, East Nusa Tenggara57

Table 5.3 Welfare Indicators of Semi-Urban Areas in Ende and Ngada,East Nusa Tenggara

59

Table 5.4. Characteristics of the Richest and Poorest 10% of Household in Semi-Urban Areas of Ende and Ngada, East Nusa Tenggara

60

Table 5.5. Welfare Indicators of Rural Areas in Enda and Ngada, East NusaTenggara

61

Table 5.6. Characteristics of the Richest and Poorest 10% of Household in RuralAreas of Ende and Ngada, East Nusa Tenggara

62

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LIST OF FIGURESLIST OF FIGURESLIST OF FIGURESLIST OF FIGURES

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Figure 1.1. Research Sample Districts and Village Locations 4Figure 2.1. Average Household Income for 2006 11Figure 2.2. Figure 2.2 Source of Sample Household Cash Income 11

Figure 2.3. Sample Household Cash Income Surplus/Deficit in Ende 13Figure 2.4. Sample Household Cash Income Surplus/Deficit in Ngada 13Figure 3.1. Percentage of Sample Households who have used Financial Services in

the Last Five Years17

Figure 3.2. Percentage of Households that Still Use Financial Services 17Figure 4.1. The Utilization of Financial Institutions by Sample Households 31Figure 4.2. Saving Institutions by Households Income Source 32Figure 4.3. Institutions Providing Loans/Credit by Household Income Source 32Figure r 4.4. The Usage of Various Financial Institions Based on Household

Welfare Levels49

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LIST OF APPENDICESLIST OF APPENDICESLIST OF APPENDICESLIST OF APPENDICES

PageAppendix 1.1. Field Research Schedule 67Appendix 1.2. General Picture of Sample Villages 68

Appendix 1.3. Characteristics of In-depth Interview Respondents 76Appendix 1.4. Household Questionnaire Contents 77Appendix 2.1. Characteristics of Sample Household Members 88Appendix 2.2. Occupations of household head and household members 90Appendix 2.3. Household Cash Income Sources in Sample Villages, 2006 91Appendix 2.4. Cash Expenditure Pattern of Sample Households, 2006 92Appendix 2.5. Seasonal Calendar of Desa Mautenda, Kecamatan Wewaria,

Kabupaten Ende 93Appendix 2.6. Seasonal Calendar of Desa Tanalodu, Kecamatan Bajawa, Kabupaten

Ngada 94Appendix 3.1. Types of Savings Held by Sample Households 96Appendix 3.2. Minimum and Maximum Amounts of Deposits 97Appendix 3.3. Three Main Uses of Savings 98

Appendix 3.4. Three Main Reasons for Selecting Loan or Credit Providers 99Appendix 3.5. Three Main Uses of Loans or Credits 100Appendix 3.6. Rejected Loan or Credit Applications and Reasons for Rejection 101Appendix 3.7. Planned Uses of Future Loans 102Appendix 3.8. Types of Financial Institutions for the Planned Loans or Credits 103Appendix 3.9. Types and Insurance Providers of Respondents Household in the Last

Five Years 104Appendix 3.10. Financial Transaction Purposes: Transferring and Receiving Funds 105

Appendix 3.11. Senders and Recipients of Transferred Funds 106Appendix 4.1. Comments of FGD Participants about Various Financial Institutions

in Desa Mauntenda and Desa Tanalodu 107Appendix 4.2. Reasons for Never Becoming a Bank Customer 112

Appendix 4.3. Financial Services Used by Bank Customers 113Appendix 4.4. Membership in Formal and Informal Financial Institution by Sex 114Appendix 4.5. Reasons for Never Using Pawnshop Services 115Appendix 4.6. Reasons for Not Becoming a Cooperative Member 116Appendix 4.7. Reasons for Not Becoming Customer or Member of a Microfinance

Institution 117Appendix 4.8. Reasons for Not Becoming A Member of a Savings and Loans Group 118Appendix 4.9. Reasons for Not Becoming a Member of a Religious Association or

other Community Organization 119Appendix 4.10. Sample Household Members by the Frequency of Arisan Meetings,

2006/2007 120Appendix 4.11. Sample Household Members by the Amount of Funds Contribution

per ArisanMeeting, 2006/2007 121

Appendix 4.12. Sample Households Members by the Amount of ArisanFundsCollected, 2006/2007 122

Appendix 4.13. Reasons for Not Becoming an ArisanMember 123

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LIST OF ABBREVIATION AND GLOSARRIESLIST OF ABBREVIATION AND GLOSARRIESLIST OF ABBREVIATION AND GLOSARRIESLIST OF ABBREVIATION AND GLOSARRIES

Adat Custom, traditionArisan Community revolving savings groupsART Anggota rumah tangga Household memberBNI Bank Negara Indonesia

BPD Bank Pembangunan Daerah Regional Development BankBRI Bank Rakyat IndonesiaBus kayu Wooden bus a truck that has been

converted to carry passangerCU Credit UnionFGD Focus Group DiscussionHH HouseholdIjon A practice of advance selling of

agricultural produceJANIC Japan NGO Center for International

CooperationKK kepala keluarga Head of Household

Kopdit koperasi kredit Credit UnionKSP kelompok simpan-pinjam loan and saving groupLED Local Economic DevelopmentLKM lembaga keuangan mikro Microfinance InstitutionLSM lembaga swadaya masyarakat Non-government organizationMFI Microfinance InstitutionMinum air panas Community gathers together and works

or gives toward a causeMoke Alcoholic drink made from the sap of

lontar palmMosalaki Traditional community leader who also

control land ownershipNGO Non-government organization

NTT Nusa Tenggara Timur East Nusa TenggaraOjek Motorcycle taxiPCA Principal Component AnalysisPengukuhan adat A ceremony that confers legitimacy of

something (e.g. construction of a house)in accordance with the requirement oflocal custom

PNS pegawai negeri sipil civil servantPuskopdit Pusat Koperasi Kredit Credit Union CenterRT Rumah Tangga HouseholdSambut baru First communionTravel A minivan that carry 8-10 people and

oofer a door to door transportationservice

UBSP Usaha Bersama Simpan-Pinjam

Loan and saving community group

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SMERU Research Institute1111

I.I.I.I. INTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTION

1.11.11.11.1 IntroductionIntroductionIntroductionIntroduction

There is a general understanding that access to financial services is an importantfactor to support the development of small and medium enterprises, including ruralagricultural enterprises. Nevertheless, the provision of financial services in ruralareas, especially in isolated areas with limited economic activity is still inadequate.Various institutions, both government and non-government have held variousinitiatives and programs to overcome this problem, although there is still debate onthe appropriate model for this approach, especially between the approach thatemphasises increased access for poor communities and the aspect of continuity. Theapproach for poor communities is considered to be expensive charges so that subsidiesneed to continue; while the importance of continuity spurs many programs to directtheir efforts to the middle and lower classes with a wider scope, while the poorestgroups are not reached (Schreiner, 2002, and Weiss and Montgomery, 2004).

The Swisscontact effort to widen access to financial insitutions is one initiative toincrease acess to financial institutions in East Nusa Tenggara (NTT), as onecomponent of the Local Economic Development (LED) NTT project in Ende and

Ngada, Flores, NTT. This project alone has emphasised the development of theagricultural sector from its initial stages. The project to expand access to finacialservices has two main focus points. The first focus emphasises development andprovision of exit roads for the needs of specific sectors; the second focus is directedtoward basic financial investment aimed to increase access of households and smalland medium enterprises to financial services. During the study to evaluate thecondition of the financial services providors conducted in March 2006, Swisscontactidentified the Credit Union Network, under the leadership of the Puskopdit BENorganisation, as a potential partnership for further development. The initial conceptis to increase access to financial services in Kabupaten Ende and Kabupaten Ngada bysupporting the development of the Credit Union Network.

Thre are at least three studies examining community access, especially low incomegroups, to financial services in NTT: the study by JANIC (2004), SMERU (2005),and the Livelihood Study funded by Swisscontact (2005). The results of the JANICstudy in two villages in Kabupaten Kupang in 2006 highlighted the low usage ofbanks, both for savings and for loans/credit. Microfinance organisations areexpanding financial institutions, although the service is limited, and are managed byseveral foundations and civil society organizations. Out of the savings held by

respondents, 19% is in microfinance organizations, 2123% is in banks, 1-2% ingroups, 01% in cooperatives, 2223% is kept in the house, and 524% is held inthe form of livestock. Out of loans and credit supplied in 2003, 28% of loans ineach village was supplied by microfinance organizations, 02% from banks (onlyBRI), 04% from cooperatives, 4% from groups, 049% from friends and relatives(JANIC, 2004).

The Livelihood Study conducted under the Swisscontact LED-NTT project in fourvillages (one in Ngada, one in East Flores, and two in Sikka) in 2005 showed that

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local savings and loans groups are quite popular in all villages, but there are onlybanks and credit unions in the two villages with relatively developed economies;around 60% of their residents have savings accounts or loans or credit supplied byBRI/BNI and the credit unions. In the two other villages, 46% and 29% ofrespondents do not have savings, except for small amounts kept in the house that areused to fulfill basic daily needs. Approximately 4070% of households had not

accessed any form of credit in the previous 6 months. Credit from banks was onlyaccessed by the relatively wealthy communities in the two villages with relativelyadvanced economies. However, in the two other villages, almost no respondents hadobtained credit from banks or other external institutions. The community in thesetwo villages are more inclined to use internal institutions like the Joint Savings andLoans Enterprise (UBSP), Dasawisma, or individuals (Gamper 2006).

The study conducted by The SMERU Research Institute in 2004 in KabupatenKupang and Kabupaten Manggarai showed differences in the availability of financialinstitutions in these two districts. In Kupang there are many microfinanceorganizations managed by CSOs and very few savings and loans groups and arisan

3,

while in Manggarai there are almost no microfinance institutions managed by CSOs,but there are various arisan and savings and loans groups. There are various forms ofarisan, including money, rice, household furnishings, and home construction orimprovements. Of these, financial institutions that offer credit to poor groups areextremely rare, especially for small-scale farmers. Only BRI offers agricultural credit,but this can only be accessed by relatively wealthy farmers as collateral is required.While microfinance organizations managed by various organizations (especially inthe Kupang region) offer non-agricultural business credit more often the middle andlower clases in urban, semi-urban, and in several rural areas with good access fortransportation. Very few communities have savings in the bank, due to the relativelylong distance to banks. The majority of savings are only held in small amounts ininformal institutions, especially with arisan.

1.21.21.21.2 Study AimsStudy AimsStudy AimsStudy Aims

This study aims to get a sufficient and structured understanding of the needs andpotential needs of rural households in Kabupaten Ende and Kabupaten Ngada forfainancial services. This study uses quantative and qualititative methods to discoverinformation on the uses and benefits obtained from the use of existing financialservices, both formal and informal. The study also aims to uncover financialbehavior, choices for savings and loans or credit between rural households in thesample districts. The results of the study will provde input for Swisscontactsscheduler for new projects aiming to increase access to financial services, and prepare

activities to monitor the projects impact.

To achieve these objectives, this study will gather information regarding:- The of the demand and need for financial services;- The use of financial services products offered by various formal and informal

institutions;

3Arisan is a regular social gathering where members contribute to and take turns at winning an

aggregate sum of money or amount of goods.

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- Household welfare, financial management, financial behavior, and choices as wellas interest in financial services.

Besides this, this study also intends to offer support for the compilation of basic dataand indicators to be used in the monitoring activities for the Swisscontact project toincrease access to financial services.

1.31.31.31.3 Research MethodsResearch MethodsResearch MethodsResearch Methods

This study started in December 2006 and continued until April 2007. The fieldresearch was conducted from 14 January to 6 February 2007 by two SMERUresearchers and trhee local researchers in two districts in Flores Island, KabupatenEnde and Kabupaten Ngada (Appendix 1.1 presents the timetable for field researchactivities). Five sample villages were chosen in each district. The sample villageswere chosen in the respective districts based on economic potential, whther or notcredit union services were available, and the typology of community livelihoods. Forthe compilation of base data, the sample villages were comprised of two villages

where credit unions were operational, two villages where credit unions were not yetoperational but were planned to open during the project implementation period, andone village with no credit union and where none were planned as the control village.The control village was chosen from villages that represented the two villages withplans for credit union expansion. In addition, the sample villages also consideredlocation in relation to the main road that connects Ende and Ngada and croppatterns in order to encompass several livelihhood types and access to financialservices. The choice of sample villages was also discussed with credit unions at thedistrict level.

The names and characteristics of the sample villages are presented in Tables 1.1 and1.2, the sample village and district locations are shown in Figure 1.1, and a detailed

picture of each village is presented in Appendix 1.2.

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Table 1.1 SampleTable 1.1 SampleTable 1.1 SampleTable 1.1 Sample Research VillagesResearch VillagesResearch VillagesResearch Villages

DistrictDistrictDistrictDistrict SubdistrictSubdistrictSubdistrictSubdistrict VillageVillageVillageVillageTotalTotalTotalTotal

HouseholdsHouseholdsHouseholdsHouseholdsAvailable Financial ServicesAvailable Financial ServicesAvailable Financial ServicesAvailable Financial Services

Ndororea I# 234- Credit Union: CiCiCiCivita Dei CUvita Dei CUvita Dei CUvita Dei CU- Others: BRI Unit

Nangapanda

Tendaria 315- Credit Union: --

- Others: --Welamosa# 246

- Credit Union: Wesawini CUWesawini CUWesawini CUWesawini CU

- Others: KUD

Mautenda(+ FGDs)(Control)

781- Credit Union: --

- Others: --

ENDEENDEENDEENDE

Wewaria

Wewaria 273- Credit Union: --

- Others: Salt Cooperative

Tanalodu#(+ FGDs)

464- Credit Union: Sangosay CUSangosay CUSangosay CUSangosay CU

- Others: BRI, BNI, BPD, PawnShop, Insurance, LeasingAgency

Bajawa

Baewali 283- Credit Union: --

- Others: --

Mauponggo# 354 - Credit Union: Kenisa CUKenisa CUKenisa CUKenisa CU- Others: BRI Unit

Aewoe(Control)

201- Credit Union: --

- Others: --

NGADANGADANGADANGADA

Mauponggo

Maukeli 299- Credit Union: --

- Others: --

#Village with a credit union service office.

Figure 1.1 Research Sample Districts and Village LocationsFigure 1.1 Research Sample Districts and Village LocationsFigure 1.1 Research Sample Districts and Village LocationsFigure 1.1 Research Sample Districts and Village Locations

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Table 1.2 Summary of Sample Village CharacteristicsTable 1.2 Summary of Sample Village CharacteristicsTable 1.2 Summary of Sample Village CharacteristicsTable 1.2 Summary of Sample Village Characteristics

VillageVillageVillageVillage Location aLocation aLocation aLocation and Accessibilitynd Accessibilitynd Accessibilitynd Accessibility TopographyTopographyTopographyTopography Livelihood PatternsLivelihood PatternsLivelihood PatternsLivelihood Patterns

Ndororea I Subdistrict capital, located

approximately 30 km from KotaEnde. General transportaion isby minibus, passenger truck, or

motorcycle taxi

Beach, low-lying

plains and slightlymountainous

Civil servants, teachers,

local government employees

Fishers

Farmers of unirrigated fields

or coconut, cocoa bean,candlenut, cashew, cassava,and banana plantations

Tendaria Located 8 km from the

subdistrict capital and 38 kmfrom Kota Ende. Generaltransportaion is by passenger

truck, or motorcycle taxi.Accessed via a road thatconnects the south coast with

the north coast of Flores Island,but the road are damaged

Mountainous, hilly. Plantation farmers or farmers

on unirrigated fields -candlenut, clove, cocoa bean,corn, unirrigated rice, cassava.

Welamosa Subdistrict capital. Locatedapproximately 56 km from the

district capital. Generaltransportaion is by minibus, bus,or motorcycle taxi

Mountainous Farmers on unirrigated fieldsor plantations - mainly

cashew, cocoa bean, coconut,candlenut, and a smallnumber of irrigated rice fields

Mautenda Located 7 km from thesubdistrict capital and 63 kmfrom Ende. Transport - passengertruck and motorcycle taxiDamaged road conditions, passingtwo rivers without bridges

Low lying plains andmountainous regions

Farmers of irrigated rice fieldsand unirrigated fields rice,mungbean, soybean, corn,coconut, cocoa bean.

Wewaria Located 12 km from thesubdistrict capital. Transport minibus, passenger truck andmotorcycle taxi

Low lying plains andcoastal areas

Farmers of irrigated andunirrigated fields cocoabean, cashew, coconut,rice, corn

-Fishers and salt producers

Tanalodu In the city of Bajawa, the capitalof Ngada. Transport minibus,motorcycle taxi, bus

Elevated plains Civil servants, businesslaborers, office workers,entrepreneurs, farmers ofunirrigated fields, coffeeplantations

Baewali Located 7 km from thesubdistrict capital, Kota Bajawa.

Transport minibus andmotorcycle taxi

Rather hilly Plantation and field farmers,mainly coffee, cocoa bean,

vegetables, unirrigated rice,corn, cassava, banana

Mauponggo Subdistrict capital. Located 57km from Bajawa, the capital ofNgada. Transport minibus,passenger truck, motorcycle taxi

Coastal area withsome hilly areas

Fishers, unirrigated fieldfarmers, traders, irrigated ricefarmers, civil servants

Aewoe Located 10 km from thesubdistrict capital, or 60 km fromBajawa, the capital of Ngada.Transport minibus, passengertruck, motorcycle taxi

Coastal area withsome hilly areas

Fishers, unirrigated fieldfarmers, traders, irrigated ricefarmers

Maukeli Located 7 km from thesubdistrict capital, or 64 km fromBajawa, the capital of Ngada.Transport minibus, passengertruck, motorcycle taxi

Coastal area withsome irrigated ricefields

Irrigated rice farmers andunirrigated field farmers,traders, fishers, mencari ikan

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This study primarily uses quantitaive analysis for data gathered via householdinterviews, complemented by a qualitative analysis of information received duringfocus group discussions (FGDs).

Household InterviewsHousehold InterviewsHousehold InterviewsHousehold Interviews

Two hundred households (100 in each district) were interviewed using a standardquestionnaire. Sample households were chosen using random stratification. Allhouseholds in the sample villages were grouped based on livelihood type, furthermoresamples were chosen randomly, with the total proportional to the number ofhouseholds in the respective livelihoods groupings. From the 200 respondenthouseholds, interviews were conducted with 200 main respondents (153 men and 47women) and 57 accompanying respondents (13 men and 44 women). 83% of themain respondents were household heads (both men and women), 14.5% were thehousehold heads wife, and 2.5% were other family members; while 9% of theaccompanying respondents were household heads, 68% were the wife of thehousehold head, and 23% were other family members. The total number and status of

respondents for each village are presented in Appendix 1.3.

The questionnaire gathered information regarding:- Household characteristics and financial management practices, regarding sources

of income and expenditure, including for adat needs and household financialsusceptibilities;

- The use and benefits of various financial services (formal and informal), planneduse of financial services, perceptions of and choices between various financialservices institutions;

- Welfare indicators (mainly ownership of assets, access to health services andeducation, and food consumption).

A section of the questions were adapted from the Finscope survey questionnaire thatwas used in surveys in several African states (Finscope, 2003). The quesionnairecontent is provided in Appendix 1.4.

Focus Group Discussions (FGDs)Focus Group Discussions (FGDs)Focus Group Discussions (FGDs)Focus Group Discussions (FGDs)

FGDs were planned to obtain collective opinion regarding the needs and access tovarious financial institutions, especially regarding problems of access to theseinstitutions. A seasonal calendar and a venn diagram modified to gather infromationon financial management, and access to and choice of financial institution were usedas FGD tools. Four FGDs were conducted: two in each district, one with a group of

men an the other with a group of women. The FGD in Kabupaten Ngada was held inTanalodu, the subdistrict of Kecamatan Bajawa, where there are several financialinstitutions, including Sangosay Credit Union. In Kabupaten Ende, the FGD washeld in Mautenda. This village is quite isolatedaccessed only by a damaged roadand has no formal financial institutions.

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Framework of AnalysisFramework of AnalysisFramework of AnalysisFramework of Analysis

Access is linked to individual ability to obtain and make use of financial services,useful and in line with ones financial needs (Genesis Analytics, 2004). However, theterm access is an abstract concept and difficult to measure. Individuals or groups canhave access but may not benefit from this access because they feel they do not need

it. While individuals that need it can also not have access because the services arenot provided or there are regulations that limit access to a service. As a result, accessis actually different to use. Use is real and can be measured. Nevertheless. This studyuses measures of use as a proxy for access.

This study tries to see use and need for financial services from two aspects. Thie firstaspect can be seen from the type of financial services used by the community. Thetype of financial service can be differentiated from four components: savings, loans orcredit, funds transfer, and insurance. The second aspect is the use of various types offinancial institutions, generally differentiated into formal and informal institutions.Formal financial institutions includes banks and non-banks, which include pawnshop

and cooperatives, while informal financial institutions are not recognized by the law,including microfinance organizations which are generally managed by civil societyorganisations, various goups formed by the community or by the government in theframework of program implementation, and individuals (including usurers).

1.41.41.41.4 Report StrReport StrReport StrReport Structureuctureuctureucture

This report consists of six chapters.1. Chapter I contains the general background, aims, methodology, and report

structure;2. Chapter II presents a general picture of respondent household characteristics,

their livelihood patterns, and their household financial management patterns

including the financial susceptibilities they face;3. Chapter III discusses the use and potential need for various kinds of financial

services: savings, loans or credit, insurance, and funds transfer;4. Chapter IV gives a picture concerning access to various kinds of financial

institutions, both formal and informal. This chapter also presents an analysisof the factors that influence the use of various formal institutions, especiallybanks and credit unions;

5. Chapter V presents the results of the welfare analysis which will be used asthe baisis for the compilation of local indicators, as the baseline data for theproject to increase access to financial services;

6. Chapter VI is the closing chapter, and will provide the general conclusion

and recommendations based on the results of this study.

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II.II.II.II. CHARACTERISTICSCHARACTERISTICSCHARACTERISTICSCHARACTERISTICS AND PATTERNS OF HOUSAND PATTERNS OF HOUSAND PATTERNS OF HOUSAND PATTERNS OF HOUSEHOLDEHOLDEHOLDEHOLDFINANCIAL MANAGEMENTFINANCIAL MANAGEMENTFINANCIAL MANAGEMENTFINANCIAL MANAGEMENT

This chapter gives a picture of the demographic characteristcs of respondents and

household members, household income and expenditure patterns, and the varioussources of household financial susceptibilities in the sample villages.

2.12.12.12.1 Sample Household CharacteristicsSample Household CharacteristicsSample Household CharacteristicsSample Household Characteristics

The general picture of respondent household demographic conditions presented inthis section includes: sex, marriage status, age, education level, place of residence,time spent living in the village, the total number of household members, and therelationship of household members with the household head.

A large proportion of sample household heads are men (93%) with primary school

educations (50%), junior high educations (21%), and senior high educations (22%)(Tables 2.1 and 2.3). The average household has 67 members, the majority of themresiding with the household head (98%). The total number of male householdmembers is slightly higher than women, 51% and 49% respectively. The majority ofboth (38%) are within the working-aged group (1650 years), while 31% are school-aged (715 years). The household head is generally married (90%) and has lived inthe village for an average of more than 32 years (except in Tanalodu, which islocated in the district capital of Kota Bajawa, and where most residents are newhaving migrated from other areas).

Table 2.1 Sex, Marriage Status, and Place of Residence of HousehTable 2.1 Sex, Marriage Status, and Place of Residence of HousehTable 2.1 Sex, Marriage Status, and Place of Residence of HousehTable 2.1 Sex, Marriage Status, and Place of Residence of Household Headold Headold Headold Head

SexSexSexSex Marriage StatusMarriage StatusMarriage StatusMarriage Status Place of ResidencePlace of ResidencePlace of ResidencePlace of Residence

VillageVillageVillageVillage MaleMaleMaleMaleFemaleFemaleFemaleFemale SingleSingleSingleSingle

MarriedMarriedMarriedMarriedWidow/WidowerWidow/WidowerWidow/WidowerWidow/Widower

In theIn theIn theIn theSameSameSameSameHouseHouseHouseHouse

DifferentDifferentDifferentDifferentVillageVillageVillageVillage AbroadAbroadAbroadAbroad

1 Ndororea I 16 4 3 15 2 17 1 2

2 Tendaria 20 1 18 1 20

3 Welamosa 17 3 1 18 1 20

4 Mautenda 18 2 17 3 20

5 Wewaria 19 1 19 1 19 1

6 Tanalodu 18 1 18 1 19

7 Baewali 20 1 19 20

8 Mauponggo 18 2 18 2 19 19 Aewoe 21 21 21

10 Maukeli 19 1 1 17 2 20

TotalTotalTotalTotal 186186186186 14141414 7777 180180180180 13131313 195195195195 2222 3333

(%)(%)(%)(%) 93%93%93%93% 7%7%7%7% 4%4%4%4% 90%90%90%90% 7%7%7%7% 98%98%98%98% 1%1%1%1% 2%2%2%2%

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Table 2.Table 2.Table 2.Table 2.2 Age of Household Head and Spouse and Education Level of2 Age of Household Head and Spouse and Education Level of2 Age of Household Head and Spouse and Education Level of2 Age of Household Head and Spouse and Education Level ofHousehold HeadHousehold HeadHousehold HeadHousehold Head

Age (years)Age (years)Age (years)Age (years) Household Head Educational BackgroundHousehold Head Educational BackgroundHousehold Head Educational BackgroundHousehold Head Educational Background

MaleMaleMaleMale FemaleFemaleFemaleFemaleVillageVillageVillageVillage

AverageAverageAverageAverage StdStdStdStdDev.Dev.Dev.Dev. AverageAverageAverageAverage StdStdStdStdDev.Dev.Dev.Dev.

UnschooledUnschooledUnschooledUnschooled PrimaryPrimaryPrimaryPrimaryJuniorJuniorJuniorJuniorHighHighHighHigh

SeniorSeniorSeniorSeniorHighHighHighHigh

TertiaryTertiaryTertiaryTertiary

1 Ndororea I 48.8 9.7 44.0 12.2 13 2 3 2

2 Tendaria 39.6 11.9 34.8 9.5 12 5 3 0

3 Welamosa 46.8 9.8 44.3 12.3 10 4 5 1

4 Mautenda 47.8 14.4 40.3 11.6 1 14 4 1 0

5 Wewaria 45.5 9.9 39.8 9.1 1 14 2 3 0

6 Tanalodu 43.6 10.7 38.9 11.3 6 4 6 3

7 Baewali 40.6 9.2 35.4 8.4 12 5 2 1

8 Mauponggo 43.2 6.7 39.9 8.9 3 7 6 4

9 Aewoe 44.2 11.3 37.3 8.3 10 4 5 2

10 Maukeli 44.3 12.2 37.8 9.8 6 4 9 1

TotalTotalTotalTotal 44.444.444.444.4 39.339.339.339.3 2222 100100100100 41414141 43434343 14141414

(%)(%)(%)(%) 1%1%1%1% 50%50%50%50% 21%21%21%21% 22%22%22%22% 7%7%7%7%

Table 2.3 Length of Time Living in Village and ToTable 2.3 Length of Time Living in Village and ToTable 2.3 Length of Time Living in Village and ToTable 2.3 Length of Time Living in Village and Total Number of Householdtal Number of Householdtal Number of Householdtal Number of HouseholdMembersMembersMembersMembers

Length of Time inLength of Time inLength of Time inLength of Time inVillage (years)Village (years)Village (years)Village (years)

Average TotalAverage TotalAverage TotalAverage TotalNumber of FamilyNumber of FamilyNumber of FamilyNumber of Family

MembersMembersMembersMembersVillageVillageVillageVillage

AverageAverageAverageAverage Std Dev.Std Dev.Std Dev.Std Dev. AverageAverageAverageAverage Std Dev.Std Dev.Std Dev.Std Dev.

1 Ndororea I 42.5 15.8 5.9 1.5

2 Tendaria 35.4 11.9 7.1 2.4

3 Welamosa 29.3 19.6 6.7 1.9

4 Mautenda 33.3 9.8 7.1 1.7

5 Wewaria 27.6 13.3 7.4 1.9

6 Tanalodu 19.9 16.2 6.3 2.2

7 Baewali 32.8 15.6 7.3 2.6

8 Mauponggo 38.2 14.2 6.1 2.0

9 Aewoe 32.0 17.1 6.9 2.1

10 Maukeli 34.5 17.3 6.7 2.2

AverageAverageAverageAverage 32.532.532.532.5 6.76.76.76.7

The total number of school-aged children (715 years) still being schooled is quite

high, at 93% for boys, and 96% for girls. However around 38% of household membersof working age (1650 years) were schooled to primary school level, 25% to juniorhigh level, and 30% to senior high school. This data demonstrates the still low skilllevel of human capital in the studys sample villages.

Seen from the aspect of gender, it is apparent that men experience higher levels ofeducaton than women. This is seen from the higher level of women with a primaryschool education (47%) than men (38%), while only 17% of women reached a junior

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high education, opposed to 14% for men, and 25% of women have a senior higheducaton as apposed to 30% of men. Nevertheless, more women have achieved atertiary education than men (9% and 7% respectively). Overall, this data shows thatwomen still have a low opportunity for education, as more women do not continuewith school (Appendix 2.1).

2.22.22.22.2 Household Income and Expenditure PatternsHousehold Income and Expenditure PatternsHousehold Income and Expenditure PatternsHousehold Income and Expenditure Patterns

Both Kabupaten Ende and Kabupaten Ngada are agricultural areas with the mainlivelihoods for respondent household heads and household members in theagricultural sector (Table 2.4). The majority of male household heads (60%) andfemale household heads or the wife of the household head (64%), and malehousehold members (57%) or female household members (58%) are land-owningfarmers. Some of the rest work as tenant farmers, government employees,permanently employed laborers, or casual laborers. Apart from that, they generallyhave additional or side jobs as traders, owner or tenant farmers, or as casual workers(Table 2.4).

Table 2.4 Occupation of Household Head and Household MembersTable 2.4 Occupation of Household Head and Household MembersTable 2.4 Occupation of Household Head and Household MembersTable 2.4 Occupation of Household Head and Household Members

Male HouseholdMale HouseholdMale HouseholdMale HouseholdHeadHeadHeadHead

Female HouseholdFemale HouseholdFemale HouseholdFemale HouseholdHead/PartnerHead/PartnerHead/PartnerHead/Partner

Male HouseholdMale HouseholdMale HouseholdMale HouseholdMembersMembersMembersMembers

(> 16 years)(> 16 years)(> 16 years)(> 16 years)

Female HousehFemale HousehFemale HousehFemale HouseholdoldoldoldMembersMembersMembersMembers

(> 16 years)(> 16 years)(> 16 years)(> 16 years)OccupationOccupationOccupationOccupation

PrimaryPrimaryPrimaryPrimary SecondarySecondarySecondarySecondary PrimaryPrimaryPrimaryPrimary SecondarySecondarySecondarySecondary PrimaryPrimaryPrimaryPrimary SecondarySecondarySecondarySecondary PrimaryPrimaryPrimaryPrimary SecondarySecondarySecondarySecondary

Agriculture 73% 9% 70% 2% 60% 4% 62% 1%

Farmer Own Land 60% 5% 64% 2% 57% 2% 58% 1%

Tenant Farmer 12% 0% 5% 0% 3% 0% 4% 0%

Fisher 1% 3% 0% 0% 0% 1% 0% 0%

Livestock Farmer 1% 2% 0% 0% 0% 1% 0% 0%

Permanent Office

Worker/Laborer 11% 1% 10% 0% 9% 1% 8% 0%Civil Servant 7% 0% 6% 0% 4% 0% 4% 0%

Retired 2% 0% 1% 0% 1% 0% 0% 0%

Private OfficeWorker/Laborer 3% 1% 4% 0% 4% 1% 3% 0%

Casual Laborer/OwnBusiness 9% 17% 9% 8% 12% 11% 7% 6%

No Income 1% 1% 8% 0% 15% 0% 18% 0%

Other 5% 11% 4% 3% 4% 6% 5% 2%

Dont Have SecondaryEmployment 62% 87% 78% 91%

Total (N) 186 186 194 194 392 392 361 361

Source: Appendix 2.2.

The average income of sample households in 2006 in the respective villages ispresented in Figure 2.1. Household income generally consists of cash income,received in monetary form, and agricultural produce which is used for personalconsumption instead of being sold. Data on 2006 income shows the difference in cashincome and non-cash income between the sample villages. Tanalodu, located in thecapital of Kabupaten Ngada, has the highest income. A large proportion of the

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community income in this village comes from wages and salaries and from earningsfrom trade or industry (Figure 2.2); so non-cash income is relatively low. Althoughcash income is generally higher than non-cash income, the contribution of non-cashincome to household income is quite significant in agricultural villages far from urbanareas, such Mautenda, Wewaria, and Tendaria, at 30%, 24%, and 23% of totalincome.

Figure 2.1 Average Household Income for 2006Figure 2.1 Average Household Income for 2006Figure 2.1 Average Household Income for 2006Figure 2.1 Average Household Income for 2006

Figure 2.2 Source of Sample Household Cash IncomeFigure 2.2 Source of Sample Household Cash IncomeFigure 2.2 Source of Sample Household Cash IncomeFigure 2.2 Source of Sample Household Cash Income

In general, sources of cash income for respondent households are salary or wages(27.7%) and proceeds from agricultural produce (24.8%). However the contributionof various sources of income vary between the sample households. In several urbanand semi-urban villages, Tanalodu, Baewali, and Mauponggo, the contribution fromthe sale of agricultural produce is relatively small. Apart from salary or wages, sources

-510

1520253035404550

Income(millionrupiah)

NdororeaI#

Tendaria

Welamosa#

Mautenda

Wewaria

Tanalodu#

Baewali

Mauponggo#

Aewoe

Maukeli

Cash Income Personal Consumption

0102030405060708090

100

%TotalCashIncome

NdororeaI#

Tendaria

Welamosa#

Mautenda

Wewaria

Tanalodu#

Baewali

Mauponggo#

Aewoe

Maukeli

Total

Other

Savings/Arisan

Donation/Assistance/ Sent

Credit/Loan

Trading/Industry Takings

Salary/Wage

Sale of Agricultural Produce

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of cash income in these villages are from the proceeds of trade businesses andhousehold industries (Figure 2.2). In the other rural areas, the contribution of cashincome from the sale of agricultural produce is higher. Other significant sources ofincome are from donations, assistance, and money sent from elsewhere, and from thewithdrawal of savings or from arisan. In the case of Ndororea, Tendaria, andWelamosa, the contribution from government assistance is quite high, at 15%, 16%,

and 11% respectively (Appendix 2.3).

The largest proportion of cash expenditure goes on food consumption. Maukeli hasthe smallest proportion of expenditure for food, as a large amount of theirconsumption comes from their own agriculrual produce. Apart from foodconsumption, other large sources of expenditure are fuel, electricity, transport andcommunication (12.2%), adat and ceremonial needs (11.6%), education (9.6%), anddebt payments (9.4%). The average expenditure for capital is only 7.7% of the totalcash expenditure, however the proportion varies between villages. The villages withrather high expenditure for working capital are Tanalodu (11.4%) and Maukeli(19.5%), due to the high levels of community members with trading businesses in

Tanalodu, while in Mauleki there are many fishers and traders who need high levelsof working capital (Table 2.5 and Appendix 2.4). In the agricultural areas, need forbusiness capital requiring cash money is not is great as a large proportion of thebusiness costs are not paid in cash. For unirrigated rice farmers, cash is needed to paycosts associated with land preparation, planting, weeding and clearing, and buyingproduction inputs; while harvesting costs are paid with unhulled paddy. In manyvillages, land management and the planting of secondary crops is done using a mutualassistance system, while the maintenance of plantation crops is done individually, socash expenditure is not required.

Table 2.5 Sample Household Cash Expenditure Patterns, 2006Table 2.5 Sample Household Cash Expenditure Patterns, 2006Table 2.5 Sample Household Cash Expenditure Patterns, 2006Table 2.5 Sample Household Cash Expenditure Patterns, 2006

Village (% of Total Cash Expenditure)Village (% of Total Cash Expenditure)Village (% of Total Cash Expenditure)Village (% of Total Cash Expenditure)NdoroNdoroNdoroNdoro----

rea Irea Irea Irea ITendaTendaTendaTenda----

riariariariaWelaWelaWelaWela----mosamosamosamosa

MauMauMauMau----tendatendatendatenda

WewaWewaWewaWewa----riariariaria

TanaTanaTanaTana----lodulodulodulodu BaewaliBaewaliBaewaliBaewali

MaupongMaupongMaupongMaupong----gogogogo AewoeAewoeAewoeAewoe MaukeliMaukeliMaukeliMaukeli

TotalTotalTotalTotal

Food and non-alcoholicdrink

41.8 39.8 25.3 37.9 33.1 31.2 42.2 32.2 40.6 16.5 34.0

Clothes and basic dailyneeds

8.5 4.0 9.4 7.0 6.4 2.5 2.6 3.0 4.9 3.8 5.2

Fuel, electricity,transport, andcommunications

13.9 8.4 10.4 10.7 17.8 16.9 10.2 10.8 13.0 9.6 12.2

Cigarettes, betel nut, andalcoholic drinks

3.3 5.5 6.1 9.4 8.0 5.3 11.4 6.3 6.6 5.7 6.8

Adat/Parties 10.5 19.3 17.6 12.4 9.2 7.0 9.4 7.4 6.6 16.6 11.6

Education 11.8 12.7 15.8 6.1 7.7 6.1 8.6 8.8 9.7 8.3 9.6

Medical Expenses 0.7 1.2 0.2 2.0 1.3 1.8 1.8 3.4 1.6 0.5 1.5Debt Payments 5.4 6.8 8.8 6.5 6.4 15.6 7.0 15.4 5.7 16.6 9.4

Business Capital 2.4 0.9 3.3 6.5 9.6 11.4 4.2 8.7 9.9 19.5 7.7

Savings/Arisan/Insurance

1.5 - 2.2 0.4 - 1.4 0.8 3.7 1.2 - 1.1

Others - 1.3 0.8 1.2 0.6 0.7 1.9 0.4 0.2 3.0 1.0

Note: Excludes produce for personal consumptionSource: Appendix 2.4.

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(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

Jan. Feb.MarchApril May June JulyAugust Sept. Oct. Nov. Dec.

Rupiah

Ndororea I# Tendaria Welamosa# Mautenda Wewaria

The results of the calculations for monthly household cash income and expenditurefrom 2006, which were collected in household interviews, give an idea of thefluctuating financial conditions of households in the sample villages (Figure 2.3 and2.4). In Ende, residents of Mautenda generally have a relatively stable income surplusfor most of the year, without experiencing a deficit. This is because this village has

cash crop trees with potential, such as candlenut and cloves which both receive quitehigh prices. In Welamosa, however, income fluctuates greatly, mainly because it is anarea which farms irrigated rice and cashew, crops with seasonal harvests. The highdeficits in Welamosa occur during June, when sample households had very highexpenditure for adat needs. High deficits occured in Tendaria and Wewaria inOctober, also because several households had high expenditure for adat needs.

Figure 2.3 Sample Household Cash IncoFigure 2.3 Sample Household Cash IncoFigure 2.3 Sample Household Cash IncoFigure 2.3 Sample Household Cash Income Surplus/Deficit in Endeme Surplus/Deficit in Endeme Surplus/Deficit in Endeme Surplus/Deficit in Ende

Figure 2.4 Sample Household Cash Income Surplus/Deficit in NgadaFigure 2.4 Sample Household Cash Income Surplus/Deficit in NgadaFigure 2.4 Sample Household Cash Income Surplus/Deficit in NgadaFigure 2.4 Sample Household Cash Income Surplus/Deficit in Ngada

(2,000,000)

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

2,000,000

Jan. Feb.MarchApril May June JulyAugust Sept. Oct. Nov. Dec.

Rupiah

Tanalodu# Baewali Mauponggo# Aewoe Maukeli

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In Ngada, almost all villages on average have income surpluses. However a largeproportion of villages have experienced deficits in the months of December and

January due to high expenditure to purchase clothing, and the cost of the Chrismasand New Year holidays. In the case of Tanalodu, household financial conditions arerelatively stable, with almost no seasonal fluctuation, due to the high number ofresidents who work as government employees or entreprenerus in the trade and

service industry.

The FGD results in Mautenda, Kabupaten Ende, and Tanalodu, Kabupaten Ngada,provided more in-depth information on household income and expenditure patterns,as well as on social and economic activities which influence those patterns(Appendices 2.5 and 2.6). Generally, the Ende and Bajawa region have the sameseasonsthe rainy season around the months of November to March, and the hotseason from around May to October. For agricultural areas like Mautenda, incomeand expenditure patterns are influenced by the planting and harvesting seasons. Inthe planting season, mainly for foodcrops, expenditure increases around the time ofirrigated rice field preparation, while income is only obtained at harvest time. A

period of scarcity occurrs between those two periods, where expenditure foragrcultural enterprises is high but there is no income. For hard tree crop agricuture,expenditure is only required at the time of land clearing, however even thenexpenditure is not high as this task is done by individual farmers. High expenditureonly occurs in the event of attacks by pests or crop disease. Cashew and clove can beharvested for 2 months of the year; cocoa bean can be harvested for 8 months; andcoconut once every 3-4 months.

In the urban area of Tanalodu, many residents work in the service sector or areprivate and government employees, and as such recive a regular monthly income.Expenditure is also relatively stable. However, for those who work as traders or inhome industries, among them those who make cakes and furniture, there are seasons

where income increases, for example in times when there are many weddings or adatcelebrations.

Expenditure is influenced by social or adat activitites, both those that are routine oroccasional. In Ende, high-cost social activities include payment of bride price (anobligation to hand over livestock and other valuable items) for traditional marriageceremonies, First Communion ceremonies (a traditional ceremony for children inCatholic communities), and peletakan batu pertama (placing of the first stone)ceremonies (for houses built on traditional adat land under the mosalaki

4control). In

Tanalodu ceremonies connected with their matrilineal heritage such as reba(traditional new year) and ka sao (traditional house-warming), as well as First

Communion ceremonies also held in Ende. Almost all of these ceremonies requirelarge financial outlay, which burdens community members.

The seasonal calendar produced in the FGDs also show the specific seasons whenmany natural disasters such as attacks by crop pests, or endemic disease. Thesedisasters usually occur during DecemberFebruary and JuneAugust. In addition, high

4Mosalakiis the traditional community head, who also controls the land.

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expenditure is required at the beginning of each new school year, around June-July.These events also influence houshold financial conditions.

2.3. Vulnerability and Coping Strategies2.3. Vulnerability and Coping Strategies2.3. Vulnerability and Coping Strategies2.3. Vulnerability and Coping Strategies

Household interviews also provided information on frequently experienced events

that heavily influence family financial conditions, as well as the methods they use toovercome these situations. Respondents were asked to specify three frequentlyexperienced events, and rate them in order of frequency of occurrence. The results ofanalysis of the responses are as follows: 28% of respondents identified harvest failures,16% a death in the family, 13% due to illness requiring high financial outlay, and 9%due to the cost of a child continuing school. However, when adat requirements andcelebrations are grouped (marriage customs, death customs, adat celebrations andreligious celebrations), it is evident that they play a dominant role (19%). This isseen both in semi-urban and rural areas. If semi-urban and rural areas are compared,the factor of failed harvests is felt more by village communities (34%) than in semi-urban areas (19%). In contrast, the cost of expenses for the death of a family member

is felt more by people in semi-urban areas (20%) than in rural areas (13%), as withthe cost of a child continuing with school (13% in urban areas and 6% in rural areas,Table 2.6).

Table 2.6 Occurrances that Often Worsen Household Financial ConditionsTable 2.6 Occurrances that Often Worsen Household Financial ConditionsTable 2.6 Occurrances that Often Worsen Household Financial ConditionsTable 2.6 Occurrances that Often Worsen Household Financial Conditions

Most OftenMost OftenMost OftenMost Often Second optionSecond optionSecond optionSecond option Third optionThird optionThird optionThird option

OccurranceOccurranceOccurranceOccurrance

TotalTotalTotalTotalSemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural TotalTotalTotalTotal

SemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural TotalTotalTotalTotal

SemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural

1 Failed harves 28% 19% 34% 8% 5% 9% 3% 1% 3%

2 Death in the family 16% 20% 13% 15% 16% 14% 5% 4% 6%

3 Mariage (payment of brideprice) 5% 5% 5% 9% 8% 9% 6% 5% 6%

4 Funeral costs 5% 4% 6% 6% 4% 7% 4% 8% 2%5 Illness and medical costs 13% 14% 12% 10% 8% 11% 2% 0% 3%

6 Death of livestock 1% 0% 1% 0% 0% 0% 1% 0% 2%

7 Child continuing school 9% 13% 6% 6% 5% 7% 6% 5% 6%

8 Loss of work 2% 3% 1% 1% 0% 1% 1% 1% 1%

9 Failed/bankrupt business 1% 3% 0% 2% 4% 0% 0% 0% 0%

10Natural disaster 3% 3% 3% 2% 1% 2% 3% 0% 5%

11 Religious celebrations 1% 0% 1% 1% 1% 0% 1% 1% 0%

12 Village/adat celebrations 8% 9% 7% 6% 6% 5% 3% 4% 2%

13 Others* 9% 6% 10% 5% 5% 4% 9% 4% 12%

14No response 2% 3% 1% 33% 37% 31% 58% 67% 52%

* Others include home improvements, assisting family, and others

Strategies used to overcome the aforementioned high financial needs are presented inTable 2.7. In general, the efforts normally conducted by the community when theyexperience worsened household financial conditions are borrowing from neighbors(18%), borrowing from relatives (14.5%), becoming casual laborers (14.5%),borrowing from cooperatives (12%), or selling livestock (11.5%). Nevertheless,strategies to cope with the impact of events are quite different between semi-urbancommunities and rural communities. In semi-urban areas, the main strategy isborrowing from a cooperative (19%), drawing on savings (13.9%), or selling livestock

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(12.7%), while in rural areas, where financial services are not often available,strategies such as borrowing from neighbors (23.1%), or from relatives (19%), or bytaking a side job as a laborer (17.4%) are more often used. Strategies for the secondand third most frequently experienced events are almost the same. So financialinstitutions are used more by semi-urban communities to overcome extra financialneeds. In other words, financial institutions are not only needed for business capital,

but also for school fees, to overcome failed harvests, and for medical expenses.

TTTTable 2.7 Household Strategies to Overcome Financial Shocksable 2.7 Household Strategies to Overcome Financial Shocksable 2.7 Household Strategies to Overcome Financial Shocksable 2.7 Household Strategies to Overcome Financial Shocks

Most OftenMost OftenMost OftenMost Often Second optionSecond optionSecond optionSecond option Third optionThird optionThird optionThird option

StrategyStrategyStrategyStrategy

TotalTotalTotalTotalSemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural TotalTotalTotalTotal

SemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural TotalTotalTotalTotal

SemiSemiSemiSemi----urbanurbanurbanurban RuralRuralRuralRural

1Sell livestock 11.5 12.7 10.7 3.0 5.1 1.7 3.0 6.3 0.8

2Sell land/house 0,5 1.3 0 0.5 1.3 0 0 0 0

3Mortgage land/plantation 0 0 0 0 0 0 0 0 0

4Pawn valuble items 1.0 1.3 0.8 2.0 2.5 1.7 1.0 0 1.7

5Borrow from relatives 14.5 7.6 19.0 15.5 12.7 17.4 10.0 5.1 13.2

6Borrow from friends 4.5 2.5 5.8 5.0 5.1 5.0 1.5 0 2.5

7Borrow from neighbors 18.0 10.1 23.1 18.0 13.9 20.7 5.5 3.8 6.6

8Borrow from banks 6.5 7.6 5.8 3.0 3.8 2.5 1.5 2.5 0.8

9Borrow from cooperatives 12.0 19.0 7.4 7.5 8.9 6.6 4.5 6.3 3.3

10Borrow from employer 2.5 2.5 2.5 2.0 2.5 1.7 0 0 0

11Become a laborer 14.5 10.1 17.4 7.5 3.8 9.9 4.0 5.1 3.3

12Draw on savings 9.5 13.9 6.6 4.5 7.6 2.5 2.5 2.5 2.5

13Expand business 2.5 2.5 2.5 0 0 0 0.5 1.3 0

14Loan from usurer 1.5 2.5 0.8 1.0 1.3 0.8 0.5 1.3 0

15No respose 30.0 34.2 27.3 18.5 20.3 20.3 12.0 11.4 12.4

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III. USE OF AND DEMAIII. USE OF AND DEMAIII. USE OF AND DEMAIII. USE OF AND DEMAND FOR VARIOUS FINANND FOR VARIOUS FINANND FOR VARIOUS FINANND FOR VARIOUS FINANCIALCIALCIALCIALSERVICESSERVICESSERVICESSERVICES

Financial services can be differentiated into four categories: savings, loans or credit,

insurance, or transfer. In all sample villages, more than half of household respondentshave had savings

5outside the home and loans in the last five years. However, less

than 20% have held insurance or have used funds transfer (receiving or sending)transactions (Figure 3.1). Fixed income households use savings, loans and credit, andinsurance financial services more often (Figure 3.2); while relatively few agriculturalhouseholds use these services. The following analysis will give a more detailed pictureof the use and need for various financial services.

Figure 3.1 Percentage of Sample HousehFigure 3.1 Percentage of Sample HousehFigure 3.1 Percentage of Sample HousehFigure 3.1 Percentage of Sample Households who have used Financial Servicesolds who have used Financial Servicesolds who have used Financial Servicesolds who have used Financial Servicesin the Last Five Yearsin the Last Five Yearsin the Last Five Yearsin the Last Five Years

Figure 3.2 Percentage of Households that Still Use Financial ServicesFigure 3.2 Percentage of Households that Still Use Financial ServicesFigure 3.2 Percentage of Households that Still Use Financial ServicesFigure 3.2 Percentage of Households that Still Use Financial Services

5In this contexts, savingsrefers to cash savings in ac

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