TEMPO.CO, Jakarta - The West Jakarta District Court acquitted Henry Surya, the owner, and founder, of Indosurya Saving and Loan Cooperative (KSP) of all charges on January 24 in a fraud case. Prosecutors charged Henry for defrauding and embezzling cooperative funds amounting to Rp106 trillion. However, the judge ruled that the cooperative fund matters were governed by the civil, not criminal, law.

The government was bitterly disappointed by the verdict. In a press conference on January 27, Political, Legal and Security Affairs Coordinating Minister Mahfud Md stressed the government would appeal. “I proposed other legal remedies because what’s most imperative is that Indosurya fulfills its obligations to the members,” said Cooperative and Small and Medium Enterprises (SMEs) Minister Teten Masduki during an interview with Tempo on Friday, February 3.

Indosurya’s default is typical of large cooperatives. There are around 18,000 saving and loan cooperatives similar to Indosurya among 123,000 cooperatives in Indonesia and eight cooperatives have had trouble paying up their members since 2020. Indosurya which has 23,000 members has been in operation for eight years.

Teten said Indosurya’s failure to pay threw light on the flaws in the cooperative ecosystem that lacked external oversight. Consequently, masquerading as cooperatives, scammers like Indosurya are able to commit financial crimes. To prevent more scams, the government will propose the revision of the Cooperative Law. In the future, Teten said, cooperatives would have an oversight body similar to the banking sector’s Financial Services Authority (OJK), and the Deposit Insurance Corporation (LPS) for small customer funds.

Where did the cases involving saving and loan cooperatives including Indosurya stem from?

In 2020 during the pandemic, eight KSPs failed to pay their investors. They are Sejahtera Bersama, Intidana, Praciko, Praciko Inti Utama, Indosurya, Timur Pratama Indonesia, Lima Garuda, and Jasa Berkah Wahana Sentosa. As a whole, KSPs or cooperatives are different from banks. The banking system has been in order since 1998 and is overseen by the OJK. If there’s any default, the OKJ determines if the impact will be systemic or not. If a systemic impact is imminent, there would be a bailout. For small savings, we have the LPS. Meanwhile, there are around 123,000 cooperatives. Large cooperatives have massive assets, namely, Kospin Jasa with Rp11 trillion, Syariah Pesantren Sidogori with Rp4.7 trillion, Lantang Tibo over Rp4 trillion and Keling Kumang over Rp2.5 trillion. The institutional ecosystem in the cooperatives is not that good. According to the law, cooperatives are self-governing and self-monitoring institutions. The Cooperative Law does not delegate any supervisory authority to the cooperative ministry.

Then what authority does the ministry have?

Cooperative registration is at the justice and human rights ministry, and the saving and loan business permit is at the cooperative ministry. As we don’t have a supervisory function, our role is more in coaching. In essence, cooperatives supervise themselves. The annual meeting of the members which is the highest forum elects administrators and supervisors. But in practice, this is not the case in many cooperatives. The eight cooperatives in question did not actually start as cooperatives except one, Sejahtera Bersama KSP based in Bogor, West Java, which was indeed founded as a saving and loan cooperative. Others were founded by entrepreneurs. That really worries me because the cooperative ecosystem including supervision facilitated in the Cooperative Law is very weak. Banking scammers and criminals have infiltrated cooperatives as in the case of Indosurya. That is precisely the same situation as in our banks in 1998. They collected funds from the public for themselves. They applied no credit threshold or loan-to-deposit ratio (LDR) regulation.

How did Indosurya acquire the permit to operate as a savings and loan cooperative?

Indosurya received the permit from the cooperative ministry in 2012. In 2018, it was reprimanded for acting beyond its functions as a KSP. But there are also many ‘open loop’ cooperatives (which give loans to non-members) or financial service cooperatives, the cooperatives that set up people’s credit banks. Cooperatives are divided into two. Closed-loop cooperatives are under the cooperative ministry’s supervision whereas open-loop cooperatives are overseen by the OJK. KSPs are supposed to be closed-loop. That’s one of the loopholes in the Cooperative Law. In my opinion, Indosurya KSP practically is a financial services company. Those who deposited funds in Indosurya were actually investing in Indosurya’s securities company that uses the cooperative’s books for transactions. That’s how they avoided OJK’s attention as they know that the government does not have the authority over KSPs.

Did Indosurya fulfill the requirements to operate as a cooperative?

In the beginning, perhaps it did but in my opinion, it doesn’t. It is not a saving and loan cooperative because it engages in open-loop transactions. The case emerged in 2020 during the Covid pandemic. Like Sejahtera Bersama, it was initially a pure saving and loan cooperative but then it took the wrong business initiatives. They offered investment products to non-members with high returns and invested the money in high-risk sectors such as hotels and property. When the pandemic struck, things went south. That was exactly the situation in 1998.

Did they make corrections after being reproached by the ministry?

There are flaws in the law. In the beginning, there was confusion with the OJK which felt that the ministry should have supervisory control over KSPs. But Indosurya had actually carried out shadow banking. That’s in OJK’s jurisdiction. But the OJK argued that since it was a cooperative, albeit its shadow banking activities, the company should be under the ministry’s supervision. The law is not clear, for instance, there is no stipulation as to whether a KSP that engages in shadow banking can be criminalized.

What can the ministry do?

It can be disbanded. However, since it is a cooperative, it should be disbanded by the members via the annual meeting. The ministry cannot disband it. At most, we can revoke the saving and loan business permit. As far as I know, the government cannot dissolve it either because it is an autonomous entity.

Read the Full Interview in Tempo English Magazine