Journal of Internet Banking and Commerce ISSN: 1204-5357
ISSN: 1204-5357
+44-175-271-2024Candradimuka Social Sciences and Politics Academy, South Sumatera Palembang, Indonesia, Tel: +6281273934710; Email: umidris@gmail.com
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Capital shortage caused farmers working in low productivity, besides that limitedness in human resources is also a serious obstacle for many farmers and group of farmers, especially in the aspects of management and production techniques, developing product, quality control, business organization, marketing techniques, and market research. The existence of microfinance institutions with the provision of loans with easy terms and consultation services program are an alternative solution to solve the problems. Primary data was collected through survey technique from 200 respondents and taken by random sampling method and was analyzed by structural equation modelling (SEM). The result showed that in aggregate program microfinance which consisted of farmer financing program and consultation services program had a positive impact towards farmers’ group empowerment and farmer’s group performance. Farmers’ group empowerment and farmers’ group performance had a positive impact toward farmers’ group living standard. It means the hypothesis was accepted. From goodness of fit indices showed that the analysis model could be accepted or had a special meaning was called unidimensional as a new concept that had been tested base on factual and empirical data.
Microfinance Institutions, Empowerment, Performance, Living Standards, Farmers’ Group
Agricultural and rural sector had a strategic role in the economic development of Indonesia as this sector employed many workers, contributor to gross domestic product (GDP), to prevent urbanization of the population from rural to urban, and the source of income of the majority population. The existence and role of agriculture in Indonesia cannot be doubted, a government mandate that priority was placed on the development of economic sector and focused on the agricultural sector. Economic activities in the rural areas still dominated by micro and small scale enterprises with the main actors of farmers, farm workers, traders and agricultural inputs, agricultural product processing, and home industries. However, the agent of this business is still faced with the classic problem is the limited availability of capital and lack of managerial skills. As an essential element in supporting the improvement of production and living standards of the rural population, capital shortage and limitedness of managerial skills in the space activities of the agricultural sector and rural areas. In the long term, scarcity of capital and the lack of quality human resources can be the entry point the chain cycle of poverty in rural communities that are difficult to break.
The most distinctive feature life of Indonesian farmers, especially in South Sumatera was the difference in the pattern of receipts, income and expenses. The production was received by farmers every season while spending should be held every day, every week or sometimes in a very urgent as death, wedding party and other salvation. Rich farmers could save crops to be sold piece meal at a necessary time while poor farmers (landless and land tenure narrow) is still difficult to store the product.
Rusbina [1] explained that the majority of Indonesian farmers are poor or low income, the average income of farm households is still low, only about 30% of total family income. In addition dealing with the low incomes received by farmers, rice farmers are also faced with the lack of capital to run the farm as well as a decline in production and productivity of their agricultural products. For the existence of credit is needed by farmers to carry out their farm activities. With the credit, farmers can support the needs of their farm, to increase production and farmers' income later.
One of the efforts to empower farmers, the economically disadvantaged or rural small farming sector is to provide a source of farming financing which easy and affordable. One of the financing strategies for this group is microcredit. The main problem in the supply of credit to small farmers is the gap between the distributions with the acceptance of credit. Many capital institutions with various loan schemes offered to farmers, but in fact only be accessed by certain groups of people, while small farmers are still difficulties.
Supriatna [2] stated, untill now the formal financial institutions have little attention to the poor farmers in terms of providing loans. This is because: (a) farmers do not have land certificates guarantee, (b) a payment on a monthly basis is not in accordance with paddy farming are on seasonal production cycles and (c) of small farmers are generally not familiar with the complicated administrative procedures. The formal institutions only uses by groups like the rich farmers of rice miller, merchant production inputs and other business people. In contrast, small farmers can access to informal credit institutions because they do not require collateral and procurement procedure is very easy, even though the usurer set a high interest rate between 24%-80% per year [3]. To solve the lack of capital problem it needs to optimize the potential of financial institutions which can be an alternative source of financing for farmers and rural communities. Financial institution that can be exploited and encouraged to finance economic activities in rural areas of farming mayor population still in the micro segment is the microfinance institutions. The advantages of microfinance institutions is most real, the procedure is simple, unsecured, personal relationship, and negotiable repayment. The characteristics of the economic actors in rural areas (especially in agriculture) which have limited assets, low income levels and the revenue cycle is irregular [4].
Further he stated, specifically in the context of rural economic development which is still dominated by the agricultural sector, the potential of which can be played by microfinance institutions in promoting economic growth is huge. There are at least five reasons to support this argument. First, microfinance institutions generally are, or at least close to the rural areas so that it can be easily accessed by farmers as economic actors in the village. Second, farmers prefer a short process and without a lot of procedures. Third, the characteristics of farming generally require plat-fond credits are not too big to fit on the financial ability of microfinance institutions. Fourth, the proximity of microfinance institutions and farmers allow microfinance institutions understands the characteristics of the farm so that it can disburse loans in a timely manner and amount; and fifth, their socio-cultural linkages and relationships that are personal-emotional nature is expected to reduce moral hazard in the credit repayment.
In macro scale, the presence of microfinance institutions in rural can be a critical factor in effective poverty reduction in rural areas. According to Krishnamurti [4] increase access and provision of storage facilities, financing and insurance that can efficiently build the empowerment of the poor and their chances to get out of poverty, through (1) the level of consumption is more uncertain and fluctuating, (2) managing risk with more well, (3) gradually have the opportunity to build assets, (4) developing micro-business activities, (5) strengthening the capacity of the acquisition of its revenues, and (6) can sense the level of a better life.
The Act No. 1 of 2013 about microfinance institutions is one of the government's efforts to encourage the development and improvement the role of the farmer in terms of capital and improved operating performance, as long as this group of farmers constrained in financing access to formal financial institutions and limitedness of human resources. According to the Act, microfinance institutions are a financial institution that is specifically established to provide business development services and community empowerment, either through a loan or financing for micro enterprises to the public, the management of deposits, as well as the provision of consultation services for business development not primarily for profit [5]. From these definitions imply that a microfinance institution is an institution not only profit motive but also social motive, whose activities as a financial intermediary [6].
From the foregoing it can be said that in order to develop the economy of rural areas to be strong, powerful, self-reliance and have an impact on the improvement of the national economy are organized based on economic democracy with the principles of togetherness, efficiency with justice, sustainability and with an advanced balance of progress and national economic unity requires the role and presence microfinance institutions in meeting the capital requirements of doing business and increase empowerment consulting services for high motivation, expertise, and skills that support can generate empowerment of farmers' group, business performance, and eventual improvement of living standards towards better and sustainable.
This study was conducted to see if the programs that microfinance institutions did in the form of programs providing easy financing and consulting services have a positive impact on the improvement of living standards of farmers groups in South Sumatera. An understanding of this objective is important because by knowing the program that has been run by microfinance institutions we hope the South Sumatera’ agriculture and farmers’ group will develop and progress.
The objectives of this research are:
1. Analyze the program that have been done by microfinance institutions as mandated by The Act No. 1 of 2013 in the form of farming financing and consultation services on farmers’ group in South Sumatera.
2. Assess how far the effect of the implementation of microfinance institutions in the form of farming financing and consultation services on the existence of farmers’ group in South Sumatera.
The existence of farmers and group of farmers as public economy in Indonesia means that the national economy is rooted in the potential and the power of community widely in administering their own economy. Until now this public economy is growing slowly because there are many obstacles faced, therefore this public economy must be developed especially in its operational performance improvements so they can still endure in trying and give the maximum contribution on gross domestic product. Microfinance institutions is one of the government's efforts to encourage the development the public economy especially in terms of capital and improved operating performance in order to give the maximum contribution to gross domestic product (GDP).
According to the definition used in the Microcredit Summit (1997) in Wijono [7], microcredit is a program of credit for small amounts to the poor to finance productive activities that his working on his own in order to generate income, allowing them to care for themselves and their families. The Central Bank of Indonesia defines microcredit as loans for productive business actors, both individuals and groups that have the most bank proceeds of 100 million IDR per year. While the Indonesian People Bank is defined as a micro-credit loan services under 50 million IDR. There is much more the definitions of microcredit or microfinance depend from the point of the conversation.
Financial institutions involved in micro lending are generally referred to by microfinance institutions. Asian Development Bank (ADB) defines microfinance as an institution that provides deposits, loans, payment of various payment services and money transfers intended for the poor and small and poor farmers. Thus microfinance institutions have a function as an institution that provides a wide range of financial services for low income people and micro-enterprises. According to the Ministry of Agriculture of Indonesia (2004), microfinance institutions developed by a passion to help and facilitate the poor, for both consumptive and productive activities of the poor families. Based on the function, the microfinance services implemented by microfinance institutions have a wide variety, namely in the form of credit or other financing.
Even though there are many definitions of microfinance institutions, but generally there are three essential elements of the various definitions. First, it provides various types of financial services. Microfinance experience traditional Indonesian society as village banks and provide diversified financial services such as savings, loans, payment, deposits, and insurance. Second, it serves the poor. Microfinance is alive and thriving in the beginning is to serve the people who are marginalized by the formal financial system so that it has the characteristics of a typical constituents. Third, using the procedures and mechanisms are contextual and flexible. This is a consequence of the communities served, so that the procedures and mechanisms developed to microfinance would always be contextual and flexible [8].
Based on the shape, microfinance institutions are divided into three [9], namely: (1) formal institutions such as rural banks and cooperatives, (2) institute a semi-formal e.g. non-governmental organizations, and (3) the sources informal, e.g. money lenders, While Usman et al. [10], divided the microfinance institutions in Indonesia into 4 major categories, namely (1) a formal microfinance institutions, both banks and non-banks; (2) non-formal microfinance institutions, whether incorporated or not; (3) microfinance institutions established through government programs; and (4) microfinance institutions such informal money lenders or social gathering. The Central Bank of Indonesia only divided microfinance institutions into two categories, namely a tangible microfinance institutions and non-bank banks. Differences in this category may occur due to differences in the criteria used, either in relation to legal aspects and procedures in the operation of each microfinance institutions. Microfinance institutions that intangible bank is Unit Village Indonesian People Bank, Rural Bank and Rural Credit Agency. Non-bank are credit unions, savings and loan, funding agencies rural credit, baitul mal wattanwil, financing Grameen pattern, and credit union. Even though Unit Village Indonesia People Bank and Rural Bank categorized as microfinance institutions, but due to the requirements of using conventional bank lending, mostly micro entrepreneurs are still difficult to access [11].
Rural Credit Agency (RCA) is a milestone in the history of microfinance institutions in Indonesia. It is starting establishment for the Village in 1897 by non-governmental groups. Village granaries and village bank is then known as the rural credit agency, which is the forerunner to the establishment of small credit institutions.
Limitations of farmers group, small and micro enterprises to access to formal banking institutions is a very large market potential that could be cultivated field’s microfinance institutions. According to Ministry of Cooperative data, Small, Medium and Micro Enterprise (2012) stated that in 2012 there were more than 56 million units of micro and small enterprises engaged in agriculture, livestock, forestry, and fisheries. If assuming that each unit of micro and small businesses an average needs 1-5 million IDR for working capital, then there will be a potential demand for financing of approximately 56-280 million IDR that could be served by microfinance institutions [12].
Although generally charges on loans from microfinance institutions were slightly higher than bank interest rates, but in the administrative procedure or lending, microfinance institutions (especially for non-bank) have several advantages. Among these advantages, for example there is no requirement of collateral or guarantees as applied to formal banking. Even in some types of microfinance institutions, lending is based more on trust because usually the borrower is already known by the microfinance institution. Another convenience is the disbursement and repayment of the loan is very flexible and frequently adjusted cash flow of the borrower.
The fundamental problem faced by most farmers and farmer groups are the lacks of access to sources of capital. Though the availability of sufficient funds to finance working capital needs or investment is an absolute requirement in the farming, so the business can run optimally and grow progressively and farmers' welfare can be improved. Capital requirements during this time can be derived from their own capital, government assistance in the form of revolving capital, as well as from financial institutions in the form of external financing. Capital is the principal driving force for farming development. Access to capital is often regarded as a key in setting up and developing a business [13].
During the existence of formal financial institutions by lending a light tend to be difficult to be accessed by farmers. This is because many requirements given to get a loan, farmers do not have collateral in order to get loans from formal financial institutions; lending procedures are considered to be convoluted by farmers, and payment patterns that do not fit with acceptance of farming. So farmers tend change to informal financial institutions to assist its capital. Assistance with low interest loans are more fall into the middle income group to the top. The parties who get the credit it will act as an informal credit institution to farmers, where they get the help of credit that will be lent to small farmers with high interest rates.
The capital shortage faced by farmers is a great challenge to be solved, because the capital is important in agriculture, until now farmers in research area in lack capital to run their farming. On the other hand, the farmer’s conditions in limitations make them difficult to get credit from formal financial institutions. In addition borrowing mechanisms in formal financial institutions deemed too convoluted by farmers. The existence microfinance institutions with provide credit on easily condition are do need because of the nature of microfinance institutions directly near the farmers, established by farmers, managed by farmers and serve the farmers, which serves as an alternative institutions for capital of farmers.
Limitations in human resources is also a serious obstacle for many farmers and farmers group in Indonesia, especially in the aspects of entrepreneurship, management and production techniques, product development, quality control, business organization, marketing techniques, and market research. While all of this expertise is needed to improve efficiency and productivity, maintain or improve the quality of products to expand market share and penetrate new markets.
Most of farmers group grew traditionality and the business that was based in agreement. Limitations of the quality of human resources both in terms of farmers' formal education as well as knowledge and skills greatly affect the management of their farm, so that the business is difficult to develop optimally. In addition to the limitations of human resources, the farming units are relatively difficult to adopt new technological developments to enhance the competitiveness of the products that produced.
Often said that to solve the problem of farmer's human resources, providing direct training to farmers is very important and this is the only way that is most effective. However farmers sometimes cannot alone bear the cost of training. Indeed, so far has been a lot of training and counseling given by the government to farmers. It's just that its effectiveness is still questionable, because many farmers who had attended training from the government complained that such training is often too theoretical, too short a time, there was no follow-up, and often do not match their actual needs.
Limitation of human resources of farmers and farmers group is a serious threat to the agricultural people of Indonesia to improve the productivity, sustainability of farming, compete well in domestic and international markets. In the era of free trade later characterized by the importance of continuous quality human resources together with the technology will be more important than capital as the main determining factor farmers' ability to improve its global competitiveness. Absah [14] found that the proactive competence possessed human resources organization in running the business has a strong influence on the performance.
H1: Farming financing and consultation services given by microfinance institutions have a positive effect toward farmers’ group empowerment and farmers’ group performance.
H2: Farmers group empowerment and farmers’ group performance have a positive effect toward farmers’ standards of living.
This research is explanatory research, which aims to explain the causal relationship between variables through hypothesis testing and implemented invitation descriptive analysis and verification approach. Data from respondents was obtained through questionnaires and in-depth interviews on selected samples.
The population in this study is all farmers’ group in South Sumatera that as many as 16,759 group [15]. Further in sampling techniques, originally of South Sumatera were divided into groups according to the city and regency. Then the city and regency are the number of farmers’ group over 1,000 groups as the primary sampling unit, and of primary sampling units were taken in part. From the results of calculations and research needs of the sample is 200 farmers’ group.
There are two classes of variables used in this study, i.e. exogenous variables and endogenous variables. The operational definition of variables that will be involved in the analysis process are as follows: farming financing program (X1) is a program of the ease of microfinance institutions in helping the capital of farmers group; consultation services program (X2) is a program of coaching and mentoring efforts farmer group human resources in the field of farming; farmers group empowerment (X3) is a condition that describes the empowerment of farmers group after the program microfinance institutions; farmers group performance (X4) is a condition that describes the results of operations that both the quality and quantity of farmer groups accompanied by a change in the scale of the farming after their program microfinance institutions; farmers group standards of living (X5) is a condition that describes economic improvement in the lives of farmers and members of the group regularly and continuously.
Data were analyzed using analysis of different test average ANOVA and structural equation modelling (SEM) to test hypothesis and confirm the theoretical model established [16]. Therefore analysis using SEM require numeric data, the ordinal scale data obtained must be converted to interval scale. The model is developed and lines drawn on a diagram, subsequently convert the model specification into a series of structural equations. This equation was formulated stating a causal relationship between the various variables.
Based on the diagram of the path of structural equation model that can be built are:
X3 = α0 + α1X1 + α2 X2 + δ1
X4 = β0 + β1X1 + β2X2 + β3X3 + ζ2
X5 = φ0 + φ1X1 + φ2X2 + φ3X3 + φ4X4 + ς3
Data was presented in SEM using AMOS program that has been prepared, computing will generate estimates measurement standardized model of confirmatory factor analysis of the data presented. The relationship between the exogenous variables and endogenous variables that indicate the total influence of each variable contained in the model can be seen in Figure 1.
Figure 1: Path Diagram of Structural Equation Model Interrelated Variables.
The results of calculations SEM of Figure 1 shows that there are significant positive and significant impact between farming financing program of microfinance institutions (X1) towards farmers’ group empowerment (X3) is 0.68 and farmers’ group performance (X4) is 0.55 means that the hypothesis can be accepted, the impact is quite strong. This means that farming financing program implemented by microfinance institutions can help and play an active role in strengthening empowerment and improved performance of farmers’ group. From the results if the data indicates that the presence of microfinance institutions as a source of finance providers’ farm with an easy procedure becomes increasingly important for farmers' activities in the research area. Providing funds are easily obtained on conditions that are not burdensome become one of the main elements forming the empowerment and improved performance of farmer groups, and the presence of microfinance institutions as providers of funds is the best approach in an effort to empower and increase the performance of a group of farmers in rural in order to strengthen the agricultural sector of the people in South Sumatera.
In Indonesia it can be said that the majority of farmers and farmers’ group in rural areas group was poor and low-income and many of them were not covered by the services of commercial banks, because of the requirements that must be met is very difficult for them not to mention the availability of collateral as a condition that incriminating, without access fixed on banking services, almost all of these groups rely financing on its own capabilities are very limited, or the financial institution informal (money lenders and traders), which limits the ability of these groups to participate in the development of its business [17].
Although not only in factor of production agriculture, but also within certain capital shortage is a critical factor. It is not uncommon that the lack of funds is a constraint that inhibits the farmers in managing and developing the farm. The capital adequacy through financial assistance can function effectively to achieve the optimal level in the scale of operations and the adoption of technology and post-harvest [18]. The role of capital is an important factor, ideally, be a key factor in the economic development process and is very influential to the volume of business, results of operations (production), and an increase in the income of a business economy [19].
Consultation services program (X2) have positive and significant impact towards the empowerment of farmers’ group (X3) and the performance of farmers’ group (X4) with impact coefficient each are 0.61 and 0.59, from the above calculations indicate that the consultation services program have important role to empowerment and performance improvements of farmers. Consultation services program are important in improving the quality of human resources of farmers and farmers’ group. Major of Indonesian farmers’ education is largely finished elementary school, junior high school graduates 15%, senior high school as much as 9%, and only 1% of college graduates. Empirical evidence shows that being a farmer is not prepared with sufficient ability and knowledge in the run. In terms of the agricultural sector is one of the important elements that can sustain the nation's economy [20].
Lack of education, farming skills, and lack of basic about farming caused low of ability and quality of human resources of farmers’ group. The result is a group of farmers and lack of knowledge laneways and modifications to improve the quality of production, production, productivity employment, and marketing techniques. Program of the consult provided by microfinance institutions in the form of guidance for farmers to remain on shore run farming well is an important factor to improve education and knowledge and motivation to move forward, it is very important to increase confidence and understanding in trying to farmers and farmers group. Education is an important factor to change the economic backwardness and raise the ability and motivation to move forward, it is essential to improve the knowledge and skills of farmers. In fact, without improving quality human factors may be no progress, related with that education becomes something that needed [21].
Ali [21] stated that the increase of knowledge and education as an element of developing humans is the factor most strategic to national development, therefore, an important aspect to be considered for empowering people in rural education is due to human education not only has a stock of knowledge but also have the ability to actively participate in development activities. Man is the key element in addition to other elements in the management plays an important role in any work done. Consultation services program is the effort given to guide and improve the quality of the resources of rural farmers and farmers group. In relation to that, Red [22] in his study also found that changes to individuals or organizations that invest in the quality of human resources will improve performance changes individual or organization concerned.
Empowerment of farmers’ group (X3) has positive and significant impact towards the performance of farmers’ group (X4) with impact coefficient is 0.72. From the above calculations indicate that the empowerment of farmers’ group have an important role in improving the performance of the farmers group. In the world of agribusiness, the sense of empowerment associated with the ability or productivity. Therefore, empowerment of farmers is defined as a process improvement or productivity optimization capabilities, an individual, organization, or a system where farmers are busy. On the other hand, the empowerment of farmers is also interpreted as a competitive advantage or bargaining position of the farming community. Therefore, empowerment can also be interpreted as a reinforcement or increase competitive advantage or bargaining position [23].
Bebbington et al. [24] stated: empowerment is a process through which those excluded are able to participate more fully in decisions about forms of growth, strategies of development, and distribution of their product. Community empowerment is an effort to improve the dignity of society in the state now cannot afford to escape the trap of poverty and under development, in other words, empowerment is to enable and strengthen the self-reliance of the community that will ultimately improve their performance.
Empowerment of farmers’ group (X3) and the performance of farmers’ group (X4) have simultaneously significant impact towards improvement of living standards of farmers’ group (X5) with coefficient of impact respectively 0.62 and 0.66. This suggests that efforts to improve the living standards of farmers and farmers’ group are empowerment and high performance achievement of groups of farmers.
In the life of the farmer community, the position and function of farmers group are part of social institutions that facilitate social interaction in a community. Empowerment of farmers group to improve attention and motivation to strive farmer will be gives results when utilizing the significance and potential of 3 main keywords in institutional context, i.e. norms, behaviors, and health conditions and social relationships. The significance of these keywords is reflected in the behavior and actions of farmers, both in the individual and in the act of collective action and communal. Any decisions taken will always related to or limited by the norms and social institutions of farming communities in the environment [25]. Farmers’ group play significant role, such as learning forum seeks farmer and association, vehicle for cooperation, and farming production unit. In addition, farmers groups also play a role in giving feedback on technology performance, so that it becomes an evaluation for further improvement.
In philosophy, the need for farmers’ group formed to solve the problems faced by farmers who cannot be addressed individually. The formation of farmers group is an embodiment of the process consolidated agriculture, so as to produce optimally and efficiently. Because with consolidated agriculture, provision of means of production and sales results can be conducted jointly. Thus, the volume of inputs purchased and sold volumes result becomes greater, resulting in procurement cost per unit results will be lower. Farm rationalization pursue efficiency and the added value this will reduce traditional farmers. Farmers group are one way to empower farmers to increase productivity, income and welfare of farmers [26]. Microfinance institutions with funding programs are easy and helping and consulting services provided in an effort to improve the quality of farmers has a significant meaning.
Empowerment of farmers is an implication of the agricultural development strategy based on the farming community as a principal element. Associated with it, empowering farmers often refer to the improvement efforts, performance improvements, including improvements in the quality of human life, physically, mentally, and economically. Empowerment itself, whether through increased education, technology, business credit, social capital, and institutional farmer all aimed at improving the performance and welfare of farmers [27,28].
Indices goodness of fit test conducted to determine whether the model used have met the requirements of analysis or not. From the test results of the research model calculation is shown in Table 1 below.
Table 1: Goodness of Fit Indices of Overall Model.
| Goodness of fit Index | Cut off Value | Result | Description |
| χ2-Chi square | 11.254 | Good | |
| Significance Probability | ≥ 0.0 | 0 | Reasonable |
| RMSEA | ≤ 0.0 | 0.072 | Reasonable |
| GFI | ≥ 0.9 | 0.913 | Reasonable |
| AGFI | ≥ 0.9 | 0.908 | Reasonable Enough |
| CMIN/DF | ≤ 2.0 | 1.596 | Reasonable |
| TLI | ≥ 0.9 | 0.964 | Reasonable |
| CFI | ≥ 0.9 | 0.959 | Reasonable Enough |
Test results in above Table 1 showed that the Chi square value is relatively small, in the analysis of SEM requires the amount should be small, for values are in compliance with the provisions of the test. Thus, it can be said that the analysis model can be accepted or can be said to have a specific meaning or a phenomenon called unidimensional as a new concept that has been tested factually based on empirical data.
Development of the agricultural sector cannot be separated from farmers and farmers group as the sector's direct actors. During this time the fundamental problems faced by farmers in Indonesia generally and in South Sumatera as a research area in particular is the lack of access to sources of capital, markets and technology, education and peasant organizations are still weak [29]. Capital shortage facing many farmers due to lack of special credit facilities for farmers on the one hand, and constraints against financial facilities provided by formal financial institutions (banks) and non-banks on the other. There is a tendency that the farmers are not interested in taking formal channels, mainly because quite a number of administrative and economic requirements that must be met. Bureaucratic pathways that must be passed to take advantage of the credit packages also tend to cultivate kind of discriminative properties in various packages such credits. Due to the difficulty in obtaining working capital and investments of financial institutions, the farmers often prefer to hold lending to private lenders who provide debt is relatively easy, despite paying relatively high interest rates.
Besides the capital, human resources factor are the central issue to be considered in any effort to improve the living standards of rural farmers and farmers group. Empirical data showed that one factor caused the handicap of development of the agricultural community in the area of research is the level of education of farmers who relative still low. Lack of education will lead to low capacity and quality of farmers in understands and anticipates the farming activities both in the areas of production management, marketing strategy, and business technology. This condition is contrary to the modern concept of agriculture that uses technology information as the basis of farmers’ empowerment [30].
To answer the problem of capital shortage and by improving the quality of human resources of farmers, it is necessary to further optimize the potential of financial institutions which can be an alternative source of funding for farmers and rural communities. One of the financial institutions that can be exploited and encouraged to finance economic activities in rural areas the majority of businesses included in the micro segment of the population is a microfinance institutions. This institution actually has a lot of growing and entrenched in rural communities, but has not been used optimally.
In a macro scale, the presence of microfinance institutions in rural areas can be a critical factor and effective poverty reduction in rural areas. According to Krishnamurti [31] increase the access and provision of storage facilities, financing, and insurance that can efficiently build the empowerment of the poor and their chances to get out of poverty, through: (1) the level of consumption is more uncertain and volatile, (2) managing risk better, (3) gradually have the opportunity to build assets, (4) developing micro-business activities, (5) capacity of acquisition strengthens its income, and (6) can sense the level of a better life.
He also noted that without adequate access to financial institutions (micro), almost all households poor farmers will depend on the ability of its own very limited financing or the informal financial institutions such as moneylenders, middlemen or moneylenders. These conditions would limit the ability of the poor to participate in and benefit from development opportunities. Poor groups who generally live in rural areas and strive in the agricultural sector are supposed to be empowered so that they can get out of the cycle of poverty. The agricultural sector will of course remain a key sector in poverty reduction efforts and to strengthen rural economies. Experience the economic crisis (1997/1998) showed that at the time of national economic growth contracted by -13.7%, it turns out the agricultural sector is still positive growth by 0.2%. In addition to being the savior of the economy during the crisis, agriculture is also well aligned with other sectors such as industry, services and other economic activities. Thus, the empowerment of the agricultural sector (including by increasing accessibility of financial institutions) is expected to generate a multiplier effect for growth in other sectors. Microfinance represents a new way for financial capital to stimulate potentially stimulate growth in developing countries [32].
From the analysis above shows how important the existence and role of microfinance institutions to strengthen capital and performance as well as the improvement of living standards of rural poor farmers’ group. From above findings it can be said that the analysis and the proposed concept in line with the findings of previous researchers stating that the presence of microfinance institutions to support the continuity and develop the farmers group that include many aspects, start from farming financing program that is not burdensome, the provision of consulting services that have a positive impact on the empowerment and improvement of the performance of the farmers and farmers’ group. In this case the microfinance institutions that have contributed in no small part. Microfinance institutions as financial institutions have a strategic role as mediating in economic activity for the poor rural areas [33].
Microfinance institutions as one of the financial institutions need to be intensified effort to strengthen its role as capital and performance of rural farmers’ group that will provide opportunities to play their part in strengthening the national agricultural sector. Easy farming financing program should be continued to be given in an effort to support and strengthen the venture capital for the development of farmers’ group and increased productivity. Consultation services program always needs to be improved by taking into account the limited resources of farmers and farmers’ group, so that the farmers’ group can continue running the farming operation in accordance with the rules of ideal agriculture and high motivation to move forward. Evolving and advancement of rural farmers' group is one of the national strategies and policies that will contribute in boosting the growth of the agricultural sector which is driving the country's economy.
This study was conducted to see the impact of the microfinance institutions programs towards improving the living standard of rural farmers’ group in South Sumatera. From the analysis it can be seen that the farming financing program with easy terms and consultation services program for farmers’ group in the study area had a positive response from the 200 farmers’ group as respondents. It gives the sense that the presence of microfinance institutions as financial institutions as mandated by The Act No. 1 of 2013 about microfinance institutions meant so significant to the life and existence of rural farmers’ group. Further, goodness of fit test indices we can accept the model established. This means that all the variables involved in the analysis can be justified as a research model.
This study is intended as the efforts to understand The Act No.1 of 2013 about Microfinance Institutions by seeing the programs on farmers’ group empowerment and farmers’ group performance in South Sumatera as the research location. Results of this study may not have been fully intact because other issues outside the model still make it possible for other researchers to observe it in more depth. This is important because farming as public economy that provides enough participation to increase people's income and the growth of national economy.
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