Between customary law, the modern credit system, and the protection of krama

DENPASAR — Debate over Bali’s Village Credit Institutions (Lembaga Perkreditan Desa/LPD) has resurfaced after Advocate I Made Somya Putra, S.H. questioned the tendency to place all LPD mechanisms within the framework of customary law through awig-awig and pararem.

According to Somya, LPDs are indeed based in Desa Adat, but mechanisms involving savings and loans, interest, collateral, debt collection, and credit are modern financial instruments, not traditional Balinese economic systems. LPDs themselves were established only in 1984 through Bali Governor’s Decree No. 972 of 1984.

Legally, LPDs occupy a unique position. Law No. 1 of 2013 on Microfinance Institutions recognizes the existence of LPDs based on customary law. Bali Regional Regulation No. 4 of 2019 subsequently adopted the nomenclature Labda Pacingkreman Desa.

However, this legal recognition does not automatically resolve governance issues.

When Customary Law Meets Credit

This is where the paradox emerges: modern in financial terms, customary in institutional terms.

When non-performing loans enter the social and customary sphere, the boundary between economic obligations and social sanctions must be maintained. Loan defaults must not automatically be interpreted as matters concerning a person’s status as krama.

Several cases involving troubled LPDs in Bali also demonstrate that being an institution owned by Desa Adat does not, by itself, guarantee sound governance, effective oversight, or protection of public funds.

Therefore, LPD issues cannot be discussed solely from a customary perspective. They must also be examined through the principles of good governance, transparency, auditing, risk management, customer protection, and the accountability of managers.

Paras Paros, Not Merely Credit

Somya proposes the idea of a Paras Paros Village Institution, with an approach that assists residents not merely through loans, but also through business mentoring, economic empowerment, and contributions back to the community.

This idea is compelling, but it still requires a concrete design: sources of capital, management structures, auditing, risk-sharing arrangements, and mechanisms for protecting residents.

Ultimately, the central question is not merely “Is the LPD a customary institution?”

Rather:

“Do the LPD’s financial mechanisms truly reflect justice, mutual cooperation, and the protection of krama?”

“Custom” must not become a form of social legitimacy for modern financial mechanisms, while the values of paras paros and segilik-seguluk sebayantaka lose their substance.*Netti

Journalistic Work | An analysis of the legal framework, institutional history, and governance of Bali’s LPDs.