Review of Co-op Laws in Indonesia (1997)

This document has been made available in electronic format
by the International Co-operative Alliance (ICA)

Part II - Review of Country Laws - Indonesia (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.74-82)

The beginning of co-operative movement in Indonesia
can be traced with the formation of first co-operative
bank `Hulp en Spaarbank' of savings and assistance
in the year 1895, the first consumer co-operative in
1910 by `budi Utomo' an organisation by Javanese
Medical School in Jakarta. Later on, since 1913
Sarekat Islam, a political organisation based on
co-operative ideals played an active role in promoting
co-operatives and reported to have created hundred of
consumer co-operatives. The co-operatives became legal
entity with the issue of Regulation concerning
co-operatives by the Dutch Government on April 7,
1915 quite similar to their own cooperative law of
1876 in Netherlands.

However, enactment of this co-operative law by Dutch did
not help development of co-operatives for a variety
of reasons. First as in India by the British, the
Netherlands Government also suspected the co-operatives
as an organisation which could be utilised as a political
tool and encourage  the people to live independently in
the economic field and not dependent on the colonial
government. The law was also not based on local customs
and needs. The other constraints were:

i. The bye-laws had to be in Dutch and could be made with the help of notary which was expensive. 

ii. For registration, permit had to be obtained from
the Governor-General and the permit and articles
of incorporation had to be announced both in Dutch
and Malay newspapers. 

iii. The procedure took a long time and the cost could
at times be as high as F150, price of approximately
10 tons of rice at that time.

iv. The right for the possession of land had to follow
European regulations. The cooperative law of 1915
was revised in the year 1927, based on Indian
co-operative law of the year 1912 and the Rural
Credit Law of Philippines which was, to certain
extent, better suited to Indonesian conditions.

In 1933 the Dutch Government issued another Co-operative
Law applicable to those obeying western law. Thus these
Two co-operative laws created further confusion. Next
changes in the law were made in 1949.

After Indonesia became independent, a new law was made
in 1958 replacing the earlier laws. Under this law,
the role of Government became not only to register
and supervise but also to promote, encourage and guide
the co-operatives. The law was further improved in 1959
to facilitate the formation and growth of co-operatives
based on the temporary constitution of Indonesia. This
was replaced by another law in 1965 known as `The Law
on the basic Regulations for Co-operatives'. 

The Paras 1,2 and 3 of Foreword of  the Law on the Basic
Regulations for Co-operatives state:

1. The National Co-operative Congress convened early
1966 by the National Co-operative Union of Indonesia
in one of its resolutions had urged the Government to
repeal the then existing Law on Co-operatives (Law
No. 14/1965 on Co-operatives) as this Law was in
contravention to the Constitution (1945) and
prejudicial to a sound development of the
Co-operatives in Indonesia.

2. The Minister of Commerce and Co-operatives had
accordingly appointed on July 11, 1996 a Commission
to review Law No.14 on Co-operatives and to submit a
written draft to the Minister concerned.

        The above mentioned Commission was presided over by
Jr. Ibnoe Soedjono, the then Assistant to the
Minister and later on Director General for
Co-operatives had the following members:
14 representatives of the National Union of Indonesia,
3 representatives of the Universities in Indonesia
Faculty of Economics, and of Agriculture),
6 Co-operative Experts and
4 representatives of the Ministries of Home Affairs,
Commerce, Agriculture, Industry with a total number
of 30 persons.

3. On November, 18, 1996, the Chairman of the
Commission, Jr. Ibnoe Soedjono, submitted the draft
of the new Law on Co-operatives to the Minister of
Home Affairs, (the Minister since ultimo 1966 in
charge with co-operatives).

4. The acting President, General Soeharto after
receiving the draft through the Minister of Home
Affairs, proceeded the draft as being a draft of the
Government, to the Parliament of Indonesia, on April
14, 1967 for approval.

This law became effective from December 18, 1967 called "The Law on the Basic Regulations for Co-operatives".
This has been replaced in 1992 by an another law on

The Law of 1967 had 58 articles divided into XVI chapters,
while the Law of 1992 has 65 articles divided into XIII

The reasons for introducing new law are stated in the
beginning as under: 

a. that the co-operative societies as people's
economic movement as well as business enterprises
participate to realise an advanced, just and
prosperous society based on Panchsila and the 1945
Constitution in a national economic system organised
as a joint endeavour based on the principle of
brotherhood and economic democracy; 

b. that the cooperative societies need to further
develop themselves and to be developed to become
strong and self-reliant, based on co-operative
principles so that they are able to play the role
as the pillar of national economy;

c. that cooperative development is the task and
responsibility of the Government and all the people;

d. that to realise the things mentioned above and to
adapt to the development of the situation, it is
necessary to rearrange the provisions concerning
co-operative in a law as a substitute of the Law
Number 12 of the Year 1967 concerning Basic Regulations
for Co-operatives.

Chapter 1 : General Provisions
There are two important provisions in article 1.
It defines:

1. A co-operative society is a business enterprise
having individuals or registered co-operative
societies as members of which, activities are
based on co-operative principles and simultaneously
as a people's economic movement based on the
principle of brotherhood.

2. Co-operative Movement is the totality of the
Co-operative organisations and concerted organised
co-operative activities working toward the
achievement of co-operative common goals.

Chapter II : Foundation, Basis and Objectives
Article 2 states "The co-operative society is founded
on Panchsila and the 1945 Constitution and based on
the principle of brotherhood".

The objectives of co-operatives under Article 3 are
stated as "The co-operative society has the objectives
to improve the members welfare in particular and that of
the society in general, to participate in developing the
national economic system in the framework of realising an
advanced, just and prosperous society based on Panchsila
and the 1945 Constitution".

Chapter III : Co-operative Functions, Roles and Principles
Under article 4 the functions and role of the co-ops are:

a. to build and develop the economic potential and
capability of the members in particular and that
of the society in general so as to improve their
economic and social welfare;

b. to participate actively in the effort to raise the
quality of human life and that of the society;

c. to strengthen the people's economy as a basis of
the national economic strength and resilience with
the co-operatives as its pillar; and

d. to strive for realising and developing national
economy which is a joint endeavour based on the
principle of brotherhood and economic democracy.

Article 5 explains Co-operative Principles which are
similar to ICA Principles before Manchester Congress
with the addition of one more principle "self-reliance".

Chapter IV : Establishment
Under this chapter a minimum of 20 individuals for
A primary and three co-operatives for a secondary
co-operative under article 6 has been prescribed.

Under article 10, legalisation of the articles of
incorporation has to be given within 3 months. In case
of refusal appeal can be made within one month from
the date of refusal. The procedure for appeal is to
be stated in the Government regulation.

Chapter V : Membership
Under article 18 (i) only Indonesians can become members
of a co-operative. Under article 18 (2) "A cooperative
can have associate members of which the requirements,
rights and obligations are stipulated in the bye-laws".

Under article 19 (i) membership of a co-operative is
Based on the similarity of economic interest in the
Co-operative business and under  article 20 (b)
a member has obligation to participate in the business
activities carried by the co-operative and under 20(c)
he has to develop and maintain togetherness based on
the principle of brotherhood.

Chapter VI : Organisational Organs
Article 24 provides that decision in the members meeting
is to be taken based on deliberations to reach consensus
and only when decision cannot be arrived by deliberations
majority vote will decide. 

Further under article 25, secondary co-operatives can
provide voting in the bye-laws based on number of members
and business transaction of the member in co-operative
proportionally. Under article 29(4) the maximum tenure
of the managing committee is 5 years.

Under article 34 the members of the committee both
collectively and individually are responsible for the
loss suffered by the cooperative due to acts of negligence
or carried out purposefully. The public prosecutor can
also sue the committee.

Under article 35 the managing committee can appoint
a manager but the plan for his appointment shall be
submitted to the members meeting for approval. Further
the assignment to manage the business to the manager
does not diminish the responsibility of the managing

Under article 36 (1) all the members of the committee
have to sign the annual report and in case of  a member
not signing the report, he has to explain the reasons
in writing. 

Article 38 provides for the election of a supervising
committee and the functions under article 39 are
defined as:

(1)     The Committee of Supervision has the duties;
a. to supervise the implementation of policy and
management of the cooperative,   

b. to make a written report concerning the result of
its supervision.

(2) The Committee of Supervision has the authority;

a. to examine carefully the records at the co-operative

b. to get all information needed.

(3) The Committee of Supervision has to keep secret
the result of its supervision from the third party.

Chapter VII : Capital
Under Article 41 the capital of co-operative society
consists of equity capital and borrowed capital. The
Equity capital can come from:

a.      basic savings
b.      compulsory savings 
c.      reserve fund 
d.      grants  

The borrowed capital can come from: 

a.      the members 
b.      Other co-operative societies and/or their members;
c.      banks and other financial institutions 
d.      the issuance of bonds and other securities 
e. other legal sources.
Chapter VIII : Business Field
Under Article 43 the business of a co-operative society
is directly related to the interest of the members for
improving their business and welfare. 

Chapter IX : Net Surplus
Under Article 45 net surplus after providing the reserve
fund as decided by the members meeting is to be distributed
to the members in proportion to the business transaction
carried out by each member and also for education purposes
and for the purpose of the society as decided by the
members meeting. 

Chapter X : Dissolution
A society can be dissolved by the decision of the members
or by the government under conditions prescribed in the law
under Article 52.  If the decision to dissolve is of the
members they can appoint the liquidator and if of the
government, the government has to appoint the liquidator.

Under Article 55 the members responsibility during the
liquidation for losses is confined to the limit of basic
savings, compulsory savings and  share capital they own. 

Chapter XI : Role of Government
Article 60 states the role of government as under:

1. The government creates and develops climate
        and condition that stimulates cooperative growth
        and socialisation.

2. The government provides guidance, facilities, and
        protection to the co-operative societies.

Articles 61, 62, 63 and 64 explain in details the
measures that government would take to achieve the
above directions.