Rural banks fraud: a story from Indonesia
| DOI | https://doi.org/10.1108/JFC-01-2020-0010 |
| Pages | 933-943 |
| Date | 09 May 2020 |
| Published date | 09 May 2020 |
| Author | Taofik Hidajat |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
Rural banks fraud:
a story from Indonesia
Taofik Hidajat
Department of Management, Sekolah Tinggi Ilmu Ekonomi Bank BPD Jateng,
Semarang, Indonesia and Faculty of Economics and Business,
Universitas Padjadjaran, Bandung, Indonesia
Abstract
Purpose –The purpose of this paper is to highlight the causes of fraud in rural banks in Indonesia and
provide recommendationsto reduce these financial crimes.
Design/methodology/approach –This paper is desk research using secondary data from research
reports, journal articles,magazine articles and online news related to fraud cases in rural banks.The Fraud
Diamond approachis applied to analyze the problems.
Findings –Financial and non-financial pressures, opportunities that are open because of weak oversight
and governance,justification of fraud and the capability of perpetrators arethe factors that cause bank fraud.
Opportunityis the most significant contributor to fraud.
Originality/value –The novelty of this paper is that it discusses the causes of fraud in rural banks.
Managementand authority can learn from this case.
Keywords Bank fraud, Fraud Diamond, Rural bank, Indonesia
Paper type Viewpoint
1. Introduction
Rural banks (Bank Perkreditan Rakyat) are growing in large numbers and becoming
popular financial institutions in Indonesia. At the end of 2019, there were 1,576
conventional-based rural banks and 51 Sharia-based banks. In general, the growth of
lending, fundraising and the number of customers is quite good. Rural banks also have a
positive impact on micro and smallbusinesses (Mokhamad, 2019). However, why have rural
banks also become the financial institutionswith the most fraud cases?
Data from the Indonesia Deposit Insurance Agency (LPS) shows that the majority of
liquidated banks are rural banks. From 2006 to 2018, 90 rural banks were liquidated. As of
February 2019, there were 1,593 rural banks, down from 1,669 in 2011 because of revocation
of business licenses and mergers/consolidations. The big problem is that most of the liquida tion
of rural banks was because of fraud (Diantika, 2015) committed by directors, supervisors and
owners (Rustiarini et al.,2016). This fact is in line with the study by Abdullah (2010) and
Mohamad (2017), who stated that insiders cause problems with banks in some cases. Previously,
Wolfe and Hermanson (2004) also stated that insiders do most of the cheating (Figure 1).
This phenomenon shows that rural bank governance is terrible. Rural banks do not
thrive because they cannot compete but because of fraud committed by internal parties,
namely, supervisors, directors, employees and shareholders. Management violates the
prudential banking principle by using customer funds irresponsibly and triggers another
problem in the form of poor financial performance.This condition is very alarming because
This research was partially supported by STIE Bank BPD Jateng. Author also thank the Institut
Pendapatan Daerah (Ipenda), which provided many inputs and suggestions in this research.
Rural banks
fraud
933
Journalof Financial Crime
Vol.27 No. 3, 2020
pp. 933-943
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2020-0010
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