On Tuesday (October 28, 2025), the Department of State Administrative Law at the UGM Faculty of Law launched a policy paper titled “Merah Putih Village Cooperatives: Legal Risks and Their Prevention” at the UGM Faculty of Law. This policy paper highlights at least five problematic legal aspects of the policies and implementation of the Merah Putih Village Cooperatives (Kopdes MP).
First, the various legal instruments that have been enacted are designed to encourage public officials and agencies (regional heads, village heads), including Himbara banks, to favorably approve business proposals submitted by Kopdes MP in order to secure access to bank financing. The essence of these regulations is not designed to uphold the principle of prudence or diligence in verifying budget plans. This is evident from the various provisions that do not provide for the option to reject or revise submitted business proposals. The regulations focus more on the approval mechanism.
This regulatory trend is nothing new. The Department of Administrative Law at the Faculty of Law, UGM, had previously conducted an evaluation of licensing laws during the era of the Job Creation Law. The underlying approach was the same: grant permits first, worry about the problems later. As a result, the government has faced numerous licensing issues in various places. We must ensure that similar problems are not repeated.
Second, the narrative in the implementing regulations regarding Kopdes MP does not appear to provide comprehensive information. The narrative seems to emphasize the extent of funding access the government can provide, as well as the contingency that if there are losses in Kopdes MP operations, there is a possibility that village funds or general allocation funds/revenue-sharing funds will be partially blocked.
In fact, what the government also needs to communicate and disseminate to Kopdes MP implementers is the need to ensure that public funds are not misappropriated. Article 34 of Law No. 25 of 1992 on Cooperatives explicitly states that cooperative board members, either individually or collectively, are liable for losses incurred by the cooperative. This liability applies to both intentional and negligent acts. The law even explicitly states that, in addition to compensation for losses, cooperative board members may also face criminal prosecution.
Implementers (Kopdes MP administrators) must not fall into the misconception that they can be careless or intentionally cause losses, because such losses will eventually be borne through future freezes on village funds or revenue-sharing funds/general allocation funds. This way of thinking is dangerous for two reasons: (i) the harm caused by the incompetence of a handful of people will be borne collectively; and (ii) the negative consequences of current managers’ mismanagement will be passed on to future managers.
Third, the risk of such negligence is exacerbated by legal instruments that were drafted in haste. That is, the first legal instrument issued regarding Kopdes MP was the Minister of Cooperatives’ Circular Letter (SE Menkop) on March 18, 2025. Meanwhile, the national kick-off/launch of Kopdes MP took place on July 21, 2025. With only a four-month gap between the announcement and dissemination of the concept and the kick-off, it is considered unwise and illogical to require cooperatives to develop high-quality business plans within such a limited timeframe.
Fourth, applying a one-size-fits-all loan budget ceiling despite the differing circumstances of prospective cooperatives receiving funds. Ministry of Finance Regulation No. 49/2025 stipulates that new cooperatives, long-established but inactive cooperatives, and long-established cooperatives are all screened using the same method AND are all granted access to funds with the same maximum ceiling. All three are entitled to a maximum loan of Rp. 3 billion (including Rp. 500 million for operational expenses). In reality, the risks associated with these three types of cooperatives should be viewed differently and, therefore, require distinct screening methods and different maximum loan limits. The loan limits for new cooperatives and long-established but inactive cooperatives should be significantly lower than those for well-established cooperatives.
Fifth, vague quantitative targets have the potential to further erode verification based on due diligence. It is a cause for concern that the slogan of launching 80,000 village cooperatives in the early to mid-part of this year will only increase the psychological pressure on officials involved in verifying business proposals, causing them to be more inclined to approve incoming proposals in order to meet that target.
This study was conducted by Richo Andi Wibowo—Chair of the Department of International Law at the Faculty of Law, UGM; Hendry Julian Noor—lecturer in the Department of International Law at the Faculty of Law, UGM; and two research assistants, Syafa Muhammad Aufa Sons and Muhammad Fadhlan Surya Nugroho. This study was reviewed by five peer reviewers from both outside and within the Faculty of Law, UGM. This study is part of a policy paper series aimed at providing timely scholarly perspectives on contemporary HAN issues, while maintaining rigor and adhering to scholarly standards.
The launch of this policy paper aligns with the UGM Faculty of Law’s commitment to supporting the achievement of the Sustainable Development Goals (SDGs). Specifically, this study contributes to SDG 1: No Poverty by advocating for the governance of village cooperatives that can improve community well-being in a sustainable and accountable manner. Furthermore, this policy paper also supports SDG 8: Decent Work and Economic Growth by emphasizing the importance of careful funding allocation so that the development of village cooperatives fosters a productive and measurable local economy. In line with SDG 16: Peace, Justice, and Strong Institutions, this study highlights the urgency of accountable and transparent regulations that prevent potential abuse of authority and corruption in the management of public funds. Furthermore, collaboration among academics, the government, and cooperative stakeholders reflects the implementation of SDG 17: Partnerships for the Goals, underscoring the importance of cross-sectoral cooperation to achieve institutional strengthening that supports inclusive and equitable rural development.
The launch of the Policy Paper can be viewed on the YouTube Knowledge Channel
Download link policy paper >> click here
