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Jurnal IUS Kajian Hukum dan Keadilan
Volume 10, Issue 2, August 2022, E-ISSN 2477-815X, P-ISSN 2303-3827
Nationally Accredited Journal, Decree No. 158/E/KPT/2021
open access at : http://jurnalius.ac.id/ojs/index.php/jurnalIUS
DOI: http://dx.doi.org/10.29303/ius.v10i2.1104
DILLEMAS OF BAD LOAN SETTLEMENT OF VILLAGE
CREDIT INSTITUTION (LEMBAGA PERKREDITAN DESA)
IN THE COVID-19 PANDEMIC SITUATION
I Nyoman Sujana1, Leonito Ribeiro2
1University of Warmadewa, Indoensia, Email: nyomansujanaa2015@gmail.com,
2Da Paz of University, Dili, Timor Leste, Email:leonito.ribeiro@gmail.com
Received: 2022-07-05; Reviewed: 2022-08-18; Accetped: 2022-08-25; Published:2022-08-25
Abstract
This paper analyzes the dilemma of resolving bad loans of the Village Credit Institution
(LPD) in the Covid19 Pandemic Era. The focus of the study is the problems faced by
the Village Credit Institution (LPD) in resolving bad loans in Bali Province during the
COVID-19 pandemic era. This study was conducted because LPDs in Bali experienced
difficulties in securing credit even though the collaterals or guarantees were imposed
with a mortgage as well as a Fiduciary during the Covid 19 period. As an analytical
device on the legal issues studied, the author applied the theory of the welfare state
with a statutory approach, a conceptual approach, a sociological approach, and a case
approach. Based on the results of the study, it is found that the settlement of bad loans
at the LPD is in a dilemma. “Internally“ the LPD noticed that the debtors, members of
the traditional village, are taking refuge behind the Covid-19 pandemic situation, and
denied their obligations. In the collateral cases, even though Mortgage Rights have been
imposed with a fiduciary, settlement is about to be carried out, it turns out to be controlled
by a third party who is a member of the Customary Village to execute loan settlement
through the expropriation of the collateral by execution parate. This type of action is not
allowed based on the principles of Balinese customary law paras, parosegilikseguluk,
sarpanayasabayantaka. In this case, the LPD should go back to court. Meanwhile,
“externally” the economic atmosphere affected by the Covid-19 pandemic has not yet
recovered. Therefore, LPD faces a difficult choice between settling bad loans to recover the
cash flow of a company, and taking measures to save credit by rescheduling, restructuring,
and reconditioning. This rescue measure has become a heavy burden for LPDs to fulfill
their obligations to credit customers.
Keywords: Dilemma; Settlement; Bad Loan; LPD;
INTRODUCTION
Village Credit Institution, further abbreviated as LPD, is established to carry out
a cultural mission, internal-community business activities, and improving the welfare
of the Traditional Village community which is economically easing the community
maintaining civilization.1 In this Covid-19 pandemic era, the existence of LPDs in
the area of Bali Province is facing a very difficult challenge, because Bali is in a hard
situation due to the tourist restriction policy. So, the impact on the Balinese economy is
seen torpidity which is undeniably affecting the business of LPD.
1 Sukandia, I Nyoman, 2019, Balinese Traditional Law Community-Based Village Credit Institutions, CV.Nuswan-
tara, Malang,East Java, First Edition, Pg.9
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Regional Regulation Number 4 of 2019 concerning Traditional Villages in the
provisions of Article 60 paragraph (1) reads that the LPD is a financial institution
belonging to the Traditional Village which is domiciled in the Traditional Village
territory. Although LPD is not a bank, in carrying out its functions, it applies a financial
management pattern like a bank. Specifically, collecting funds from the traditional
village community in the form of savings and channeling it back to the traditional village
community in the form of a credit to improve the standard of living for the traditional
village community. In this Covid-19 pandemic situation, LPD is experiencing a heavy
burden; it hasn’t recovered properly, even though the international tourist restriction
policy has been leveled up.
The burden of the LPD as a business entity owned by the Traditional Village
distributing credit to the customary village community are facing problems in the effort
to rescue credit due to a large number of non-performing loans and even bad loans. On
the other hand, borrowing customers also experience a serious issue, where almost all
of them has eroded the income they rely on to pay their obligations since the Covid19
pandemic. Moreover, they are the members of traditional village (karma) Many Debtors
have lost their livelihoods. This situation occurs due to the extreme actions taken by
entrepreneurs, called the company’s operational efficiency (reducing the workforce),
laying off employees and even many companies terminated employment (severance of
workforce). Thus, the impact of Covid19 has created an inability for debtors to fulfill
their obligations to the LPD. Although the loans served have been accompanied by
collaterals charged with a mortgage (Mortgage Right) or bound to a fiduciary, it has
only provided convenience to the Mortgagee (LPD) if the debtors’ committed defaults,
but this facility does not help LPD much in the bad loan settlement actions.
Law Number 4 of 1996 concerning Mortgage Rights, further abbreviated as UUHT,
Article 20 Paragraph (1) letter a and b stipulates that the execution of mortgage rights
can be pursued in 3 (three) ways, namely:2
a. Parate execution;
b. executorial Titles;
c. Unofficial sales;
Meanwhile, under Law Number 42 of 1999 concerning Fiduciary guarantees in
Article 29, it is determined that:
(1)If a debtor or fiduciary giver breaks his promise, the execution of the property as the
object of the fiduciary security can be carried out by:
a. Implementation of the executorial title as referred to article 15 paragraph (2) by
the Fiduciary Beneficiary;
2 Herowati Poesoko, 2007, Parate Executie to the Object of Mortgage (Inconsistency, Conflict of Norms and Misguided
Reasoning in UUHT), Laksbang Pressindo, Yogyakarata, First press, Pg.4
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b. The sale of objects as the object of the Fiduciary Guarantee on the authority of the
Fiduciary Beneficiary himself through a public auction and take the settlement of
his receivables from the proceeds of sale;
c. The unofficial sales are carried out based on the agreement of the Fiduciary Giver
and Beneficiary if in this way the highest price can be obtained that benefits the
parties.
(2)The implementation of sale as referred to in paragraph (1) letter c is carried out
after 1 (one) month has elapsed upon being notified in writing by the Giver and/or
Fiduciary Beneficiary to interested parties and announced in at least 2 (two) newspapers
distributed in the territory concerned.
Various facilities have been provided both under the Mortgage Law and the Fiduciary
Guarantee Act to execute collateral if the debtor is in default. However, the existence
of this collateral is not always able to assist the settlement of bad loans faced by the
LPD. In addition, the value of the properties used as collateral has decreased sharply in
the Covid-19 era. It is also caused by the decline in the purchasing power of the people
nationally. Village members are no longer able to fulfill their obligations either due to
their loss of income as the impact of this Covid-19.
Delay in taking over the security of the Mortgage or Fiduciary Guarantee In the
practice of village credit institutions often occurs, because when a debtor commits a
breach of contract, it turns out that the collateral is actually controlled by a third party
who is not the customary village member. The control of this collateral has just been
found out by the LPD when parate execution is going to be undertaken. Moreover, the
third parties controlling the object used as the Guarantee have less respect towards the
rule “For the Sake of Justice under Almighty God” as stated in the certificate of
Mortgage or Fiduciary. Sudikno states that the phrase “For the Sake of Justice under
Almighty God” has the meaning of being able to be carried out like a court order which
possesses an executive head.3 However, empirical facts show that when a debtor commits
a breach of contract, the object of the Mortgage or fiduciary cannot be executed even
though the LPD as the creditor reserves the right to sell the object of the Mortgage
or fiduciary right on its public auction, without requesting court order. Therefore,
the rescue for these bad loans is back again as they have to take the court processes.
Although there is a principle of simple, fast, and low-cost justice in civil procedural law
existed, creditors still experience the lack of guarantee of legal protection as they should,
even more in the Covid-19 pandemic situation. Since numerous bad loans indicated to
apply the banking practice, they are often referred to as non-performing loan (NPL) in a
bank. As a consequence, the disruption of liquidity might be the worst result.4 So, if a
3 SudiknoMertokusumo, 2017, Indonesian Civil Procedural Law, Cahaya Atma Pustaka, Revised Edition 5th Edi-
tion,Yogyakarta, Pg.230
4 Anton Suyatno, HRM, 2016, Legal Certainty in the Settlement of Bad Loans Through the Execution of Mortgage
Guarantees Without Court Lawsuit Process,Prenadamedia Group,Jakarta, Pg.41
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case like this occurs in LPD, it is considered to be very challenging to resolve through a
non-litigation process, during the Covid-19 pandemic situation either.
With the prolonged Covid-19 pandemic situation, it is undeniably that the problem
of bad loans cannot be avoided by managers of financial institutions such as LPD. If the
LPD manager is less effective and not preparing precautionary principle in carrying out
its operations, then the occurrence of bad loans certainly occurs. The settlement for the
non-performing loans in this Bad Loans category is very interesting to study deeper,
because the creditors have been equipped with collateral and charged with Mortgage
even though the loans provided by LPDs as the creditors. The Covid-19 pandemic
situation has actually become a burden for LPDs themselves as a credit provider in
settling the bad loans. It happens because the purchasing power of the traditional village
members during the Covid-19 pandemic is in a very worrying situation. For example,
the case occurred in Kuta-Badung-Bali Traditional Village where the traditional village
members were very difficult to withdraw their existing savings in LPD, even only to
meet the needs of daily life5. This difficulty is due to Kuta traditional village has been
in a great dependence on tourism sector as it main source of income. The business of
traditional village members, which was originally wallowing in dollars, but during the
Covid-19 pandemic, people are suffering a heavy economic pressure.
Concerning the Covid-19 pandemic situation, LPD management is in dilemma
between maintaining the security of funds of the indigenous village community through
the precautionary principle or helping indigenous village communities who experience
bad loans to bounce back from the pressure of this Covid19 pandemic. The Covid-19
pandemic situation contains a debatable understanding of an extraordinary situation
occurring beyond human will, and the view that the Covid19 pandemic is a condition
that was deliberately created by humans that should be avoided. Due to these uncertain
views, this study will be focusing on “the obstacles in settling bad loans faced by LPDs
in Covid-19 pandemic situation”. The purpose of the problem analysis is to provide the
best solution for the LPDs to maintain the trust of the indigenous village community in
Village Credit Institution, and for borrowing customers to rise from adversity due to the
pandemic.
DISCUSSION
This COVID-19 pandemic has brought a fairly wide domino effect, including the
LPD. The LPD is acting as the object of research which is referred to the Village Credit
Institution. This institution is indicated under Regional Regulation Number 4 of 2019.
The Traditional Villages in article 1 number 34 is referred to as LabdaPecingkremanDesa,
then changed into LPD, which is “A credit institution owned by a traditional village located
5 The results of a direct interview with Nyoman Shaolin a member of Kuta Traditional Village, Badung; on Sat-
urday, May 28, 2022
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in Territory of the Traditional Village”; which collects funds from the public in the form
of savings. For example, savings, deposits and distributes them back to the public in the
form of credit or loans. The word “credit” is derived from the Roman language, namely
from the vocabulary credere which means believe6.So that the relationship existing in
credit activities between the parties must also be fully based on mutual trust. Credit
in LPD activities is the most important business activity since the largest income from
LPD business comes from credit business activities, namely in the form of interest and
fees. The creditor who provides the credit believes that the recipient of the credit, in this
case, the debtor, will fulfill everything that has been agreed upon, both regarding the
period and its achievements.
LPD as a distributor of funds (creditors) should carry out its role as the subject policy
to maintain the balance of the right between the desire to earn profits in the form of
interest rates and the aim of liquidity and solvency of the LPD. Liquidity point of view is
an important aspect of LPD in terms of the ability of the LPD to guarantee the payment
of short-term debts. In addition, the importance of solvency in the LPD is expected to
have the ability to pay off all debts (both short term and long term). The solvency of
an LPD also depends on the solvency of each customer. Thus, to maintain solvency,
the LPD must be careful in disbursing credit. In addition, they should first investigate
whether the prospective debtor is truly trustworthy and reliable (bankable) or not. It is
mandatory to pay attention to collateral items submitted to the LPD.
The regulation regarding credit in LPDs also refers to banking legal provisions,
although LPDs are not subject to Banking Law. The definition of credit can be found in
the provisions of Article 1 number 11 of Law Number 10 of 1998 concerning amendments
to Law Number 7 of 1992 concerning banking, which stipulates that:
Credit is the provision of money or an equivalent claim, based on an agreement or loan
agreement between a bank and another party requiring the borrower to repay the debt
after a certain period of time with interest.
Along with the development of financial transactions in the globalization, the
integration of financial products and services carried out by banks is one noticeable
consequence. It influences the idea of credit is becoming more detailed and expanded;
which can be seen in the provisions of Article 1 number 5 of Bank Indonesia Regulation
Number 7/2/PBI/2005 concerning the assessment of Asset Quality of Commercial
Banks, it is stated that:
Credit is the provision of money or equivalent claims, based on an agreement or loan
agreement between a bank and another party requiring the borrower to repay the debt
after a certain period of time with interest, including:
6 Muhammad Djumhana, 2012,Banking Law in Indonesia,PT.Citra Aditya Bhakti,Bandung, Pg.411
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a. overdraft, namely the negative balance in the customer’s checking account that cannot
be paid in full at the end of the day;
b. a takeover of invoices in the context of receivables activities;
c. Takeover or purchase of credit from other parties.
Based on the above idea of credit, it can be seen that the credit elements in the LPD
are almost the same as those stipulated in the Banking Law, namely ‘the existence
of an agreement’ or ‘agreement between the creditor and debtor’, which is called a
credit agreement. This credit agreement is a prime requirement for the progress of the
business world made by the parties’ agreement so that it is categorized as an anonymous
agreement7. In this regard, the existence of transactions for providing credit services or
LPD’s borrowing customers has been stated in an agreement, which is called a credit
agreement. In banking practice, the provision of credit in terms of its use can be in the
form of working capital credit, investment credit, and consumer credit.8 In the operations
of LPDs towards providing credit services to Traditional Village Members as customers
have been done by several LPDs in Bali Province. Principally, this credit service can be
divided into 2 (two) as follows:
1. Working capital credit (Commercial Loan), namely services in the form of loans provided
to entrepreneurs in running their business;
2. Consumer Credit (Consumer Loans), namely loan services provided to customers in the
form of housing and car ownership facilities, usually the provision of these facilities
is aimed at existing customers;9
Credit in village activities is seen as the most important business activity due to the
largest income from LPD business comes from credit business activities, in the form
of interest and fees. The smooth running of credit activities is based on mutual trust
from all parties. This condition is very much needed by the LPD in business and the
allocation of funds for credit. The funds in the LPD are mostly funds belonging to the
Traditional Village and third parties entrusted to the LPD. On the other hand, LPDs
are required and obliged to always maintain the trust given by the traditional village
members and/or third parties in running the use of funds.
There must be one or multiple agreement between the creditor and the debtor for
the provision of credit facilities. In this regard, there is a provision of credit from the
LPD as the creditor to the debtor. The provision of credit is stated in the existence of a
credit agreement that can be made in the form of an unofficial agreement or the form of
a real note (agreement). Every credit distribution always demands accountability from
credit officials to implement the principle of prudence in lending. Thus, the emergence
7 H. Moch. Isnaeni, 2016,Law of Assurance of Material Existence, Function and Regulation, LaksbangPressindo,
Yogyakarta, Pg.57
8 H. Zainal Asikin, 2016, Introduction to Indonesian Banking Law,PT. Raja GrafindoPersada, Jakarta, Pg.187
9 Results of an interview with I Wayan Buda Artha, SE., Head of LPD of Kuta Traditional Village of Badung, on
10 May 2022 at Kuta LPD Office; and with several other LPD Chairmen in Bali Province who were interviewed by
purposive sampling between January and May 2022.
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of non-performing loans or bad loans can be minimized. Although the precautionary
principle has been implemented by LPD managers, in the world of credit, the existence
of bad loans is inevitability. Moreover in the Covid-19 pandemic situation has occurred
in several LPDs owned by traditional villages in Bali Province.
Concerning legal issues studied in this paper, which are relating to the constraints
experienced by LPDs in rescuing bad loans in the Covid19 pandemic era is noticing
several concerns. Initially, it is better to understand the legal standing of the LPD itself,
given that the LPD’s governance in carrying out its function as a business entity owned
by a traditional village. It is empirically seen as a banking institution, but it is not subject
to banking law. This is very important to be firstly understood, as it will involve the legal
capacity of LPD in carrying out rights, obligations, and responsibilities both concerning
the implementation of transactions, the ability to guarantee customers, and the right
to control assets, especially land as a series of rescuing bad loans. In several cases of
taking over of collateral by the LPD due to bad loans by debtor customers who did not
have a good faith, the existence of this LPD had a questionable juridical status, whether
the collateral was taken over by the LPD or the chairman of the LPD. The provisions
of Article 1 point 34 of the Regional Regulation Number 4 of 2019 stipulating clearly
that LPD is “A credit institution belonging to a traditional village domicile in the Area of
Traditional Village”. It is not sufficient to take collateral for bad loans that occurred in
the LPD. Moreover, when dealing with the members of the traditional village itself, LPD
is a financial institution owned by the traditional village which can be jointly owned by
the indigenous village community.
By applying the Theory of Fiction (ficie) regarding the legal entity pioneered by Carl
von Savigny as the data analysis, the author considered LPD as “Balinese Traditional
Character Legal Entity”. This is also stated by some adherents of this theory in which
legal entities are solely made by the state. Naturally, only humans can be legal subjects,
legal entities are fiction, that is, something that does not exist actually, but people create
in their shadows a legal actor (legal entity) as a legal subject considered the same as
humans. Relating to Regional Regulation Number 4 of 2019 concerning Traditional
Villages, in the provisions of article 60 letter a, it is stated that Traditional Villages have
businesses consisting of LPDs. Furthermore, in the provisions of article 61 paragraphs
(1) it is stated that: “LPD, as referred to in Article 60 letter a, is a financial institution
belonging to a traditional village domicile in the traditional village area.” Thus, the author
concludes that LPD is a legal entity characterized by Balinese customary law, as it is the
only legal entity existing in Indonesia. In line with this view, Sukandia stated that LPD
is a Socio-Religious Economic Legal Entity, called a Legal Entity which is carrying out
very distinctive socio-economic functions, socio-religious, and socio-cultural functions.10
What is stated by the legal thinkers of this fictional theory is understandable because if
10 Sukandia, I Nyoman, 2019,Op.Cit.Pg. 103-104
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we look at legal developments related to the recognition of legal entities as legal subjects
in the traffic of legal interaction, it is true that only humans are known as legal subjects.
This is illustrated by Chidir Ali by quoting the opinion of A. Pitio, at the time the Civil
Code was formed at the beginning of the 19th century when figurerechspersonen was not
yet known. Therefore, Civil Code only mentions private persons (natuurlijkeperson)
who are listed as the bearer of rights and obligations (legal subjects) in the traffic of legal
society.11
With regards to the standing of LPD as a legal entity with Balinese Traditional
character, the obstacles to rescuing bad loans faced by LPD during the Covid-19 pandemic
era can be divided into two parts, as follows:12
a. The Internal Constraints can be:
1. Most of the borrowing customers are village members themselves;
2. The security used as collateral is a residential house on which family shrines are
built;
3. There is a family relationship between LPD Management and village members
having bad credit;
4. The collateral in the form of land is not imposed with mortgage rights or movable
goods are not bound by fiduciary guarantees;
b. The External Constraints are:
1. There is no regulation regulating the standing of LPD as a legal entity;
2. The Covid-19 Pandemic has an impact on the loss of income for depositors to fulfill
their obligations to LPD;
Taking into account some of the constraints faced by LPDs in resolving bad loans,
and after direct observations and interviews with several LPDs in Traditional Villages
in Bali during the Covid-19 pandemic situation, it was found that the LPD management
faced a dilemma in rescuing bad loans. The dilemma is reflected in internal and external
constraints. These constraints greatly affect efforts to rescue bad loans. The noble
purpose of the establishment of LPD is actually to help the economy of the Indigenous
village community, with the prolonged Covid19 pandemic. However, many Traditional
Village Members have lost their jobs that put them on the difficulty in fulfilling their
daily obligations, especially pay installments. Therefore, the only way is to just hand
over the collateral to LPD to take it over. Such as the case of bad loans cured in LPD
Tanjung Benoa Traditional Village, where the village members were executed until the
house where they lived and the holy buildings constructed on it were executed. In this
case, it appeared that the noble goal of the establishment of LPD to improve the welfare
of the village members was not realized. On the other hand, LPD also has an interest in
securing funds deposited by other creditors who are also traditional village members.
11 Chidir Ali, 1987, Legal Entity, Alumni,Bandung, Pg.168.
12 The results of an interview with I Wayan Tirka, the Chairman of LPD Kutuh Traditional Village, South Kuta
and I Ketut Sugita, the Chairman of LPD Sesetan Traditional Village Denpasar in May 2022 that
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So, in such a position, fair handling should be enforced to maintain the liquidity of the
LPD.
LPD in taking over the collateral voluntarily is also faced with a dilemma between
executing the guarantee “(parateexecution)” and “empathy”. The internal constraints
faced by the LPD noticed that most of the customers experiencing bad loans are members
of the Traditional Villages themselves. Accordingly, the collateral used as the security in
the form of a residential house held by the LPD has not yet been imposed with mortgage
rights. The lands and residences which are used as collaterals imposed with Mortgage
Rights cannot be simply executed since the family temple buildings (holy buildings),
which if they are taken over by LPD, skala and niskala (physical and spiritual) process
should go through Hindu religious teachings. Meanwhile, external constraints has
been found that LPD has faced constraints in taking collateral goods because borrowing
customers experiencing bad credit are the members of the traditional villages themselves
having no good faith to pay off their obligations by hiding behind the overmach situation
of the Covid-19 pandemic. The Covid-19 pandemic has created the economic conditions
for traditional village members in a very poor economic condition, considering that
many traditional village members in Bali have lost their income they have relied on from
international tourist destinations.
Therefore, the purpose of the establishment of LPD is to support the role of traditional
villages in sustaining social, cultural, customary, and religious life so that traditional
villages have independent and sustainable sources of financing.13However, due to the
empirical facts about bad loans, LPDs are getting worse in maintaining their solvency
in this Covid-19 pandemic era. To save bad loans, it is deemed necessary to conduct the
measurement taken by banks that can be replicated to rescue bad loans of LPDs, while
still prioritizing the concept of customary dispute resolution through the principles
of “gilikseguluk, paras paro, sarpanayasabayantaka”14; the aforementioned principle is
following the principle of freedom of contract as stipulated in article 1338 of the Civil Code
which states that all agreements made legally apply as law for those who make them. If the
LPD and the debtor customer (the indebted village members) have both agreed to carry out
the credit settlement process through paras paro, gilikseguluk and sarpanayasabayantaka,
a simple, fast and low-cost settlement will be possible. It is also in compliance with Bank
Indonesia circular letter Number 23/12/BPPP, dated February 28, 1991, that the
measures taken by banks in the efforts to save credit so that debtors can repay debts and
interest to banks, can be through 1) Rescheduling; 2) Reconditioning; 3) Rearrangement
(Restructuring).
13 Nurjaya, I Nyoman, 2022, “Criminalization of LPD in Bali for Corruption Crimes?”, General Lecture Material
for Law Study Program Postgraduate Doctoral Program of Warmadewa University, Tuesday May 24, 2022.
14 This means that dispute resolution through deliberation is based on togetherness, and harmony in social life in
the Traditional Village.
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These measures seem to be very relevant to take for LPDs in rescuing credit. The
author provides this opinion as a glance reflection on the bad loans experienced by
LPDs during the Covid-19 pandemic. It is projecting to save credit, not credit settlement
measures. Therefore, the main purpose of the establishment of LPD is to help improve
the welfare of traditional village members. The credit rescue measures are:15
a. Rescheduling namely changes in credit terms relating to payment schedules and or
periods including grace periods, whether or not including changes in the number of
installments;
b. Reconditioning, namely changes in part or all of the credit terms which are not limited
to changes in the payment schedule, term, and or other requirements providing it does
not involve changes in the maximum credit balance and conversion of all or part of
the loan into bank participation;
c. Rearrangement, namely changes in credit terms in the form of bank funds investment,
and/or conversion of all or part of arrears of interest into new loan principal, and/or
conversion of all or part of credit into investment in the company.
If the rescue efforts have not been able to heal LPD operational cash flow, then the last
measure (ultimumremedium) is settlement efforts, namely by taking a process outside the court
by prioritizing the principle of Balinese traditional dispute settlement through the principles
of paras paro, gilikseguluk, sarpanayasabayantakan. This settlement is in accordance with the
provisions of Law Number 30 of 1999 concerning Arbitration and Dispute Resolution, where in
article 6 paragraph (1) it is stated that “Civil disputes or differences of opinion can be resolved
by the parties through alternative dispute resolutions based on good faith by setting aside the
litigation settlement in the District Court”. Referring to the provisions of Article 6 paragraph (1),
it seems that the constraints faced by LPDs in resolving bad loans can be taken by alternative
settlement mechanisms. There are several alternative solutions as referred to by the provisions
of the article, namely in the form of:16
1. Consultation is a personal action between a certain party (client) and another party,
a consultant, where the consultant gives his opinion to the client according to the
requirements and needs of his client.
2. Negotiation is a meeting between two parties to reach an agreement without involving
other parties.
3. Mediation is a process of resolving disputes through the intercession of third parties,
namely providing input to the parties to resolve their disputes.
4. Conciliation is peace or an invitation to make peace. Conciliation and mediation are
essentially the same although there are differences. Both are ways of resolving disputes
in which the parties voluntarily seek a settlement through negotiations to resolve issues
with the assistance of an impartial third party. According to Jimmy Yoses Sembiring,
15 Muhammad Djumhana, 2012, Banking laws in Indonesia. Citra Aditya, Bandung, Pg.411
16 Susilawatty, Hj., 2013, Arbitration and Alternative Dispute Resolution Seen from the Perspective of Laws and Reg-
ulations, Grama Publishing, Bekasi, Pg.170
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conciliation is a continuation of mediation, the difference lies in a third party or
mediator, in conciliation the third party only acts as a facilitator who brings together the
disputing parties to solve their own problems. Meanwhile, in mediation, third parties
actively help the disputing parties find and offer appropriate and useful solutions.17
CONCLUSION
LPD management encounters this dilemma in resolving bad loans during the Covid-19
pandemic era; that is, between taking action to the “bad loan settlement” through the
expropriation of collateral, by taking action “bad credit rescue” through rescheduling,
reconditioning, and rearrangement (restructuring). In terms of carrying out settlement
actions, the LPD management is faced with the members of the traditional village itself,
which actually must be assisted as the purpose of the establishment of LPD. In terms
of carrying out rescue actions, they are also faced with the fact that LPD has obligations
to the traditional village members as depositors of funds who during Covid-19 almost
simultaneously withdraw their savings or deposit funds to meet the needs of their
daily life. Since LPD is a credit institution owned by traditional villages, its existence
must continue to exist, therefore the author provides a solution as the priority is to
take rescue measures, while the settlement measure is the last (ultimum remedium) by
prioritizing the settlement of traditional villages disputes having the principle of paras
paro, gilikseguluk, sarpanayasabayantaka”.
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