Household Saving Behavior: The case of rural industry in Bantul

The primary constraint of rural industries development in Indonesia is the unavailability which hinders the development and its sustainability of that area. Since there is a lack or limited accessibility for those peoples over the formal financial institutions, so their own capital which is clearly come form the household savings is the important financing for rural industries. This savings depends on several factor .so, we have to closely monitor those related factors to evaluate the saving behavior of household. This paper shows the saving behavior of rural industry households. For doing this the analysis consists of two aspect, one is the forms of household saving accumulations and the other is exploring determinants of household saving rate. The data used for this paper is come from a survey of small industries in Bantul sub-district conducted in 1996.But this survey does not design for saving studies, only 93 respondents is used for this paper. Here econometric model of life-cycle theory is used for finding the relationship of influencing factor on saving behavior such as income, both of education level and sex of the industry holders, and the varieties of industries. Saving could be accumulating in real assets or financial assets. Since real assets have less liquidity and having limited use in rural industrialization, so household are less likely want to save in real assets than financial assets. They could save in banks or non-bank financial institution, including in cash form. According to the surveys, informal financial like cooperatives, credit unions, rotating savings and credit associations (ROSCAs), or in cash money institution have important roll for rural households, because the major respondents are still saves in those kind of institutions. Surveys also suggest that ROSCAs is more as saving mechanism than credit mechanism due to its small average savings which rarely meet the financial needs of rural industries. The reasons that the few people prefer to meet their financial needs from banks is the characteristics of formal credit such as complexity of procedures and collateral conditions. But the Life cycle hypothesis does not evidence in this cases. By attaching more attention on coefficient of YS that has less significance, it may indicate that the rural industry does not give enough income for rural households though more than 40 per cent of respondent also have other income sources or occupations. The research is based on secondary data and the low sample (93 respondents) size does not represent the representative saving behavior of the rural household of the Bantul. Based on this research we can conclude that the rural household is preferred to save in financial assets for rural industrialization, which contribute a high percentage of their income. But they do not prefer to save in formal financial institution rather prefer the informal one. This is because the too much paper works in formal institution and the collateral system. Since rural people can save and this is a indicator of repayment ability, formal financial company can play a strategic role by which those can provide credit for the rural industries.