KMP co-op program funding model draws scrutiny

The Indonesian government has issued a new regulation to accelerate the construction of facilities under the Red and White Cooperatives (KMP) program, one of President Prabowo Subianto 's flagship initiatives. Progress has lagged expectations, with only a fraction of the buildings required to reach the target of 80,000 cooperatives (co-ops) completed so far. State-owned enterprise (SOE) PT Agrinas Pangan Nusantara, formerly the engineering consultancy Yodya Karya, has been appointed to lead the construction. However, the funding mechanism has sparked controversy, as the village fund is being allocated for loan repayments channeled through the Association of State-Owned Banks (Himbara). This reduces the budget available for other essential village functions, such as stunting prevention.

Prabowo formalized Agrinas Pangan's role through Presidential Instruction (Inpres) No. 17/2025 on Accelerating the Construction of Red and White Village/Subdistrict Co-op Shops, Warehouses and Supporting Facilities, issued on Oct. 22. The regulation instructs the Co-ops Ministry to set standards, supervise implementation and facilitate contracts with Agrinas Pangan on behalf of village or regional governments once approved by the Public Works Ministry and either the Villages and Regional Development Ministry or the Home Affairs Ministry.

In addition to technical supervision, Inpres No. 17/2025 assigns the Finance Ministry to provide repayment funds sourced from the General Allocation Fund (DAU), the Revenue-Sharing Fund (DBH) or the Village Fund for all liabilities arising from the accelerated construction. The regulation also instructs the ministry to place funds in Himbara banks and Bank Syariah Indonesia - part of the Bank Mandiri group - to extend financing of up to Rp 3 billion (US$ 179,619) with six-year maturity for each co-op.

The Inpres simultaneously revokes Finance Ministry Regulation (PMK) No. 49/2025 and Villages Ministry Regulation (Permendes PDT) No. 10/2025, which previously allowed up to 30 percent of an individual Village Fund to serve as collateral for Himbara loans. The Finance Ministry estimates that loan repayments for KMP co-ops will require about Rp 40 trillion per year from the Village Fund for the next six years, based on the Rp 3 billion limit per co-op.

According to the Co-ops Ministry, Rp 2.5 billion of the Rp 3 billion financing envelope for KMP co-ops is allocated for construction and supporting facilities, while the remaining Rp 500 million is designated for operational expenditures. Land for each facility will be provided by the government at no cost. The ministry also disclosed that only 1.2 million people - out of an estimated 20 million targeted beneficiaries including Family Hope Program (PKH) recipients - have registered as KMP co-op members. Meanwhile, the government has already disbursed Rp 600 billion in initial financing to Agrinas Pangan. President Prabowo has set March 2026 as the target for all the co-ops to become operational.

The defense minister has been instructed to deploy personnel, security assets and logistical support for Agrinas Pangan. This provision effectively legitimizes collaboration with the Indonesian Military (TNI), with village supervisory noncommissioned officers (Babinsa) facilitating labor relations and military helicopters delivering supplies to remote areas. The move deepens the military's involvement in civil programs, continuing a broader trend of expanding the role of the TNI.

Regional governments are directed to provide ready-to-build land parcels of at least 1,000 square meters, or renovate existing idle assets if necessary. This flexibility likely contributed to Agrinas Pangan's rapid progress, completing 15,788 co-op facilities in just 15 days after receiving funding from Danantara on Nov. 3. The SOE plans to raise its construction capacity from 1,200 to 2,930 units per day.

However, the program has encountered political pushback. The All-Indonesia Village Administration Association (Apdesi) opposes the plan to allocate up to Rp 40 trillion of the Village Fund annually to finance KMP co-op development, arguing that it would reduce village budgets to only about Rp 200 million each and violate Law No. 6/2014 on Villages. To compensate, Inpres No. 17/2025 requires that at least 20 percent of each co-op's annual net income be reserved for village development, though this diverts resources away from the co-ops' own business viability.

Agrinas Pangan has budgeted Rp 1.65 billion per unit for the construction of a standardized 20 by 30 sq m facility featuring a shop, clinic, fertilizer warehouse, staples warehouse and subsidized LPG cylinder storage. Each co-op will also receive a truck, a 4x4 pickup and two motorized cargo tricycles. Design adjustments are planned for later phases. Agrinas Pangan president director Joao Angelo De Sousa Mota sees the budget cost-efficient, considering index-based cost projections suggesting that total construction costs could reach Rp 600 trillion.

Regardless, House of Representatives' Commission VI overseeing SOEs, trade, investment, industry, co-ops and small-and-medium enterprises (SMEs), has criticized the program for excessive costs, suggesting that idle village and subdistrict assets be repurposed instead of building new structures. The commission argued that Agrinas Pangan's standardized design may be suitable for densely populated areas but mismatched for rural ones, recommending a reduced budget ceiling of Rp 500 million per unit and encouraging regional design variations, such as prioritizing cold storage in coastal areas.

The rapid acceleration of KMP co-op construction presents several risks. Diverting a significant share of the Village Fund to repay Himbara loans may ease credit risks for state-owned banks but will weaken villages' ability to provide basic public services. Using DBH and DAU as backup repayment sources could further strain regional fiscal capacities already pressured by the Prabowo administration's austerity measures. The growing involvement of the military in civilian programs adds another layer of governance concern. Finally, the mandated 20 percent net-income contribution to villages may limit the co-ops' ability to reinvest and grow, reducing their sustainability in the long run.