Transcending the Boundaries between State Power in Customary Authority in Law Enforcement for Fund Misuse

Abstract

This study examines the dynamic relationship between state law and customary law in the governance of local financial institutions, with a focus on Village Credit Institutions (LPD) in Bali. As community-based entities rooted in Balinese customary traditions, LPD operate under awig-awig and pararem, which function as the primary legal references in managing institutional operations. While these customary norms play a vital role in preserving cultural identity and social cohesion, their application often varies among villages, leading to legal inconsistencies and governance disparities. Such variations may generate potential gaps in regulation and accountability, primarily when LPD handles public funds or large-scale financial transactions. Adopting a socio-legal approach that combines interdisciplinary, statutory, conceptual, and comparative perspectives, this research examines how power and responsibility are shared between state institutions and customary authorities. The findings indicate that supervisory duties are frequently transferred from government agencies to local customary leaders. Although this practice reinforces community autonomy, it can also weaken institutional oversight and contribute to recurring cases of financial mismanagement. The study highlights the importance of developing a coherent regulatory system under the supervision of the Financial Services Authority (OJK) to ensure transparency, consistency, and accountability in LPD management. Strengthening coordination between customary values and national legal standards is crucial to align cultural practices with modern financial governance. The results of this research provide policy insights for enhancing local financial regulation that respects cultural identity while upholding institutional integrity and public trust. In a broader sense, the study contributes to ongoing discussions on legal pluralism and the reform of Indonesia's decentralized governance framework.