KREDIT USAHA RAKYAT - SME FINANCING THROUGH CREDIT

GUARANTEE SCHEME : INDONESIA EXPERIENCE

JAKARTA, 16 OCTOBER 2014 1

by Bobby Hamzar Rafinus Deputy for Fiscal & Monetary Coordination Coordinating Ministry for Economic Affairs

Republic of Indonesia The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

OUTLINE

1. INTRODUCTION 2. KUR SCHEME 3. ROLE OF GOVERNMENT 4. PERFORMANCE OF KUR 5. KUR EVALUATION

2

INTRODUCTION

3

Presidential Instruction Number 6/ 2007 : Accelerating the Development of Real Sector Policies and the Empowerment of MSMEC (Micro, Small and Medium Enterprise plus Cooperative) has been issued to enhance economic growth, provide job opportunity, and reduce poverty.

MSMEC Empowerment Policy includes:

Improvement in financing access Entrepreneurship Development Market Improvement for SMEC products Reform on SMEC regulation

SME EMPOWERMENT

4

Capability of Human Resources Market Coverage and Networking Technology Capability Financing access from banks The ability of SMEs to provide collateral

LIMITATION OF MSMEC:

5

BIG

ENTERPRISES ± 4,950 (0,01%)

MEDIUM

ENTERPRISES ± 44,280 (0,08%)

SMALL ENTERPRISES ± 602,190 (1,01%)

MICRO ENTERPRISES

± 54,55 million (98,85%)

NOT FEASIBLE AND NOT

BANKABLE ± 38,19 mil (70%)

Entitle go public

FEASIBLE BUT NOT BANKABLE ± 16,36 mil (30%)

FEASIBLE AND BANKABLE

Source: compile from various sources

CONDITION

STRUCTURE OF INDONESIA ENTERPRISES

6

To improve financing access and cope with the constraints of MSEs to provide collateral, government launch Kredit Usaha Rakyat (KUR) program in end of 2007.

KUR is a credit / financing for working capital and or

investment for productive, feasible, non-bankable MSEs. Its credit limits to Rp. 500 M (USD 42.000) which is partially guaranteed by the Government through the Credit Guarantee Company.

IMPROVEMENT ON FINANCING ACCESS

7

KUR TARGET

KUR target is a productive, feasible, non-bankable business

(approximately 16,36 million MSEs*).

Productive business : a business that produces goods and or services, provides added value and increases business revenue

Feasible business : a business that makes a profit so it has the ability to pay the entire debt and interest within a specified period and uses its profit for business development

Non-bankable : a business that can not meet the bank's requirements especially the provision of collateral.

8 * Source: Ministry of SME & Cooperative, 2011

KUR IN POVERTY ALLEVIATION PROGRAM

• There are 3 clusters concept on national poverty alleviation program: – Cluster 1: social assistance – Cluster 2: society empowerment – Cluster 3: productivity improvement

• KUR is included within cluster 3: a productivity-based poverty alleviation program – The target is the productive poor group – As a transition in the process to escape from poverty

• Ideally, KUR and other programs within cluster 1 and cluster 2 become integrated system – For example, those who have passed social grant program can become KUR

target – Currently, the integration of poverty reduction programs is still not

implemented, despite it being a long-term target

KUR SCHEME

10

KUR SCHEME

Government (KUR Policy Committee)

- Guarantee fee &

- Government Capital

Guarantee Company

Executive Banks

MSE

PRODUCTIVE AND FEASIBLE BUSINESS

MOU

Credit Loan Repayment

Cooperation Agreement (KUR Guarantee)

KUR STAKEHOLDERS

Governments: 1. Coord. Min. for Economic Affairs 2. Ministry of Finance 3. Ministry of Agriculture 4. Ministry of Forestry 5. Ministry of Maritime and Fisheries 6. Ministry of Industry 7. Ministry of SME & Cooperative 8. Ministry of Trade 9. Ministry of State-Owned Enterprise 10. Min. of Manpower & Transmigration

Executive Banks 1. BRI 2. Bank Mandiri 3. B N I 4. BT N 5. Bank Bukopin 6. Bank Syariah Mandiri 7. Bank DKI 8. Bank Nagari 9. Bank Jabar Banten 10. Bank Jateng 11. BPD DIY 12. Bank Jatim 13. Bank NTB 14. Bank Kalbar 15. BPD Kalsel 16. Bank Kalteng

17. Bank Sulut 18. Bank Maluku 19. Bank Papua 20. BNI Syariah 21. Bank Aceh 22. Bank Sumut 23. Bank Riau 24. Bank Jambi 25. Bank Sumsel Babel 26. Bank Bengkulu 27. Bank Lampung 28. Bank BPD Bali 29. Bank NTT 30. Bank Kaltim 31. Bank Sulteng 32. Bank Sultra 33. Bank Sulselbar

Guarantee Company 1. PT. Askrindo 2. Perum Jamkrindo 3. PT. Jamkrida Jatim 4. PT. Jamkrida Bali Mandara

Supervisors 1. Bank of Indonesia / FSA 2. B P K P

KUR AS A CREDIT GUARANTEE PROGRAM

• The funding is 100% from the bank. • The loan is guaranteed by the government, so the MSEs with no

collateral can get the access to loans through this program. • In August 2014, KUR realization reached Rp 164,8 trillion (around US

$ 13.75 billion, 1 US$ equals Rp. 12.000) with the government budget (through government capital & guarantee fee) amounts to Rp. 15.1 trillion

• The total of loans disbursed to debtors are ten times greater than the budget/funds issued by the government which encourage private sector participation (banks)

KUR Mikro : • The credit is up to Rp. 20 million (USD 1700) • Maximum interest rate is 22% (effective rate) annually or equivalent with 0,95% flat each month. • Debtor Information System (SID) checking is not necessary • Additional collateral is not required

KUR Ritel : • The credit is above Rp. 20 million to Rp. 500 million • Maximum interest rate is 13% annually (effective rate) or 0,57% per month (flatting

rate) • SID checking is required • If necessary, additional collateral should be provided

TERMS AND CONDITIONS OF KUR

14

Suppletion extension / restructuring:

∗ KUR for working capital, tenure from 3 years becomes 6 years; ∗ KUR for investment, tenure from 5 years becomes 10 years;

KUR Linkage (executing) maximum Rp 2 billion; Credit guarantee coverate rate for priority sectors (agriculture,

fisheries, marines, small industry and forestry) and Indonesia Migrant Worker (TKI) is 80%, while other sectors is 70%;

Guarantee fee (IJP) is 3,25%; The credit tenure can be 13 years for plantation sector (hard crop

commodities),

TERMS AND CONDITIONS OF KUR ….cont…

15

KUR financing can be provided to SMEs using linkage institutions including the Primary Cooperative, Secondary Cooperative, Rural Banks / Sharia, Non-Bank Financial Institutions, Business Group, Microfinance Institutions conventional or sharia (BKD, BMT, BUMDES, LDKPs). ∗ Linkage Channeling : KUR Disbursement through

linkage institutions with repayment obligations on MSE as the debtor of KUR.

∗ Linkage Executing : KUR Disbursement through linkage institutions with repayment obligations on the institutions as the debtor of KUR linkage;

KUR LINKAGE

16

ROLE OF GOVERNMENT

THE EVOLUTION OF KUR REGULATION

18

Terms and Conditions

October 2007 May 2008 January 2010 September 2010 January 2012

Type of Credit KUR until Rp. 500 million

KUR Mikro: until Rp. 5 mil; KUR Ritel: > Rp.5 mil until Rp. 500 mil

KUR Mikro: until Rp. 5 mil; KUR Ritel: > Rp.5 mil until Rp. 500 mil

KUR Mikro: until Rp. 20 mil; KUR Ritel: > Rp.20 mil until Rp. 500 mil

KUR Mikro: until Rp. 20 mil; KUR Ritel: > Rp.20 mil until Rp. 500 mil

Interest rate 16% KUR Mikro: 24% KUR Ritel: 16%

KUR Mikro: 22% KUR Ritel: 14%

KUR Mikro: 22% KUR Ritel: 14%

KUR Mikro: 22% KUR Ritel: 13%

Guarantee fee (IJP)

1,5% 1,5% 1,5% 3,25% 3,25%

Coverage 70% 70% 70% Mainstream sector & TKI: 80%; Other sector: 70%

Mainstream sector & TKI: 80%; Other sector: 70%

Plafon Linkage - - 1 billion 2 billion 2 billion

THE DEVELOPMENT OF KUR STAKEHOLDERS

19

Entities 2007 2010 2011 2012 - 2014

Bank execution 6 banks 19 banks 19 banks 33 banks

Credit Guarantee Companies

2 companies 2 companies 2 companies 4 companies

Ministries 7 ministries 9 ministries 10 ministries 10 ministries

Regional Government

- 3 provinces 33 provinces 33 provinces

Supervision Agency

2 agencies 2 agencies 2 agencies 3 agencies

1) Preparing Micro, Small and Medium Enterprises and Cooperatives who do productive business (can be an individual, group, partnership and / or cluster) to be financed by credit / financing;

2) Establishing policies and priorities of the business that will receive credit guarantee / financing;

3) Providing guidance and assistance during the credit / financing period;

4) Facilitating coordination between Micro, Small, Medium Enterprises and Cooperatives with other parties such as the company's core / off taker who contribute and support business.

OBLIGATION OF TECHNICAL MINISTRY (ARTICLE 2, MOU)

20

SUPPORTS FROM REGIONAL GOVERNMENT TO EXPAND KUR FINANCING

Presidential Instruction Number 3/ 2010: Instruction to Governor of Provinces to design

KUR expansion action plans at the local level especially for fisheries, marines, small industry, agriculture, and forestry sectors at the latest 2011.

The KUR working team has been established in 33 provinces since 2011 which coordinate execution banks and technical unit office activities in promoting KUR

GOVERNMENT BUDGET FOR SUPPORTING KUR PROGRAM

Year PT.

ASKRINDO

PERUM JAMKRINDO

2007

850

600

2009

250

250

2010

900

900

2011

800

1,200

2012

831

1,169

2013

880

1,120

2014

700

1,300

Total

5,211

6,539

Year

GUARANTEE COMPANY

PT Askrindo

Perum Jamkrindo

PT Jamkrinda Jatim

PT Jamkrida Bali Mandara TOTAL

2010

106,957

116,207

-

-

223,164

2011

150,317

473,848

-

-

624,165

2012

225,613

575,245 266

-

801,124

2013

129,502

238,863

-

-

368,365

Kekurangan 2013

578,933

829,759 1,046

14

1,409,752

TOTAL

3,426,570

Guarantee Fee (Rp. Million) Government Capital Injection (Rp. Billion)

MINISTRIES SUPPORTING ACTIVITIES

Financial education to migrant workers, official of provinces and local government and debtors in productive sectors;

Monitoring & Evaluation Mentoring to the group of debtors and cooperatives; Seminar/workshop/Focus Group Discussion; Research/ study in cooperation with international

organization such as World Bank, JICA, and research agencies.

KUR PERFORMANCE

KUR DISBURSEMENT IN 2007 - AUGUST 2014 (Rp Billion)

Realization Average Target

PERFORMANCE OF KUR AS OF AUGUST 2014

KUR delivery during January - August 2014 reaches Rp 26.23 trillion with 1.66 million debtors. Average NPL reaches 4,5% (According to banking regulation, if NPL < 5.0% it is categorized as moderate /tolerable).

From 2007 until August 2014, the total of KUR delivery amounts to Rp 164.8 trillion with 11.7 million debtors. The credit average per debtor is Rp 14,1 million.

KUR DISTRIBUTION ACROSS INDONESIA

Regionally, the top provinces providing KUR in the January - August 2014 period are:

Central Java : Rp. 4.78 trillion (18,2%)

East Java : Rp. 4,10 trillion (15,6%)

West Java : Rp. 3,65 trillion (14,0%)

North Sumatera provides Rp. 1,19 trillion (4,54%) & South Sulawesi reaches Rp. 1.18 trillion (4,50%) while Lampung reaches Rp 698.76 billion (2,7%)

*Total Upstream Sector : 46.8%

KUR DELIVERY BY ECONOMIC SECTOR JANUARY - AUGUST 2014

Slide 28

Mining 0.1% Construction 0.1%

Electricity, Gas & Water 0.1%

Small industry* 3.4%

Agriculture and Fisheries* 16.6%

Integrated Trade with upstream sector*

26.8%

Trade, restaurant & hotel 38.6% Others

7.7%

Transport, warehousing & communication

1.2% Busines Services

4.0%

Community services 1.4%

SECTORAL PERFORMANCE

In January – August 2014, KUR realization in trade sector reaches 65.4% (26.8% is integrated in priority/upstream sector), other sectors 7.7%, agricultural & fisheries sector 16.6%, small industry 3.4% & the rest is 6.9%.

KUR realization in the priority sectors (agriculture, marines & fisheries, forestry, small industry, & integrated priority sectors) reaches 46.8%.

THE FINANCIAL ADDITONAL IMPACT OF KUR PROGRAM TOWARD MICROENTERPRISE WAS REFLECTED ON DEVELOPMENT OF KUR MICRO

DELIVERY WHICH FASTER THAN KUR RETAIL

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2009 2010 2011 2012 2013 2014*

KUR MIKRO

KUR RITEL

TOTAL

*) July 2014

000 Rp.

KUR EVALUATION

• SUSENAS 2011 data shows that about a third of households of KUR recipients are in the 40 percent bottom group.

• Although there are many KUR recipients from households in the non-poor, KUR is still good enough to reach the poor and near-poor groups.

• Improvements in targeting and efforts to reach the poor consumers can make KUR serves more as a safety net.

Source: Susenas Q1 2011

5.06

6.87

12.27

8.58

10.64

12.34 13.26

11.89 11.18

7.91

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10

Perc

enta

ge

Expenditure Decile

Distribution of KUR Recipients based on Expenditure Decile

KUR AS A SAFETY NET – 1

Characteristics KUR

PNPM + Gov’t

Programs Bank Others No Loan Head of Household's Years of Schooling (Years) 4.66 3.40 5.70 3.54 3.80

Expenditure per Capita (IDR) 657,515 517,468 913,233 580,341 631,199

Poor Household (%) 4.81 12.22 2.90 7.40 11.46

Number of Children (Persons) 1.88 2.02 1.82 1.75 1.65

House Area (m2) 20.80 16.76 23.62 19.79 20.62

Observations 603 2,790 2,171 2,825 63,543

• Susenas 2011 data shows that the KUR recipients come from lower socioeconomic levels households compared to the commercial credit recipients. It means, KUR can fill the void of access to credit for poorer groups than the average bank customer.

• However, the KUR recipient continues to come from households with higher socioeconomic level than the recipient of PNPM credit or other

Source: Susenas Q1 2011

KUR AS A SAFETY NET – 2

KUR AS A CATALISATOR OF MSE

• By comparing the performance of KUR mikro (in which the recipients are mostly from small and micro enterprises) and KUR Ritel (the majority of medium-sized enterprises), it appears that between 2008-2012, KUR Mikro has higher loan growth rate.

• A higher growth rate is also followed by a higher amount of enterprises. The value of loans per worker and per enterprises are growing as well

• In other words, KUR provides access to higher productivity for micro and small enterprises groups compare to groups of medium-sized enterprises, so the gap between the two can be reduced in the long term

• Strengthening the overall KUR can also be an instrument to promote access for MSMEs to minimize the gap with big enterprises groups

Growth 2008-2012 (%) KUR Micro KUR Retail Loan value 165.91 104.39 Enterprises amount 59.91 39.24 Loan compare to enterprises 23.14 15.87 Loan compare to workers 25.54 10.36

KUR TO PROMOTE SECTORAL GROWTH

• KUR has been provided mainly for trade sector. However, in the last two years, KUR provision is directed to the primary (priority) sectors, especially agricultural sector

• The improvement of KUR policies has a positive outcome on the loan growth and the amount of KUR recipients in the agricultural sector, but impact unfavorably to the trade sector.

ECONOMIC SECTOR

Dec 12 Dec 13

GROWTH (%) GROWTH (%)

Ceiling Outstanding Debtors Ceiling Outstanding Debtors

Agriculture 16.34 18.11 14.14 17.24 20.14 15.46

Trade 57.32 54.70 67.40 56.48 57.59 66.07

KUR Penetration Ratio shows that KUR has significant contribution on increasing commercial bank credit to agriculture sector.

Sector Loan outstanding (IDR billion) as of June 2014 (1) UMKM (2) KUR (2) / (1)

Agriculture, hunting and forestry 56,730.50 10,289.05 18%

Fishery 4,095.40 219.11 5%

Mining and Quarrying 5,073.80 53.02 1%

Processing industry 68,567.30 1,727.43 3%

Electricity, Gas & Water 1,605.10 34.18 2%

Construction 41,383.50 566.67 1%

Wholesale and retail trade 360,542.20 29,288.51 8%

Provision of accommodation and the provision of eating and drinking 19,995.00 330.54 2%

Transportation, warehousing and communication 26,325.00 948.66 4%

Financial Intermediaries 14,841.70 483.31 3%

Real estate, Business Ownership, and Business Services 32,962.20 2,891.80 9%

Government Administration, defense and compulsory social security 323.30 27.99 9%

Education services 2,649.00 28.02 1%

Health services and social activities 4,810.80 101.10 2%

Social services, social, cultural, entertainment and other individual 36,989.20 1,072.85 3%

Individual services with serve households 2,514.10 52.07 2%

International agencies and other International extra intitutions 172.70 - -

Others 2,910.30 1,924.18 66%

TOTAL 682,491.10 50,038.47 7%

KUR PROGRAM GIVE SIGNIFICANT FINANCIAL ADDITIONAL IMPACT TO CREDIT GUARANTEE COMPANY

PERUM JAMKRINDO Rp. million

1,267,182 1,661,518

2,993,024

4,929,174

6,661,076

8,293,381

1,058,208 1,434,013

1,896,047

3,433,620

5,049,630

6,550,138

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2008 2009 2010 2011 2012 2013

Total Aset Total Equity

1,668,710

2,471,962

3,503,966

4,733,161

6,522,225

1,389,655

2,079,214

3,011,115

4,089,240

5,319,957

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2009 2010 2011 2012 2013

Total Aset Total Equity

PT ASKRINDO

CREDIT GUARANTEE COMPANIES DATA SHOW US THAT KUR IMPACT ON EMPLOYMENT IS MORE ON MANTAINANCE CURRENT

EMPLOYEE IN MICRO AND SMALL ENTERPRISE

Year PT ASKRINDO PERUM JAMKRINDO

MSME Number Workers MSME Number Workers

2008 1,144,903 2,287,251 184,009 279,223 2009 703,925 1,400,737 173,778 223,583 2010 444,540 881,026 685,571 639,554 2011 623,821 1,224,953 1,119,242 1,553,479 2012 799,123 1,633,176 1,148,377 1,590,636 2013 1,401,227 2,842,365 929,873 1,426,070

August 2014 1,085,426 2,194,856 595,089 746,915 TOTAL 6,202,965 12,464,364 4,835,939 6,459,460

MIGRATION OF KUR DEBTORS BECOME COMMERCIAL CREDIT DEBTORS REACH AROUND 10 PERCENT, MOSTLY IN KUR MICRO OF BRI

as of August 2014 (Plafond dalam Juta Rp)

Debitur Share (%) Plafond Share (%) Debitur Share (%) Plafond Share (%) Debitur Share (%) Plafond Share (%)Banda Aceh 456 4.44% 87,063 4.39% 16,865 1.81% 318,696 2.13% 17,052 1.81% 325,068 2.13%Bandar Lampung 249 2.43% 41,107 2.07% 21,900 2.35% 460,860 3.08% 22,277 2.36% 472,900 3.09%Bandung 732 7.13% 121,769 6.14% 112,426 12.06% 1,473,287 9.85% 113,520 12.04% 1,506,228 9.85%Banjarmasin 682 6.64% 147,159 7.41% 32,073 3.44% 791,131 5.29% 32,603 3.46% 812,653 5.31%Denpasar 717 6.98% 131,723 6.64% 31,367 3.36% 518,629 3.47% 31,889 3.38% 541,205 3.54%DKI 1 241 2.35% 54,876 2.77% 5,872 0.63% 113,598 0.76% 5,944 0.63% 116,661 0.76%DKI 2 580 5.65% 138,161 6.96% 25,109 2.69% 277,268 1.85% 25,424 2.70% 288,541 1.89%DKI 3 536 5.22% 95,132 4.79% 23,035 2.47% 487,931 3.26% 23,338 2.48% 498,837 3.26%Jayapura 270 2.63% 71,753 3.62% 6,528 0.70% 191,319 1.28% 6,661 0.71% 197,995 1.29%Makassar 920 8.96% 184,121 9.28% 105,109 11.27% 1,567,400 10.48% 105,948 11.24% 1,596,269 10.44%Malang 741 7.22% 138,134 6.96% 76,350 8.19% 1,423,310 9.52% 77,316 8.20% 1,451,550 9.49%Manado 448 4.36% 86,478 4.36% 38,155 4.09% 707,208 4.73% 38,624 4.10% 721,003 4.71%Medan 645 6.28% 103,788 5.23% 23,320 2.50% 567,709 3.80% 23,780 2.52% 587,182 3.84%Padang 287 2.80% 49,143 2.48% 17,630 1.89% 238,453 1.59% 17,858 1.89% 247,259 1.62%Palembang 473 4.61% 89,657 4.52% 20,768 2.23% 445,126 2.98% 21,172 2.25% 460,178 3.01%Pekanbaru 348 3.39% 84,275 4.25% 28,719 3.08% 569,957 3.81% 29,056 3.08% 583,264 3.81%Semarang 687 6.69% 121,754 6.13% 134,760 14.45% 1,751,356 11.71% 135,787 14.40% 1,780,439 11.64%Surabaya 519 5.06% 113,241 5.71% 94,674 10.15% 1,155,259 7.73% 95,411 10.12% 1,173,165 7.67%Yogyakarta 735 7.16% 125,301 6.31% 117,796 12.63% 1,895,592 12.68% 119,103 12.63% 1,935,864 12.66%TOTAL KANWIL 10,266 100% 1,984,635 100% 932,456 100% 14,954,089 100% 942,763 100% 15,296,262 100%Sumber : KUR Ritel: Portal DWH Divisi TSI, diolah.KUR Mikro : MIR Divisi Bisnis Mikro BRI

KANWIL Total KUR Ritel Migrasi Total KUR Mikro Migrasi Total KUR Migrasi

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