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STRENGTHENING THE BANKING SECTOR CAPACITY FOR MSMEs FINANCING : THE ROLE OF BANK INDONESIA as THE CENTRAL BANK. About Indonesia.

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Strengthening the banking sector capacity for msmes financing

STRENGTHENING THE BANKING SECTOR CAPACITY FOR MSMEs FINANCING :

THE ROLE OF BANK INDONESIA as THE CENTRAL BANK


Strengthening the banking sector capacity for msmes financing

About Indonesia

  • Indonesia is one of the world's biggest archipelagic country. Situated between two continents.i.e. Asia and Australia/Oceania , it has a total of 17.508 islands. This strategic location has a significant influence towards its Culture, Social conditions, Politics and Economy.

  • Area 

    -  Total1,919,440 (land) km²  735,355 sq mi  

    -  Water (%)48,5

  • Population 

    -  July 2007 234,693,997  

    -  2000 census206,264,595  

    -  Density134/km²  347/sq mi

  • GDP (nominal)2007  

    -  Total$438.1 billion  

    -  Per capita$1,947.1 


Strengthening the banking sector capacity for msmes financing

Employment

Number of Entity

Large Corp

Large Corp

1%

4%

SME

99%

Non oil export

SME

SME

96%

20%

GDP

Large

Investment

Corp

Large Corp

80%

SME

Large Corp

46%

47%

54%

SME

53%

ROLES OF MSMEs IN THE ECONOMY


Strengthening the banking sector capacity for msmes financing

Definitions of MSMEs

  • Micro enterprise :

    • Annual turn over of IDR 100 million (USD 10,000)

    • Net worth (excl. land n building) of max IDR 25 million (USD 2500)

    • Max. employees of 5 persons

  • Small enterprise :

    • Max. annual sales of IDR 1 billion (USD 100,000)

    • Max. net assets of IDR 200 million (USD 20,000)

  • Medium enterprise :

    • Annual sales range between IDR 1 billion (USD100,000) up to IDR 50 billion (USD 5,000,000)

    • Net assets range between IDR 200 million (USD 20,000) up to IDR10 billion (USD 1,000,000).


Strengthening the banking sector capacity for msmes financing

Number and Credit Outstanding of MSMEs

MSMEs Credit Outstanding

(2004-March 2008)

Number of SME


Strengthening the banking sector capacity for msmes financing

Financial Accessibility Problem for MSMEs

Financial Institution

  • Feasible

  • Bankable

Regulator

BI

  • Insentive to Financial Institution

  • Technical Assistance to MSMEs

Only 33,8% MSMEs are Bank’s debtor

MSMEs

  • Feasible

  • Not Bankable*

*) Not bankable : MSMEs don’t have sufficient collateral, limited access to market information, bookkeeping and limited formal legal status


Strengthening the banking sector capacity for msmes financing

BI’s Approach to MSMEs

1999

Before 1999 :

After 1999 :

Central Bank Act 1968 : Direct & Indirect Policy in Financing MSMEs

Central Bank Act 1999 : Indirect Policy in Financing MSMEs

  • Based BI’s act No. 13 year 1968, The objective of Bank Indonesia is to achieve and maintain the stability of the Rupiah and to improve sustainable growth of production and economic development along with increasing of job opportunity that leads to raise the people’s welfare

     Providing liquidity credits (financial assistance) and technical assistance to MSMEs through the banks

  • Based BI’s act No. 23 year 1999, The Objective of bank Indonesia is to achieve and maintain the stability of the Rupiah

Only provides technical assistance


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a regulator/Supervisor

Before 1999 :

  • Subsidized Credit Program

    • Priority sectors (MSMEs, plantation, and housing for low income people)

    • Lower interest rate and long-term funding

    • Funded by Govt. budget and BI

    • About 20 schemes of credit programs had been introduced

  • Banks Regulation

    • Quota on lending to micro and small enterprise

    • Lending to MSMEs was required to be min. 20% of net credit expansion


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a regulator/Supervisor

(Cont.)

  • Technical Assistance

    • Micro Credit Project

    • The Self-Help Group Linkages to Banks

      • To link group of micro entrepreneurs to banks

  • Institutional Development

    • Promoting the establishment of rural banks

    • Promoting the syariah based banking operation


Strengthening the banking sector capacity for msmes financing

After 1999 :

BI’s Policy in Financing MSMEs as a regulator/Supervisor

(Cont.)

1.Regulation on MSMEs credit :

  • Advised banks to allocate part of its lending to MSMEs

  • Advised banks to submit business plan to BI and publish the quarterly report on realization of the business plan.

    2.Easing Banking regulation within the prudential banking framework

  • Credit performance of loan up to IDR 500 million (USD 50.000) is based only on prompt repayment of principal and/or interest.

  • Risk–weighted Assets for Small Business Loan is calculated of 85%

  • The Risk-weighted Assets is calculated of ≤ 50 % for credit which guaranteed by government’s guarantee firms.


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a Mediator

  • Technical Assistance

    • Training for bank officers and Business Development Services Provider (BDSP)

    • Researches to support policy formulation

    • Building an SMEs Development Information System (SIPUK)

    • Training with certification (CERTIF) for candidate of directors and directors BPR/BPRS

    • Training on productive sector financing for Rural Bank officer

2. Linkage Program

  • To enhance bank loan to MSMEs via Rural Banks and other MFIs

  • As of June 2007, 28 financial institution (27 commercial banks and PT PNM) has linkaged to 1,156 Rural Banks with total outstanding loan amounted Rp2,026 billions (USD 202,6 million)


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a Mediator

(Cont.)

  • Promoting the Role of Credit Guarantee

    BI acts as a facilitator :

    • To encourage cooperation between credit guarantee agency and banks

    • To encourage cooperation between regional government and credit guarantee agency

    • Prerequisite : Approval from Regional Parliament to place fund in the regional credit guarantee agency

      BI as a counterpart of the Government in regulated the Credit Guarantee Policy :

  • BI also acts as a facilitator between the Banking Industry and Government in implementing Government Program so called Credit for People (Kredit Usaha Rakyat – KUR)

  • The purpose of this program is to enable MSMEs without sufficient collateral to get loan IDR 500 million (USD 50,000). The insufficiency of collateral was thus covered by credit guarantee, of which the guarantee premium is paid by the government


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a Mediator

(Cont.)

4. Facilitating dialogue between banking sector, MSMEs sector and government agencies

  • In form of bazaar of banking intermediary

  • Held by BI branches

5.Promoting the establishment of MSME center

  • Special unit extending services to MSMEs in commercial bank

  • Information center for MSMEs clients

6. Extending the facilities of Credit Bureau

  • Center of data base of all bank borrowers


Strengthening the banking sector capacity for msmes financing

BI’s Policy in Financing MSMEs as a Mediator

(Cont.)

7.Supporting the Establishment of Promoting Enterprises Access to Credit (PEAC) units.

  • Special unit extending services to BDS Provider

  • To improve the quality of BDS Provider services and productivity in making MSMEs bankable

  • Facilitating the establishment of APEX Institutions for Rural Banks (BPR/BPRS)

    - Functioning as a pooling of fund from the Rural Bank

    member

    - Providing both financial and technical assistance


Strengthening the banking sector capacity for msmes financing

MSMEs Credit Outstanding by Type of Utilization (2004-March 2008)


Strengthening the banking sector capacity for msmes financing

MSMEs Credit Outstanding by Economics Sectors (March 2008)


Strengthening the banking sector capacity for msmes financing

Percentage

20

15

11.58

10

8.1

7.57

6.14

5.68

4.28

3.84

4.5

3.89

4.38

4.15

5

3.88

3.68

3.23

3.39

0

2004

2005

2006

2007

Mar-08

MSME credit

Non MSME credit

Total Credit

Non Performing Loans of MSMEs Credit


Strengthening the banking sector capacity for msmes financing

Disbursement Vs Business Plan of MSMEs Credit


Strengthening the banking sector capacity for msmes financing

THANK YOU


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