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By: Choirul DjamhariDeputy Minister for Business Development and Restructuring
Ministry of Cooperatives and SMEsChairman of Board of Supervisors of Perum Jamkrino
The Indonesian economic growth is 6.1% in 2010 with GDP of USD 714 billion.
Indonesian SMEs (Small & Medium Enterprises including cooperatives and micro enterprises): Contributing 53,3% of GDP; Providing 96,2 million job opportunities accounting for 97,3
of total labor force; Serving as sources of income among grass root, thus
contributing to poverty alleviation; Driving innovation and developing new products in efficient
ways Nurturing mentality and spirit of entrepreneurship; Fostering industries, as big companies need supports from
SMEs;
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◦ Generating export opportunities◦ Ensuring equitable and sustainable development
as they are spread out all over the country. SMEs have proven their resilience to
survive within the ailing national economy. As SMEs are the largest group in the
economic structure and they represent the “people’s economy” of Indonesia, then SMEs should be given of the foremost priority in the national development.
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Data source: Statistics Indonesia, 2009 (data as of 2008)MSME definition refers to MSME Act No. 20/2008
SMEs in IndonesiaSMEs in Indonesia
• Net assets: more than IDR10 billion (USD1 million), or
• Annual sales: more than IDR50 billion (USD 5 million)
• Net assets: more than IDR500 million (USD50.000) up to IDR10 billion (USD1 million), or
• Annual sales: more than IDR2,5 billion (USD250.000) up to IDR50 billion (USD5 million)
• Net assets: more than IDR50 million (USD5.000) up to IDR500 million (USD50.000), or
• Annual sales: more than IDR300 million (USD30.000) up to IDR2,5 billion (USD250.000)
• Max net worth (excl. land & building) : IDR 50 million (USD 5,000)
• Max. annual sales : IDR 300 million (USD 30,000)
• Number of entity: ±4,372 unit or 0,01%• Share to :
- total employment : 2,96%- GDP: 44,44%- non oil export: 79.83%- total Investment : 47,11%
• Number of entity: ± 39,657 unit or 0,08%• Share to :
- total employment: 3,48%- GDP: 13,43%- non oil export : 13,10%- total Investment : 23,81%
• Number of entity: ± 520.221 unit or 1,01%• Share to :
- total employment : 4,26%- GDP: 10,08%- non oil export : 4,85%- total Investment : 20,69%
• Number of entity : ± 50,697,659 unit or 98,90%
• Share to : - total employment : 89,30%- GDP : 32,05%- non oil export : 2,22%- total Investment : 8,39%
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Indonesian SMEs generally have some handicaps to access to financing for their business development.
A lack of formal credit access due to lack of collateral.
Currently, banking system is the most significant source of financing for SMEs, and other alternatives are saving & loan cooperatives, pawnshop, multi-finance companies, non-bank financial institutions.
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Bank
Non Bank Informal Institution
SMEs SMEs FINANCIAL SERVICE PROVIDERS FINANCIAL SERVICE PROVIDERS
CGC
Non Bank Institution
Source: Central Bank of Indonesia
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Number of Banks (as of Arpil 2011) Tot Banks Tot Offices
Commercial Banks (conventional) 121 14.140
Rural Banks (conventional) 1.680 3.996
Sharia Commercial Banks:-Sharia Commercial Banks-Sharia Business Unit of Comm Banks
1123
1.276315
Sharia Rural Banks 153 293
Grand Total 1.988 20.020
Source: Banking Statistic, Central Bank of Indonesia, April 2011
Need of Credit Guarantee To bridge the need of SMEs financing and
the banks’/creditors’ requirement of credit lending.
Credit Guarantee for SMEs is a key to greater access to financing.
Given to the feasible SMEs but not bankable in terms of collateral requirement.
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Feasibility Enterprise Financing Guaranteed by CGC
Large
Medium Small Micro
Feasible for Go Public
√ √ Capital Market No
Feasible & Bankable
√ √ √ √ BankLease financingVenture Capital
OptionalOptionalOptional
Feasible but not Bankable
√ √ √ BankLease financingVenture CapitalRural BankPawn ShopMicro finance Inst
GuaranteeOptionalOptionalOptionalOptionalOptional
Not feasible & not bankable
√ √ Pawn ShopMicro Finance InstMoney Lender
NoNoNo
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Legal Background:◦ Presidential Decree No. 2/2008 of Guarantee Institutions◦ MOF Regulation No. 222/2008 of Credit Guarantee Company and
Credit Re-guarantee Company As legal background, the grand design of credit guarantee system in
Indonesia consists of:◦ National and Regional Credit Guarantee Companies◦ Credit Re-guarantee Company◦ Government support as:
Regulator: Capital Market Supervisory Body and Financial Institutions
Shareholder for National Credit Guarantee Company Local government as the shareholder of Regional Credit Guarantee
Companies
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At the moment, there are 4 CGCs in Indonesia namely:◦ Perum Jamkrindo◦ PT Penjamin Kredit Pengusaha Indonesia/PKPI
(private CGC)◦ Jamkrida Jatim ◦ Jamkrida Bali Mandara.
The government support is given to the establishment of regional credit guarantee as well as the supervision of the existing CGCs.
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Current Guarantee Issues:Government Policy to Enhance SMEs
loan
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Not Feasible, Not Bankable
Feasible & Bankable
Feasible but not Bankable
Increasing the Guarantee Capacity
Additional Government Shares
Target of SMEs Credit Guarantee
Feasible and not Bankable
Guarantee Capacity
>
SMEs clasification
Target of Commercial Bank
Target of Government
Program
KUR Program supported by Indonesian CGCs (Jamkrindo and Askrindo), in which the government induced Additional Government Shares (AGS), totally IDR 3.75 Trillion since 2007.
KUR Program targets 10x of Gearing Ratio, at least 10 times of the AGS (IDR 37.5 Trillion) to be lent as KUR Loan to the SMEs.
The guarantee for KUR is provided in “Conditional Automatic Cover” mechanism, the evaluation of the credit fully conducted by the banks.
KUR Program has been monitored by the Policy Board (interdepartmental committee).
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◦ To support the growth of CGC industry, the Government through Capital Market Supervisory Body and Financial Institutions is improving the regulation for CGC: No. 222/2008 of Credit Guarantee Company and Credit Re-guarantee Company.
◦ Points of Improvements: Initial capital for CGCs establishment; Reserved capital management of CGCs; Investment management of CGCs; Financial Ratios (liquidity, claim and gearing ratio, etc); Credit Guarantee Products & Services; Credit Guarantee Agency; Etc.
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CHALLENGES OF THE INDONESIAN CGCs
Challenges include :
1. CGCs financially sustainable
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Generally, credit guarantee perceived as an unprofitable business and take insurance business market.
CGCs should find appropriate model of guarantee business to meet the expectation of the stakeholders (Govt, shareholders, SMEs, banks/FIs).
CHALLENGES OF THE INDONESIAN CGCs
ii) Credit Guarantee Culture
• SMEs’ mindset of subsidized loan and rates if CGC plays the role and their moral hazard.
• Financial institutions’ moral hazard if loans are guaranteed.
• High interest rate and collateral requirement even though risk is mitigated by guarantee
• Guarantee fees will result in higher borrowing cost for SMEs.
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- Increasing capacity and capability to provide the initial CGCs capital for establishment.- Finding appropriate business model for CGCs.- Increasing human resources competency to provide excellent services and products improvement.- Increasing capacity in managing CGC’s financial and investments.
CHALLENGES OF THE INDONESIAN CGCs
iii) CGCs capacity and competency
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Improvementof CGCs’
Products & Services
Government Support
TO TO
SUSTAINABLE & GROWING SUSTAINABLE & GROWING INDONESIAN CGCsINDONESIAN CGCs
• Appropriate guarantee business model that meets the needs of Shareholders, Government, Bank/FIs as well as SMEs.
• Adequate CGCs’ capital and sound financial management.
• Implicit support from shareholders & Government to facilitate growth and sustainability of Indonesian CGCs.•Improvement of CGC Regulation.
• Strategic business synergies with other corporations/ insurance.
• Balance between financial sustainability and SMEs empowerment outreach.
Proper CGCs
Business Model
KEY SUCCESS FACTORS
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