public disclosure authorized indonesia rural credit sector...

Report No. 6917-IND

IndonesiaRural Credit Sector Review(In Two Volumes) Volume II: Statistical AnnexesApril 29, 1988

Asia Regional Office

FOR OFFICIAL USE ONLY

Document of the World Bank

This report has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EUIVALENTS

Before November 15, 1978 US$1.00 = Rp !i15

Annual Averages 1979-851979 US$1.00 Rp 6231980 US$1.00 f Rp 6271981 US$1.00 = Rp 6321982 US$1.00 - Rp 6611983 US$1.00 = Rp 909 /a1984 US$1.00 a Rp 1,0261985 US$1.00 = Rp 1,125

September 12, 1986 US$1.00 = Rp 1,644 /b

FISCAL YEAR

Government - April 1 to March 31Bank Indonesia - April 1 to March 31State Banks - January 1 to December 31

PRINCIPAL ABBREVIATIONS, ACRONYMS AND LOCAL TERMS

Adat - customaryASKRINDO - PT Asuransi Kredit Indonesia (Credit Insurance Company of

Indonesia)Bank Pasar - Market bank/petty trader bankBAPINDO - Bank Pembangunan Indonesia (Development Bank

of Indonesia)BBD - Bank Bumi DayaBDB - Bank Dagang BaliBDN - Bank Dagang NegaraBEII - Bank Export Import IndonesiaBI - Bank IndonesiaBIMAS - Bimbingan Hassal: "mass guidance"BKD - Badan Kredit Desa: village credit bodyBKK - Badan Kredit Kecamatan: subdistrict credit unitBKPD - Bank Karya Produksi Desa: village production bankBNI '46 - Bank Negara Indonesia 1946BPD - Bank Pembangunan Daerah: regional development bankBPR - Bank Perkreditan Rakyat: secondary bankBRI - Bank Rakyat Indonesia

/a On March 1, 1983, the Rupiah was devalued from US$1.00 = Rp 703 toUS$1.00 = Rp 970.

/b On September 12, 1986, the Rupiah was devalued from US$1.00 = Rp 1,125 toUS$1.00 = Rp 1,644.

FOR OFFICIUL USE ONLY

INDONESIA

statistical Annexes

Annex 1: Financial System in Indonesia

Table 1. Growth in Sectoral Value Added, 1981-862. Real Rates of Interest of Deposits3. Total Bank Deposits in Nominal and Real Terms4. Bank Indonesia Liquidity and Direct Credits5. Changes in Factors Affecting Money Supply and Liquidity, 1983-866. Interest Rate of Commercial Banks, 1983-867. Priority Lending Programs: Bank Indonesia8. Agricultural Credit Subsidies9. Subsidies Inherent in BI Liquidity Credits to Agriculture10. Sources and Uses of Funds of Various Financial Institutions11. Share of Groups of Banks in Total Assets, Funds and Outstandiuig

Loans12. Total Loans Outstanding of the Financial System13. Rural and Agricultural Loans Outstanding14. Population per Bank/Office for Selected Countries15. Institutional Structure of the Credit Market16. Loans Outstanding of Rural Financial Institutions17. Number of Financial Institutions (1980-86)18. Assets of Secondary Banks and Pawnshops19. Badan Kredit Kecamatans - Capital Accumulation20. Outstanding Bank Credits in Rupiah and Foreign Exchange by Sector21. Bank Credits as Proportion of Sectoral GDPs22. Regional Distribution of Total and Agricultural Lending23. Bank Indonesia Liquidity Credits for Rural Credit Programs24. Bank Indonesia Liquidity Credits to Agricultural Lending25. Rural Savings Deposits, 1983-8526. Ratio of Quasi-Money to GNP in Selected Countries27. Sources and Uses of Funds in Rural Credit Sector28. Combined Balance Sheet of National Foreign Exchange Banks

Annex 2: Scope for Development of Rural Financial Institutions

Table 1. Balance Sheet: Bank Bumi Daya and Bank Rakyat Indonesia2. Composition of Bank Bumi Daya Loan Portfolio3. Comparative Performance of Bank Rakyat Indonesia and Bank Bumi Daya

(1985)4. Condensed Income Statements: Bank Rakyat Indonesia and Bank Bumi

Daya5. Performance Indicators of Rural Financial Insitutions

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

- ii -

Annex 3: Assessment of Selected Special Credit Programs

Table 1. Externally-Assisted Tree Crops ProjectsS Loan Amount, Project Costand Smallholder Credit Component

2. Loan Approvals, Outstanding and Arrears - KIK/RMKP3. KUPEDES Lending Program4. Badan Kredit Kecamatan Loan Types, Maturity and Interest Rates5. Badan Kredit Kecamatan Lending Program6. Credit Program Outreach7. Analysis of KIK Arrears - January 19858. BRI KIK/KMKP Arrears of (August 1986)9. Claims on ASKRINDO Insurance10. KUPEDES Default Ratios11. Badan Kredit Kecamatan Loss Ratios12. Sources of Funds of Selected Credit Schemes13. Cost of Financial Intermediation

Annex 4: Financial Resource Mobilization

Table 1. Financial Assets Available to Savers in Indonesia2. Indonesian Bank Deposits, by Type, 1981-863. Distribution of BI Liquidity Credits by Bank

Annex 5: Women in the Rural Financial Sector

Table 1. Women's Participation in Specific Lending Programs and Institutions2. Characteristics of Loans by Economic Class and Sex of Borrowers:

West Java Study of Three Villages3. Self-Employed and Employers in Rural Areas by Sex and Industry

Group

Annex 6: Financial Institutions in Indonesia

Annex 7: Selected Credit Programs

Annex 8: Savings Instruments in Indonesia

ANNEX 1Table 1

INDONESIA

RURAL CREDIT SECTOR REVIEW

Growth in Sectoral Value Added, 1981-86(X p.a. at 1983 prices)

Sectoralshares

Average in 19S61981-83 1984 1985 1986/a (% of GDP)

Agriculture 1.5 5.9 3.2 2.0 24.2

Mining and quarrying -7.5 7.0 -9.4 2.7 17.1

oil and gas (-8.0) (7.3) (-10.0) (2.8) (16.3)

Non-oil (4.2) (0.9) (3.7) (1.5) (0.8)

Manufacturing 2.1 16.3 5.4 3.8 13.0LNG and refined oil (4.6) (44.8) (3.4) (3.5) (3.9)

Other (1.4) (5.6) (6.2) (3.8) (9.1)

Construction 2.6 -1.5 -1.3 0.2 5.5

Services 6.3 5.6 3.8 2.6 40.2

Gross Domestic Product (GDP) 1.4 6.6 1.1 2.5 100.0

of which:Oil/LNG sectors -6.7 12.2 -7.4 2.9 20.2

Non-oil sectors 3.9 5.1 3.5 2.4 79.8

Memo ItemsGross national product (GNP) 0.5 6.1 1.7 4.3 95.8

Groas national income (GNY) -1.1 6.0 0.5 -4.6 86.5

/a Preliminary.

Source: Central Bureau of Statistics (CBS) and World Bank staff estimates.

-2- ANNEX ITable 2

INDONESIA


Real Rates of Interest of Deposits

Real ratesof interest

Inflation savingsrate /a deposits /b Time deposits /c

1975 19.7 -10.7 to -1.7 -13.7 to 4.3

1976 14.2 -5.2 to 3.8 -8.2 to 9.8

1977 11.8 -5.8 to 3.2 -8.8 to 6.2

1978 6.7 -0.7 to 8.3 -0.7 to 8.3

1979 21.8 -15.8 to -6.8 -18.7 to -6.8

1980 16.0 -10.0 to -1.0 -13.0 to -1.0

1981 7.1 -1.1 to 7.9 -4.1 to 7.9

1982 9.7 -3.7 to 5.3 -6.7 to 5.3

1983 11.5 0.5 to 3.5 3.3 to -6.8

1984 8.8 3.2 to 6.2 6.2 to 12.2

1985 4.3 7.7 to 10.7 9.7 to 16.7

1986 8.8 3.2 to 8.8 1.2 to 8.2

/a CPI figures based on a weighted basket of 115 to 150 goods and services.

/b Based on the low and high interest rates for TABANAS savings accounts lessCPI change.

tc Based on the range of commercial bank time deposit rates less CPI change.

Source: Bank Indonesia, 1987.

ANNEX 1Table 3

INDONESIA


Total Bank Deposits in Nominal and Real Terms(Rp billion)

% growth % growthNominal bank of nominal Real bank of realdeposits /a deposits deposits /b deposits

1981 3,127 - 4,061

1982 3,897 24.6 4,667 14.9

1983 6,983 79.2 6,893 47.7

1984 9,331 33.6 8,250 19.7

1985 12,985 39.2 11,004 33.3

1986/c 13,933 7.3 11,439 4.0

/a Sum of deposit money bank time and savings deposits, and foreign currencydeposits.

/b Using WPI deflator (excluding oil) end 1983 base year.

/c Figures for June 1986.

Source: Bank Indonesia, October 1986.

INDONESIA


Bank Indonesia Liquidity and Direct Credits(Amounts in Rp billion)

1983 1984 1985 1986 Annualx dis- Z dis- X dis- % dis- growth (x)

Amount tribution Amount tribution Amount tribution Amount tribution Nominal Real

Liquidity credit 4,442 68.2 4,759 72.5 7,590 97.2 8,583 99.4 24.6 16.6

Priority 1,996 30.7 2,579 39.3 3,224 41.3 4,199 48.6 28.1 20.0

Nonpriority 2,446 37.5 2,180 33.2 4,366 55.9 4,384 50.8 21.5 13.7

Direct credit 2,073 31.8 1,805 27.5 218 2.8 52 0.6 -70.7 -72.5

Total 6,515 100.0 6,564 100.0 7,808 100.0 8,635 100.0 9.8 2.9

Percentage ofliquiditycredit tototal privatecredit (X) 42 - 33 - 43 - 44 - - -

Source: BI Research and Development Division.

-5- ANNEX ITable 5

INDONESIA


Changes in Pactors Affecting Money Supply and Liquidity, 1983-86(Rp blllion)

Annual growth (%)Changes in 1983/a 1984 1985 1986/a/b 1984 1985 1986/b 1986/c

Net foreign assets 2,824 3,553 2,181 4,702 42.3 18.3 33.3 -10.0

Net government deposits '1,087 -3,255 -626 96 58.8 7.1 -1.0 -21.2

Credit to public enter-prises 61 t89 513 186 3.8 9.8 3.2 3.2

Credit to private sector 2,371 3,646 3,333 2,843 34.1 23.2 16.1 14.1

Net other assets -581 -859 -185 -3,710 21.9 3.9 74.4 11.8

Domestic liquidity (M2) 3,588 3,274 5,216 4,117 22.3 29.1 17.8 11.5

Money supply (MI) 448 1,012 1,523 1,157 13.4 17.7 11.5 11.5

Currency (399) (379) (728) (915) (11.4) (19.6) (20.6) (20.6)

Demand deposits (49) (633) (795) (242) (14.9) (16.3) (4.3) (4.3)

Time and savings deposits(QM) /d 3,140 2,262 3,693 2,960 31.9 39.5 22.7 11.6

tlemo Items

M2/GDP ratio 19.9 21.0 25.7 27.3

QM/GDP ratio 9.6 10.9 14.5 16.0

/a Includes effect of the exch2nge rate changes on March 30, 1983 and September 12, 1986

/b Provisional data for October 1986.

/c Excludes valuation changes resulting from the Seatember 12 devaluation.

/d Includes foreign-currency deposits.

Source: Bank Indonesia.

-6- ANNEX 1Tabl'e"6

INDONESIA


Interest Rates of Commercial Banks, 1983-86(% p.a.)

December December December September December1983 1984 1985 1986/a 1986

Nominal Deposit Rates /b

State banks 14.8 17.1 14.6 14.3 13.9

Private banks 17.4 20.7 15.9 15.1 14.8

Real Deposit Rates /c

State banks 2.5 7.3 9.8 10.8 4.4

Private banks 4.8 10.6 11.0 11.6 5.2

Nominal Lending Rates _d

State banks 17-24 17-24 17-24 16-24 16-24

Private banks 18-28 24-30 18-27 17-36 16-33

Real Lending Rates /c

State banks 4-10 8-14 12-17 12-23 6-14

Private banks 5-14 14-19 13-22 13-32 6-22

Memo Items 1983 1984 1985 1986

LIBP-Le 9.7 10.9 8.4 6.8

Inflation differentialbetween Indonesia & USA 8.6 6.1 1.3 7.2

/a Rates prior to the devaluation of September 12, 1986.7W Nominal rates on three-month time deposits.77 Deflated by the Consumer Price Index for the relevant year.7T Nominal rates on working capital and term loans; the amount of lending undertaken

by banks at the maximum interest rates is generally quite small./e London Interbank Offer Rate on three-month US dollar deposits.

Source: Bank Indonesia and World Bank staff estimates.

INDONESIA

RURAL CREDIT SECTOR REVIW

Priority Lendiai 1 Progras: fank Indonesia(Septeme 30, 1986)

Program Progra Date Loan cell- Interest Uquidity Max. term Bforover fanks Collateralam objectives started tus (Itp) rate *bare A cost of loan share Involved Share rlsks awint/form

A. Workint Capital

KREDIT ESPO8R: Exporters 01/82 - 92 BI 702 0 31 I yr ISS All banks ASKRTNDO 851 dities co(Export Credit) credit Si 7.5S cerned

us 7.51

KPt KCredit Small eanter- 01/74 15 m 12X 8I 52 e 3 5 yrs 01 All national ASIUINDO 751 At least IOSModal Kerja prises W.B. 25X 0 10.11 He 251 lowmPermane (Work-iug CapitalCredlt)

Production. die- - 11/69 Open 122 St 751 e 31 I yr 25S 8RI: import & RB 100C Commodities con-tribution and distribution ernedImport creditsfor fertilizersa checals for

PS:s Kredit Palm oil. tea, 071/78 Open 12X BE 752 Q 31 Open 30 0EtI, 0BD, 12t He 1001 At least IO0Perkebunan coffee. rubber, BDN. SAPINDO loanSwasta Hawsonal cocoa, coSonut(Private tr eEstates)

Kits: Credit Naedium nter- 05/84 75 a 15S at 7O1 0 3X 1 yr g01 All national ASKRINDO 701 At least 1001Modal Kerja prises H8 301 loan(Working CapitalCredit)

KIMt: tEPPBES State Enter- 05/84 75 a 15X 81 701 Q 3Z I yr 302 All nattional ASKRINDO 702 At least IOO129/1984 (Working prises H8 302 loanCapital Credit)

CKi: Kredit $=1t traders 04/76 2,000 121 - S days- 02 KODs CO0 1001Candak Kulak 15,000 7 months

KUPEDESs (Vil- Small borrawers 02/84 1 a taX at 75X 0 15S 2 yrs O0 SRI BaR 1001 At least 100Ilage Credit) flat lo*n

KUt: (Kredit Farm production 06/85 80,000 122 GOI 1OOZ e 32 7 months O B81 a cha nnel Penn PKtK 952 Assets createdUsdha: Tani) 100,000/ba for ItUO SRI S (armer Groups) 00/ o s

UEDItT I/P a. Priortty goods 09181 Open 122 8I 902 e 31 3 yrs OX National banks Peru pxK 902 At least 1o00COPESASI (Co- purchase CODslly BSt 881 loan ops Credit) BI 51 Ooa

St Credit Program (continuation)

Program Program Date Loan cell- interest Llquloity Has. term Borower Banks Collateral

nnmm objectives started ings (Op) rate share & cost of loan share Involved Sh. . rtsks amount/form

B. Investment Loans

21P19RS Small borrowers 02/84 1 m 12S BI 1002 0 32 3 yrs 02 BRI BRI 100 At least 100I

flat loan

tIt: tredit In- Small entre- 01/74 1I a 121 BI 552 e 32 8Byrs ox All ASKRIX O 751 At Icast 1001

vestast (Small preneurs We 251 e 10.11 HB 251 luan

InvestmentCredit)

KR130T PZRUK-BUNAN: (TreeCrope)a. PIR Nacleus estatess 08/t0 Open 122 t aos o 31 20 srs 0O SRI, BBD 8B 1005 COt guarantee

tea, rubber 6 811 Small farmer

oil palm plots are at00t risk

b. PRPTE As above plus 1979 Open 121 SI 801 e 31 20 yrs O SRI, BBD 8B 100 001 guarantee

cocoa, coffee. _ B111 Small farmer

pepper 6 coconut plots are at1GO1 rk CD

c. PSN Large private 06/78 Open t21 BI 851 e 31 10 yrs 1O0 BAPINDO HUB IOS At least 1001

estates: tea, IOan

oil palm, cocoa.coconut, coffee,rubber

Paddy Field For- 1. Construction 09/79 pen 32 BI b0010 32 1-2 yrs - firect creEdl CO0 001

mation riee fields to ini. Agri.2. AS above and - - 10.5S ST too1 e 3S 10 yrs - SRI cOt 601 0O0

becomes lIK at 2t.5S

type loan tn bIt 12.5S

farmer's name3. An above - - 121 RI 80X e 31 10 yrs - BBI G0 602 GOX

for 2 BI 27.5SSRI 12.5S

XI: Investast Nedimi size 06/83 73 122 B M801 31 10 yrs 101 All us 1001 At least 1001

(Investment enterprIses IOaD

Credit)

Iredit loperast:(InvestmentCredit Cooper -tives) a. Prtority our- 09/81 - 12S St 9010 31 10 yrs O0 All state Perum PX1 90S

chase priority banks SRI SS

goods SI 5X

b. Other activities

I_ _ . . . w Fh~~~~~~~~~~~~~~~~~~~~~

-9- ANNEX 1Table 8

INDONESIA


Agricultural Credit Subsidies(Rp billion)

Dec Dec Dec Jun1983 1984 1985 1986 Total

State banks 70.9 75.4 94.5 113.9 354.7

National privatebanks 1.2 2.0 2.6 3.8 9.6

Regional devel-opment banks 1.5 1.7 2.1 2.3 7.6

Foreign banks - 0.1 - 0.1 0.2

Total 73.6 79.2 99.2 120.1 372.1

Source: Estimated from BI statistics using a market reference rate of 18%.

ANNEX 1- 10 - Table 9

INDONESIA


Subsidies Inherent in BI Liquidity Credits to Agriculture(Rp billion)

Agricultureliquidity credits Subsidies

Mar Mar Mar Mar Mar Mar Mar Mar Mar1983 1984 1985 1986 1983 1984 1985 1986 1983-86

BIMAS 139 136 110 29 12.51 12.24 9.90 2.61 37.26

KUDs 209 208 164 193 '8.81 18.72 14.76 17.37 69.66

Sugar nurseries 0 8 13 13 0.00 0.72 1.17 1.17 3.06

Import/Distn. fert. 35 130 184 171 3.15 11.70 16.56 15.39 46.80

KMKP 56 5E 56 57 5.04 5.04 5.04 5.13 20.25

KIK 101 96 90 86 9.09 8.64 8.10 7.74 33.57

Tree crops 134 225 324 513 12.06 20.25 29.16 46.17 107.64

KKK/KI/Kelayakan 6 4 9 63 0.54 0.36 0.81 5.67 7.38

Paddy formation 22 23 24 24 1.98 2.07 2.16 2.16 8.37

Total 710 901 994 1,191 63.18 79.74 87.66 103.41 333.99

Note: Reference rate is 12%.

INDONESIA


Sources and Uses of Punds of Varsous Vamcial Institutions(Rp billionk)

National foreign Other cor- Development Secondary Sedan kredlte chanie baziksa Forelon banks/b mercial banks banks Savings banks banks lc kecanatanA2nunt X Anount X AmmAAount 2 Amount X AAount 2

Sources

Deposits 16,204.0 S8.39 2,090.0 87.16 2,165.0 77.77 1.101.0 37.77 153.0 9.80 113.0 65.32 2.2 18.33

Borrowings 9.439,0 34.01 238.0 9.92 335.0 12.03 1.330.0 45.63 1,086.0 69.57 16.0 9.25 3.5 29.17

Equity 2,107.0 7.59 70.0 2.92 284.0 10.20 484.0 16.60 322.0 20.63 44.0 25.43 6.3 52.50

Total 27,750*0 100.00 2,398.0 100.00 2,784.0 100.00 2,915.0 100.00 1,561.0 100.00 173.0 100.00 12.0 100.00

Uses

Loans 18,817.0 67.81 1,173.0 48.92 2,3S7.0 84.66 2,397.0 82.23 1,282.0 82.13 143.0 82.66 12.0 100.00

Investments 6,547.0 23.59 1,093.0 45.58 223.0 8.01 334.0 11.46 207.0 13.26 0.0 0.00 0.0 0.00

Others 2,386.0 8.60 132.0 S5S0 204.0 7.33 184.0 6.31 72.0 4.61 30.0 17.34 0.0 0.00

Total 27,750.0 100.00 2.398.0 100.00 2.284.0 100.00 2.915.0 100l.0 10 561.0 100.00 173.0 100.00 12.0 100.00

Consist of five state and tea prtvate banks. [3!Consist of ten foreign banks and one joint bank.

/ Consist of bank pasar, village and production banks.

- 12 - ANNEX 1Table Tl

INDONESIA


Share of Groups of Banks in Total Assets, Funds and Outstanding Loans(Percentage)

Assets Loans Funds1983 1984 1985 1983 1984 1985 1983 1984 1985

State banks 77 74.8 73.4 78.4 74.4 73.9 70.7 69.5 66.6

National private banks 11.2 13.9 15.3 11.9 15.5 17.5 13.2 16.5 18.5

Local development banks 3.2 3.5 3.5 3.2 3.1 2.9 3.5 3.6 3.9

Foreign banks 8.6 7.8 7.8 6.5 7.0 5.7 12.6 10.6 11.0

Source: Bank Indonesia.

- 13 - ANNEX 1Table 12

INDONESIA


Total Loans Outstanding of the Financial System(Rp billion)

Loans outstanding1985 June 1986

Amount % Amount %

Banks /aBank Indonesia (direct credits) 964.0 4.07 1,103.0 4.36State banks 15,145.0 63.95 15,586.9 61.61Other commercial banks 4,106.0 17.34 4,715.0 18.64Foreign banks 1,073.0 4.53 1,060.0 4.19Development banks 640.0 2.70 666.0 2.63Savings banks 1,005.0 4.24 1,325.0 5.24

Subtotal 22,933 96.83 24,455.0 96.67

Nonbank financial institutions 162.0 0.68 182.6 0.72

Rural Financial Institutions (RFIs)BRI Unit Desa 229.0 0.97 285.1 1.13

Secondary banks 214.3 0.90 233.0 0.92Bank Pasar 193.0 0.81 209.8 0.83Village banks 19.0 0.08 20.7 0.08Paddy banks 2.3 0.01 2.5 0.01

Pawnshop 64.8 0.27 61.4 0.24

Other rural nonbank financialinstitutions 81.0 0.34 81.0 0.32BKKs, KURKs, etc. 31.0 0.13 31.0 0.12KUDs 50.0 0.21 50.0 0.20

Subtotal RFIs 589.1 2.49 660.5 2.61

Total Credit Outstanding 23,684.1 100.00 25,298.1 100.00

/a BI statistics.

INDONESIA

RURAL CREDIT StCTOR REVIEW

Rural and Agricultural Loans Outstandlng(In Rp billions)

1981 1982 1983 1984 1985 June 1986

Loans S Loans S Loss I Loans Loa-s Loans x

Agrleultural Credit by Comaer-ci-l and Development BanksLa

State banks 784.0'1 41.57 986.00 41.75 1,181.00 44.19 1,256.00 43.52 1,575.00 44.32 1,899.00 46.93

National private banks 12.00 0.64 14.00 0.59 20.00 0.75 34.00 1.18 45.00 1.27 63.00 1.56

Regional development banks 17.00 0.90 25.00 1.06 25.00 0.94 28.00 0.97 35.00 0.98 38.00 0.94

Foreign banks - - - - - - 2.00 0.07 1.00 0.03 2.00 0.05

BBD rural nonagricultural credit 208.00 11.03 279.00 l1.8k 302.80 11.30 275.90 9.56 393.40 1L.0? 467.20 11.55

EfK/RNgp nonagricultural credit 778.00 41.25 942.00 39.88 918.00 34.35 994.00 34.45 960.00 27.01 960.00 23.72

Subtotal 1,799.00 95.40 2,246,00 95.10 2.446.00 91.53 2,589.90 89.75 3.009.40 84.68 3.429.20 84.75

Rural Financial InstitutionsBRI unlt disa lb 50.00 2.65 75.00 3.18 93.00 3.48 89.00 3.08 229.00 6.44 285.10 7.05

Bank Pasars n.a. n.a. n.e. n.a. 63.00 2.36 121.00 4.19 193.00 5.43 210.00 5.19

Village banks 9.10 0.48 11.60 0.49 13.60 0.51 16.10 0.56 19.00 0.53 20.60 0.51

Paddy banks 0.40 0.02 0.70 0.03 1.30 0.05 1.80 0.06 2.30 0.06 2.50 0.06

KUDs / cu aa s n.a. n.a. n.a. 20.00 0.75 27.60 0.96 28.20 0.79 28.00 0.69

Pawnshops Ic 27.40 1.45 28.50 1.21 35.40 1.32 40.30 1.40 42.10 .18 39.90 0.99

l Us, KURKs, etc. U.&. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 31.00 0.87 31.00 0.77

Subtotal (RFIs) 86.90 4.61 1154.0 4.90 226.30 8.47 295.80 10.25 544.60 15.32 617.10 15.2S

Total Rural Credlt 1.885.90 1OP.00 2,361.80 100.00 2.672.30 100.00 2,885.70 100.00 3.SS4,00 100.00 4.046.30 100.00

In constant 1983 Pdees /d 2,449.23 2,828.50 2,672.30 2,551.46 3,011.86 3,322.08

la B1 statistics.

lb Consisted of llinl and Nidl Credits before January 1984 and thereafter KUPEDES loans.

/c BL statistics and Ministry of Finance estimates of the distribution of credit.

/d Using WPI deflator (excluding o11): 1981 - 77.0; 1982 - 83.5; 1983 - 100.0; 1984 - 113.1; 1985 - 118.0; and 1986 - 121.8.


INDONESIA


Population per Bank/Office for Selected Countries

Population per bank officeUrban Rural

Indonesia 18,287 40,220/a

Philippines 5,900 18,100

Thailand 9,826 20,278

India 6,910 23,449

Pakistan - 22,497

/a Outside Java.

Note: 1983 data from M.H. Agabin, "Rural Savings Mobilization,Asian Perspective and Prospects," September 1985, TechnicalBoard for Agricultural Credit, Manila, Staff Paper 2-85.

ANNEX- 16- TabJle

M*St CuSSlt )V,tW

nstltatien l Steetutei of tbe Cdilt "Mrket

L1wl/ toa siz ifettati Stbur of loea saotoitype of tosttua etios _ets o p stop opstloi (3'000) tetotlyt Coll.t@tI) 10t55 t lM typ 0t bertat boitowtr. to 1"S V(

V11las.

UKs. VLS, etc. Ptow. Sow ots Sten otuteoeplw- 100o Short-tax, not lo 26.In30 p.. mtlb rtowl troders62oxty w"top *My As. *S7 sucsdt I it

520, 510. tJI Los toermtu UIbt bank; calloty 20 mu. alums of ole.t In tor 10- Mwetly te tedtr 7)0sewlap Ae. * 30 10 was" VAs posIeS ot

KlOs cotelwen Crndt 6 s o 0.. son-tore lb" 13t p.&. CoopotI"s esebetr U3 b

SubdIStrict

811 cut de" ste-amse Ureca itwu oIle eO- I O10 000 up to S tr 1r05. build- 2t-2 p.s. etly sotel oatre 991"rp 0esUg Awf. - 460 og. oip- prosre" sod treder

mmt with tollat4tel

tak Pses priets* sn 7 de best wooary I0 MO_O. bAir_ of I It ?teIe is- MeuiWA32 Pet t*" tI*ndorT 262omnweat *3 sawlp Awe. * 735 VeStnr0. wombh a _omee-Coerptstive ox fid seetm sits dosit

of St of 1lossaff*ctti* .48.402 paw.

p!a_shop State Uit beki so neip 2.-300 up to I 1ntre Coerm malmall per Pilon * 362 4.00dussbls". ot" looe P_.htm_o * 62jlx1"v eds^ this Intel ctade eX

Up 20.,01 -a (bet - 34tWpea"ot lI""ffsfe*r thisft 20.000;

District end ProvInce

sm fte rw.soiarnust Stescb unetwos voles- 5W30-470, fott-. modive- Lend. fluid WM24 p.s. lmll- 6 wdie-$c*I*tory ewvisg 6 other, loneg-term sial sotrpreour

_ 4*WM*

s tW ervi*etrP|s

Iracwl, of com_r- is I ptiwtte Wench etork; volun- lb lund Shont-, sidi- lead. flzed lKl bak * tblic ettptle.clil 6 de. beak sary dilgp 6 ethet eIltlg & long-tsrs Sssets 5-24 p.s. 0 t* - 6 litge-stle

OVIten Ptivate M at*pi

ftttoos)M2ftta sd Ste 6 PrIvet grsm% utoxkg full Me t(ud Shout-. rnlm load, tflud State beak - twhlt 55151p1is5.

breec of s_oe- bea 6 Itsi"el eiiugt 12t2 p.s ltrs.-.cel, lePrt-dcal A d5w. banks. servites Psvetse ars" 6 torsigenebeak I itiecUl lSSJeitituttfoes tsJkiorts

lTt" to t e.2U9.

4-b Istloste of sumber of cooperstiwe wen


INDONESIA


Loans Outstanding of Rural Financial Institutions(Rp billion)

December 1985 June 1986Amount % Amount %

BRI unit desas 229.0 42.0 285.1 46.2

Bank Pasars 193.0 35.4 210.0 34.0

Village banks 19.0 3.5 20.6 3.3

Paddy banks 2.3 0.4 2.5 0.4

Pawnshops 42.1 7.7 39.9 6.5

BKKe, KURKs, etc. 31.0 5.7 31.0 5.0

KUDs 28.2 5.2 28.0 4.5

Total 544.6 100.0 617.1 100.0

- 18 - TAe 17 I

INDONESIA


Number of Rural Financial Institutions (1980-86)

BRI unit Secondary Pawn- Growthdesas banks shops BKKs KUDs Total rate (%)

1980 3,432 5,833 N/A 486 4,752 14,503 -

1981 3,610 5,792 463 486 5,254 15,605 7.6

1982 3,617 5,808 471 486 5,254 15,636 0.2

1983 3,626 5,811 473 491 6,141 16,542 5.8

1984 3,626 5,825 474 496 6,579 17,000 2.8

1985 3,626 5,835 479 496 N/A N/A -

1986 2,272 5,820 479 497 6,786 15,854 -


INDONESIA


Assets of Secondary Banks and Pawnshops(Rp billion)

1981 1982 1983 1984 1985

Secondary Banka

Total assets

In current prices - Value 60.3 79.9 103.5 177.3 292.4

% growth - 32.5 29.5 71.3 64.9

In constant prices - Value 78.3 95.7 103.5 156.8 247.8

% growth - 22.2 8.2 51.5 58.1

2 of assets to total assets offinancial institutions 0.23 0.24 0.24 0.32 0.44

Pawnshops

Total assets

In current prices - Value 59.2 78.6 81.4 90.9 105.2

% growth - 32.8 3.6 11.7 15.7

In constant prices - Value 76.9 94.1 81.4 80.4 89.2

X growth - 22.4 -13.5 -1.3 10.9

% of assets to total assets offinancial institutions 0.22 0.24 0.19 0.16 0.16

Note: Secondary banks include Bank Pasar, village banks and paddy banks.

Source: Bank Indonesia Economic and Statistics Division.

- 20 - ANNE I

INDONESIA

RVRAL CREDIT SECTOR REVIEW

8adan Kredit Keeamatans - Capital AccumulationtKIp)-

Loans outstandingEnd of minus payment over- Borrowed Equity (retalnedyear due-current assets capital Savings earninse)

(1) (2) (3) (1-2-.

1972 213,428,597-31,469,685T1G13,5$V1z 152,263,500 38,389,316 (-8,694,086)

1973 498,256,179-89,787 971408,468,208 306,012,388 110,699,534 (-8,243,714)

1974 857,929,870-181.271 941-a7.b37,!2 446,091,673 220,101,512 10,464,744

1975 1,096,294,184-245.349 134

GDU,94.3#U3U 463,616,242 285,392,121 101,936,687

1976 1,305,824,896-326.514 56479,31U,332 462,236,249 338,350,749 178,715,334

1977 1,420,097,129-361.566 5281,058,:30,601 422,038,972 356,273,056 280,218,573

1978 1,581,211,393-374 974 3081,206;Z37,n 394,354,418 385,466,791 426,415,876

1979 1,886,175,896-454 046 228i,43Z,T s9,668 397,568,712 435,743,355 598,817,601

1980 2,507,736,077-560 964 914

T77T~T~ 500,336,759 565,943,347 880,491,057

1981 3,319,535,051-675,666 066

z,643,868,985 572,179,840 733,837,997 1,337,851,148

1982 4,817,822,677-808,176 5194,009,T 46.TW 1,001,204,979 1,002,394,497 2,006,046,082

1983 6,598,388,679-1.000.930 309

393V7,4377 1,325,447,710 1,372,403,983 2,899,606,677

1984 9,421,244,181-1.359 965 022

1,982,926,325 1,794,062,852 4,884,289,982

1985 11,943,055,206-1 904 443 02310 038 612 183 2,478,087,461 2,156,831,874 5,403,692,848

1986 14,097,265,491(Sep) -2.073.838 225

1z,2Z3,4z/!7, 3,465,895,051 2,246,781,275 6,310,750,940

-21 - ANNEX 1Table 20

INDONESIA


Outstanding Bank Credits In Ruplah and Foreign Exchange By Sector(Rp billion)

AnnualSector 1980 1981 1982 1983 1984 1985 1986 change X

Current Prices

Agriculture 526 813 1,025 1,226 1,318 1,656 2,071 26.9Mining 1,866 1,693 1,472 807 384 258 357 -25.0Industry 2,563 2,763 3,923 5,207 6,667 7,592 8,022 21.9Trade 1,977 3,062 4,129 5,132 6,344 7,255 8,277 28.3Services 482 1,385 1,867 2,276 3,169 4,183 3,834 43.4other 466 444 606 651 931 1,213 1,985 28.7

Total 7,880 10.159 13.022 15,299 18,813 22,157 24,546 21.8

Annual Change7 n) - 28.9 28.2 17.5 23.0 17.8 14.6

1983 Constant Prices /a

Agriculture 750 1,056 1,228 1,226 1,165 1,403 1,700 15.3Mining 2,662 2,199 1,763 807 340 219 293 -31.9Industry 3,656 3,588 4,698 5,207 5,895 6,434 6,586 10.8Trade 2,820 3,977 4,945 5,132 5,609 6,148 6,796 16.5Servtices 688 1,799 2,236 2,276 2,802 3,545 3,148 30.3Other 665 577 726 651 823 1,028 1,630 16.9

Total 11,241 13,196 15,596 15,299 16,634 18,777 20,153 10.7

Annual Change17.4 18.2 -2.0 8.7 12.9 9.9

Percentage Distributioa

Agriculture 6.7 8.0 7.9 8.0 7.0 7.5 8.4Mining 23.7 16.7 11.3 5.3 2.0 1.2 1.5Industry 32.5 27.2 30.1 34.0 35.4 34.3 32.7Trade 25.1 30.1 31.7 33.5 33.7 32.7 33.7Services 6.1 13.6 14.3 14.9 16.8 18.9 15.6Other 5.9 4.4 4.7 4.3 4.9 5.5 8.1

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

/a Using WPI deflator (excluding oil): 1980 - 70.1; 1981 - 77.0; 1982 - 83.5;1983 - 100.0; 1984 - 113.1; 1985 - 118.0; and 1986 - 121.8.

Source: BI Statistics, December years except 1986 which is in September, World Bank BaseData.

- 22 - ANNEX ITa-b 2

INDONESIA


Bank Credits as Proportion of Sectoral GDPs

Sector 1980 1981 1982 1983 1984 1985

Current Prices

Agriculture 4.5 6.0 6.8 6.9 6.4 7.3

Mining 16.6 12.8 12.1 5.8 2.4 1.7

Industry 40.3 39.1 52.4 63.4 58*8 58.5

Trade 27.0 34.2 40.6 42.7 45*4 49.0

All sectors 16.1, 17.4 20.8 20.7 21.5 23.1

1983 Constant Prices

Agriculture 4.6 6.1 7.1 6.9 6.2 7.3

Mining 16.6 13.5 12.7 5.8 2.3 1.6

Industry 50.0 45.5 58.9 63.4 62.1 64.0

Trade 27.9 36.3 42.1 42.7 45.6 50.0

All sectors 16.9 18.4 21.9 20.7 21.3 23.6

- 23 - Table 22

INDONESIA


Reglunal Distrlbution of Total and Agricultural Lendins(March 1986)

Per I dis- Percapital tribution capita S dis-

Total Agric. agric. total Total total tribution Agric.population lending lending agric. lending lending total lending

Province (1000) (Rp bln) (tRP) lending (Rp bln) (Rp) lending I total

Aceh 2,999.9 17.5 5,834 1.0 166.9 55,635 0.8 10North Sumatra 9,452.0 672.6 71,160 36.9 1,431.5 151,449 6.8 47West Sumatra 3,779.6 19*4 5,133 1.1 307.0 81,226 1.5 6Riau 2,513.4 38.8 15,437 2.1 246.6 98,114 1.2 16Jambi 1,755.3 5.2 2,962 0*3 98.9 56,344 0.5 5Banxkulu 946.9 1.4 1,479 0.1 34.9 36,857 0.2 4South Sumatra 5,423.1 12.0 2,213 0*7 349.9 64,520 1.7 3Lmpung 6,089.7 49.2 8,079 2.7 315.1 51,743 1.5 16West Java 31,142.0 140.6 4,515 7.7 1,618.3 51,965 7.7 9DKI Jakarta 7,873.2 182.7 23,205 10.0 10,644.4 1,351,979 50.4 2Yogya 2,891.1 15.2 5,258 0.8 167.2 57,833 0.8 9Central Java 27,387.2 177.0 6,463 9.7 1,249.1 45,609 5.9 14East Java 31,266.7 325.5 10,410 17.8 2,309.1 73,852 10.9 14Bali 2,672.0 16.0 5,988 0.9 180.0 67,365 0.9 9West Kalimantan 2,771.5 34.3 12,376 1.9 350.0 126,285 1.7 10Central Kalimantan 1,123.9 1.3 1,157 0.1 56.6 50,360 0.3 2South Kalilantan 2,285.5 30.3 13,257 1.7 288.3 126,143 1.4 11East Kalimantan 1,603.0 33.0 20,586 1.8 352.7 220,025 1.7 9North Sulawesi 2,359.0 12.0 5,087 0.7 131.7 55,829 0.6 9Central Sulawesi 1,549.8 3.6 2,323 0.2 66.5 42,909 0.3 5East Sulawesi 1,091.9 1.1 1,007 0.1 33.1 30,314 0.2 3South Sulawesi 6,574.7 22.2 3,377 1*2 341.6 51,957 1.6 6Maluku 1,617.4 4.6 2,844 0.3 245.1 151,540 1.2 2NTB 3,045.1 6.7 2,200 0.4 67.6 22,200 0.3 10NTT 2,999.3 2.3 767 0.1 41.2 13,737 0.2 6Timor Timur 608.4 0.1 164 0.0 3.8 6,246 0.0 3Irian Jaya 1,332.0 0.6 450 0.0 39.2 29,429 0.2 2

Total 165;153.6 1.825.2 11.052 100.0 21,136.3 127.980 100.0 9

/a Outstanding of all banking credits, excluding Interbank and foreign residents loans.

Source: Bank Indonesia Economics and Statistices Department.

- 24 - eX ITab le 23

INDONESIA


Bank Indonesia Liquidity Credits for Rural Credit Programs(Rp billion)

1983 1984 1985 1986

Rural and Small LoansWorking CapitalBIMAS 139 136 109 29MIDI/KUPEDES 32 56 70 142KMKP 620 621 621 634PSN - - 3 2Cooperatives 136 157 165 204

Total 927 970 968 1,011

Term InvestmentsMIDI/I KUP%ES- 6 12 23 51KIK 360 343 323 307PIR 43 73 119 211PRPTE 75 112 122 124PSN 15 40 80 176Cooperatives 30 43 41 29

Total 529 623 708 898

Total Rural 1,456 1,593 1,676 1,909

Share of total (X) 73 62 52 45

Nonrural and Large LoansOther Prog ramsimport, procuction of fertilizers 35 130 184 171Export credits 172 389 635 981KMK/KEPPRES - - 53 122Investment credits (KI) 30 6 31 63National contractors - - 13 41House purchase 245 398 558 764Teachers, student credit 58 63 74 148

Total Nonrural 540 986 1,548 2,290

Share of total 27 38 48 55

Total BI Prioritz ProgramLEIUld ty uredith 1,996 2,579 3,224 4,199

Source: BI, Division of General Credits.

INDONESIA

RURAL CRFDtT SECTOR REVIEW

Bank Indonesia Liquidity Credits to Agticultutal Lending(Rp billion)

Estimated Program totals Estimated totals for agriculture Annual

agriculture March March March Mar March March March March change

(1) 1983 1984 1985 1986 1983 1984 1985 1986 (O

*. Current Market Prices

BDIMAS 100 139 136 110 29 139 136 110 29 -40

KUDs /a 70-90 306 212 205 241 209 208 164 193 -3

Sugar e-rseries lb 100 0 8 13 13 0 8 13 13 18

Midi/Kupedes /c 22 37 68 93 193 8 15 20 42 74

Import/distn.lFertilizer 100 35 130 184 171 35 130 184 171 70

KHKP /d 9 620 621 621 634 56 56 56 57 1

KIK /7- 28 360 343 323 307 101 96 90 8S -5

Tree crops 100 134 225 324 513 134 225 324 513 56

KK/ I/KtELAYAKAN /a 10-15 40 29 58 658 6 4 9 63 219

Paddy formation 100 22 23 24 24 22 23 24 24 3

Total 1.693 1.795 1.955 2.783 710 901 995 1.191 19

8I Agricultural Llquldity Creditsas y or total Agrncultnral Credlts 62 69 72 65

II. 1983 Constant Values

BIMAS 100 139 120 93 24 139 120 93 24 -44

KUDa /a 70-90 306 187 174 198 209 184 139 158 -9

Sugar nurseries /b 100 0 7 11 11 n 7 It 11 25

Midi/Kupedes /c 22 37 60 79 158 8 13 17 35 64

Import/distn.7-Fertilizer 100 35 115 156 140 35 115 156 140 158

KMKP /d 9 620 549 526 52t 56 49 47 47 -6

KIK tr 2R 360 303 274 252 101 85 77 71 -11

Tree-crops 100 134 199 275 421 134 199 275 421 46

KMK/KI/KELAYAKAN /a 10-15 40 26 49 540 6 4 8 52 205

Paddy formation 100 22 20 20 20 22 20 20 20 -3

Total 1.6V3 1.587 1.657 2.285 710 797 843 978 11

/a Share estimated from BRI statistics.7-b From BRI statistics for December years.77 Based on BRI loans outstanding proportions December 1985.

7R Based on national data August 1986.7e From Bank Indonesia Weekly Statistics Report.

Source: RI Research and Development Division.

-26 - ANNEX 1Tab'le 25

INDONESIA


Rural Savings Deposits, 1983-85

1983 1984 1985Rp bln % Rp bln % Rp bln z

BRIDemand deposits 602.4 58.8 1*004.4 59.2 910.5 41.2Time dztosits 194.4 19.0 364.1 21.5 705.2 31.9Savings 148.8 14.5 147.7 8.7 256.4 11.6

Subtotal 945.6 92.2 1,516.2 89.4 1,872.1 84.7

Rural Financial Institutions 79.7 7.8 180.0 10.6 337.5 15.3Unit DesasDemand deposits - - 2.0 0.1 13.8 0.6Time deposits - - 0.7 0.04 2.0 0.1Savings depositsTABANAS - 38.6 2.3 63.6 2.9SIMPEDES - - - 5.04 5.1 0.2Certificates of deposit - - 0.8 0.05 0.1 -other - - 0.8 0.05 0.2 0.01

Subtotal unit desas _ - 42.9 2.5 86.8 3.8

Secondary banks 59.7 5.8 113.5 6.7 212.3 9.6KUDs 20.0 2.0 23.6 1.4 28.2 1.3BKK-type institutions n.a. - n.a. - 5.1 0.2Savings and loan associations n.a. - n.a. - 7.1 0.3

Total 1,025.3 100.0 1,696.2 100.0 2,209.6 100.0

% total bank deposits 8.5 10.8 10.8

ANNEX I- 27 - Table 26

INDONESIA


Ratio of Quasi-Money to GNP in Selected Countries

Indonesia Malaysia Philippines Thailand

1980 0.07 0.34 0.12 0.27

1981 0.07 0.38 0.14 0.29

1982 0.09 0.42 0.16 0.35

1983 0.10 0.43 0.17 0.41

1984 0.13 0.44 0.15 0.47

1985 0.14 0.48 0.15 0.50

Source: International Financial Statistics, December 1986.

ANNEX I- 28 - Tbe2

INDONESIA


Sources and Use of Funds in Rural Credit Sector

1983 1984 1985Rp bln % Rp bln % Rp bln %

Sources

BI rural liquidity credit /a 1,456.0 56.7 1,593.0 46.8 1,676.0 41.4

Internally generated funds 1,112.0 43.3 1,814.0 53.2 2,373.0 58.6

Rural savings deposits /b 1,025.0 39.9 1,696.0 49.8 2,210.0 54.6

Equity 87.0 3.4 118.0 3.5 163.0 4.0

BRI Unit Desas 59.0 - 85.0 - 117.0 -

Secondary banks 26.0 - 31.0 - 44.0 -

BKKs 2.0 - 3.0 - 2.0 -

Total Rural Funds 2,568.0 100.0 3,049.0 100.0 4 0 1.0

Uses

Rural credit /c 2,672.3 2,885.7 3,554.0

Surplus (deficit) (104.3) 1,521.3 495.0

Ratio of rural credit torural funds (%) 104 85 88

/a Annex 1, Table 22.

/b Annex 1, Table 24.

/c Annex 1, Table 12.


INDONESIA


Combined Balance Sheet of National Foreign Exchange Banks /a

PercentageRp Distribution

billion (Z)

AssetsReservesCash 430 1.6Demand deposits with BI 1,901 6.9

Foreign assets 5,442 19.8Claims on public sectorCentral government 638 2.3Official entities and public enterprises 4,232 15.4

Claims on private enterprises and individuals 13,495 49.1Other assets 1,331 4.9

Total 27,469 100.0

LiabilitiesDemand deposits 3,906 14.2Time and savings deposits 7,904 28.8Foreign-currency deposits 2,392 8.7Foreign liabilities 272 1.0Government deposits 1,743 6.3Import deposits 281 1.0Borrowings from BI 6,293 22.9Capital accounts 2,018 7.4Other liabilities 2,660 9.7

Total 27,469 1.00

/aNet foreign exchange position is estimated by subtracting the sum offoreign-currency deposits and foreign liabilities from the amount of foreignassets.

-30 - ANNEX 2Table 1

INDONESIA


Balance Sheets: Bank Bumi Daya and Bank Rakyat Indonesia(in Rp billion)

1982 1985Bank X dis- Bank X dis- Bank X dis- Bank % dis-Bumi tribu- Rakyat tribu- Bumi tribu- Rakyat tribu-Daya tion Indonesia tion Daya tion Indonesia tion

AssetsCurrent assets 322 11.35 349 14.68 477 8.22 697 12.33Term deposits 2 0.88 - 0.00 127 55.95 - 0.00Loans 1,978 69.70 1,945 81.79 3,783 65.20 4,199 74.29Foreign assets 459 16.17 52 2.19 1,259 21.70 363 6.42Other assets 76 2*68 32 1.35 156 2.69 393 6.95

Total Assets 2,838 100.00 2,378 100.00 5,802 100.00 5,652 100.00

LiabilitiesCurrent liabilities 25 0.88 69 2.90 140 2.41 169 2.99Demand deposits 747 26.32 426 17.71 912 15.72 942 16.67Savings/time deposits 328 11.56 257 10.81 1,521 26.22 974 17.23Borrowings 1,064 37.49 1,391 58.49 2,033 35.04 3,053 54.02Foreign liabilities 476 16.77 101 4.25 852 14.68 87 1.54Other liabilities 16 0.56 78 3.28 76 1.31 310 5.48Capital 162 5.71 56 2.35 268 4.62 117 2.07

Total Liabilities 2,838 100.00 2,378 100.00 5,802 100.00 5,652 100.00


INDONESIA


Composition of Bank Bumi Daya Loan Portfolio

1983 1984 1985Rp bln Z Rp bln z Rp bln %

Estate 818.80 34.25 937.90 29.93 1,305.40 34.30Agricultural 516.00 21.58 662.00 21.12 912.00 23.70Other 302.80 12.66 275.90 8.80 393.40 10.60

Production (manufacturing) 453.80 18.98 572.20 18.26 609.50 16.00

Services 678.60 28.38 1,145.20 36.54 1,369.50 36.00

Trade 255.80 10.70 271.30 8.66 242.70 6.40

Working Capital & Investment 121.60 5.09 117.40 3.75 132.90 3.50CreditAgriculture 11.30 0.30Other sectors 121.60 3.20

Large investment and 62.40 2.61 89.90 2.87 139.10 3.70working capital

Total Loans Outstanding 2,391.00 100.00 3,133.90 100.00 3,799.40 100.00


INDONESIA


Comparative Performance of Bank Rakyat Indonesia and Bank Bumi Daya(Amounts in Rp billion and ratios in percentage)

1982 1985BRI BBD BRI BBD

Average total assets 2,216 2,431 5,417 5,159Average loans outstanding 1,831 1,727 4,205 3,458Average borrowings 1,913 932 4,832 1,803Loans outstanding/total assets 81.8 69.7 74.3 67.8Total assets/net worth 42.5 17.5 48.3 22.1Borrowings/total assets 58.5 37.5 54.0 35.5Deposits/total assets 28.7 37.9 33.9 41.9As a % of loans outstandingArrears 10.8 19.3Provision for bad debts 3.5 5.0

Cost of bad debts/average 1*6 0.43loans outstanding

ProfitabilityAs a % of average loan outstandingInterest income and fees 10.7 13.9 13.0 10.1Interest expenses 3.4 7.6 7.3 8.4Interest margin 7.3 6.3 5.7 1.7Personnel expenses 4.0 1.6 3.4 1.3Other expenses 4.0 5.4 2.9 1.8

As % of average assotsInterest income and fees 8.8 9.9 10.1 6.8Gross income 9.8 11.2 11.4 9.4Interest expenses 2.8 5.4 5.6 5.6Personnel expenses 3.3 1.2 2.6 0.9Other expenses 3.3 3.9 2.3 1.2Profit before taxes 0.3 0.8 0.8 0.4Profit after taxes 0.1 0.45 0.43 0.26

ANNEX 2Table 4

INDONESIA

RURAL CREDIT SECTOR REVIEY

Condensed Income Statements: Bank Rakyat Indontoia and Bank Bumi DaYa(Current Rp billion)

1982 1985Bank X dis- Bank I dis- Bank I dis- Bank I dis-Rakyat tribu- Bumi tribu- Rakyat tribu- Bumi tribu-Indonesia tion Daya tion Indonesia tion Daya tion

RievenueInterest, commissions 196 90.7 240 87.9 549 89.3 349 72.4,Foreign exchange transaction 6 2.8 18 6.6 38 6.2 122 25.3Other 14 6.5 1S 5.5 28 4.5 11 2.3

Total 216 100.0 273 100.0 615 100.0 483 100.0

expensesInterest 63 30.0 131 51.8 306 53.4 289 62.4Forelgn exchange transaction 0 - - - 0 - 67 14.5Personnel 74 35.2 28 11.1 143 25.0 46 9.9Other 73 34.8 94 37.1 124 21.6 61 13.2

Total 210 100.0 253 100.0 573 100.0 463 100.0

Net Profit Before Taxes 6 20 43 20

Sources: Annual Reports, Bank Bumi Daya "The Development of State Commercial Banks inIndonesia."

INDONESIA

RURAL C0DIT SECTOR REVIEW

Performance Indicators of Rural Financial Institutions

BRI Bank Secondary banks Nonbank R1nsUnit Dagang Bank Pasars Vll-age Banks m URK LPN LPKDesa Bali Total Private banks BKD W KPi Pawn- 1985 1986 1985 1986 Kw//&1986 1986 1986 1986 /c 1984 W. Java shops C. Java e. Java W. Sam. V. Java 198V

Loans outstanding (Rp billion) 313 25.3 193 _ 20.6 4.96 42 11.9 0.95 2.5 1.2 0.36

lumber of loans outstanding/guaranteed ('DM) 1,198 - - I6 6R 62 16,500 398 38 14 4

Percentage of villages serviced (S) - - - - 14.0 - - 31.0 13.0 32.0 - -

Arrears/loans outstanding (2) 4.3 0.4 7.0Lb 5.1 18.0 - - 16.0 20.0 2.8 - 37.0to. of debtors In arrears/debtors (X) 10.5 - - - - - 34.0 41.0 _ - -

Ratio of interest income/loansoutstanding (2) 28.0 33.5 23.4/b 22.5 34.3/t 30.0 42.0 26.0 26.0/f 26.0 29.0 21.1

Savings/outstanding loans 0.29 1.47 1.07b 1.11 MMS970 0.27 - 0.18 0.29 0.45 0.17 0.26Operattonal expenses/ 16.2/a 4.8 3.67-; 2.9 13.007dw - 33.7 10.4 15.0 - - 23.00

loans outstanding (2)Net profits/net worth (2) 15.7 26.7 25.2/b 21.8 37.01 23-7 8.3 30.0/ - - V0.O -

Net savings/net worth 1.35 9.6 7.47E 8.9 ~-:6 0.82 - 0.35 - - 0.69 1.02

Number of units 2,272 t 175 122 3.S64 217 479 497 1.067 250 90 -

/a Does not tnclude proviston for bad loans.7n BRI sa ple of 26 Bank Pasar for First Quarter 1986.C9 BRI sample of 10 private Bank Pasar.7d Sample of 10 BKD for year 1984.to After deducting net subsidy of BPD (BPO operational income from BKK sinus operational expenses) wbich amaounts to 1.72 of the net worth.

gF Estimated from BoR Statisttes since loan conditions are the same.Based on 11 model KUD under Dutch Government aegls. I.!

35 - ANNEX 3Table 1

INDONESIA


Externally Assisted Tree Crop Projects:Loan Amount, Project Cost and Smallholder Credit Component

(US$ million)

Loan % distri- Total proj- SmallholderSource/project amount bution ect cost credit component

IBRDNES I 65.00 134.00 35.5NES II 50.50 79.60 81.5NES III 92.00 152.50 50.2NES IV 30.00 64.50 35.0NES V 134.00 268.00 159.7NES VI 55.50 118.70 77.8NES VII 138.90 244.00 198.0SRDP I 27.00 70.50 69.1SCDP 25.00 95.20 93.8NES Sugar 79.20 130.20 5.2SRDP II 131.00 221.00 190.9

Subtotal 828.10 73.11 1,578.20 996.7

CDC Cofinanced with IBRDCDC-NES VI 28.00CDC-NES VII 30.00CDC-SRDP II 20.00

Subtotal 78.00 6.89

SFD Cofinanced with IBRDNEs sugar 9.35

Subtotal 9.35 0.33

ADB"-MS Besitang 21.00 38.70 7.9NES Cotton 23.00 37.70 19.9NECPP 63*00 105.60 105.6NES Oil palm 57.00 95.00 31.2

Subtotal 164.00 14.88 277.0 164.6

KFW"--1FRSB 22.00 29.30 29.3NES Ophir 31.30 63.00 32.6

Subtotal 53.30 4.71 92.30 61.9

Total 1,132.75 100.00 1,947.50 1,223.2


INDONESIA

Rl'RAL CREDIT SECTOR REVIEW

Loan Approvals, Arrears and Outstanding - KIK/KMKP(No. in thousands, Rp in billions)

Growth ratein amountof loan

Approvals Outstandings approvalsKIK KMKP KIK KMKP RIK KMKP

No. Rp No. Rp Rp % growth Rp Z growth - (X) -

1974 9.6 15.3 14.5 15.5 13.0 - 13.0 - - -

1975 7.1 12.8 9.6 13*2 22.0 69.2 19.0 46.2 -16.3 -14.8

1976 11.2 21.5 142.0 38.4 36.0 63.6 41.0 115.8 68.0 190.9

1977 11.9 24.6 156.2 47.9 50.0 38.9 62.0 51.2 14.4 24.7

1978 15.2 31.6 98.1 62.2 65.0 30.0 84.0 35.5 28.5 29.9

1979 17.1 57.3 223.5 127.3 99.0 32.3 154.0 83.3 81.3 104.7

1980 42.4 150.9 245.8 264.6 210.0 112.1 321.0 108.4 163.4 107.9

1981 35.0 147.0 277.0 351.0 353.0 68.0 647.0 100.5 -2.6 32.7

1982 26.6 130.1 97.5 303.2 405.0 14.7 803.0 24.1 -11.5 -14.0

1983 16.0 84.7 78.7 259.9 393.3 -3.0 856.0 6.6 -35.0 -14.0

1984 8.5 57.4 39.5 169.9 336.~ -14.0 928.0 8.4 -32.0 -35.0

1985 12.5 90.9 83.0 398.9 337.6 0.5 885.0 -4.6 58.4 134.8

1986 4.7 36.3 24.1 124.5 - - - - - -

ANNEX 3~~ 37 ~~~~~~ ~Table 3

INDONESIA


KUPEDES Lending Program(Amounts In Kp 31111on)

No. of Amount loaned Average Total loans No. of borrowers withloans during period loan size outstanding loans outstanding

1984: Jan 11,848 2,905 0.245189 2,917 13,104Feb 33,795 10,425 0.308478 13,472 57,447Mar 65,400 16,501 0.252309 29,621 161,406Apr 66,331 16,803 0.253320 44,492 224,519May 60,645 16,443 0.271135 57,817 296,783Jun 64,300 18,009 0.280078 71,584 359,981-Jul 34,516 9,577 0.277546 75,369 398,974Aug 49,728 13,720 0.275901 82,645 450,553Sep 52,913 14,352 0.271238 88,957 498,277Oct 68,032 15,900 0.233714 95,526 533,971Nov *75,429 18,592 0.246483 103,960 598,521DeC 56,476 18,036 0.319357 111,063 640,746

Total 1984 639.403 171,263 0.267848

1985: Jan 67,978 19,337 0.284460 118,772 676,646- Feb 78,656 24,348 0.309550 131,129 709,395

Mar 76,693 25,449 0.331830 142,769 743,722Apr 85,284 28,956 0.339524 157,076 773,909may 94,116 32,086 0.340920 171,906 819,346Jun 71,636 25,932 0.361997 180,140 854,029Jul 70,577 25,465 0.360812 186,215 883,584Aug 81,518 28,271 0.346807 194,058 909,064Sep 83,247 28,966 0.347952 200,281 931,510Oct 95,422 32,142 0.336841 209,028 959,545Nov 99,945 35,929 0.359488 219,658 1,000,705DeC 86,891 31,956 0.367771 228,964 1,034,532

Total 1985 991,963 338,837 0.341582

1986: Jan 94,149 33,136 0.351953 237,414 1,059,729Feb 102,899 38,329 0.372491 250,196 1,095,161Mar 93,362 37,818 0.405068 260,071 1,116,112Apr 101,251 41,165 0.406564 270,407 1,129,054May 112,644 46,734 0.414882 285,978 1,150,775Jun 67,804 28,549 0.421052 284,944 1,163,891Jul 93,385 37,641 0.403073 290,356 1,176,839Aug 91,037 38,836 0.426596 297,071 1,183,037Sep 97,827 43,168 0.441269 302,517 1,191,722Oct 99,596 45,764 0.459496 312,823 1,198,455

Total 1986 953.954 391,140 0.410020

GRAND TOTAL 2,585,320 901,240 0.348599

-38- ANNEX 3Table 4

INDONESIA


Badan Kredit Kecamatan Loan Types, Maturity and In#-erest Rates

Nominal Comr- Total EffectiveInterest monthly pulsory interest monthlyrate for interest savings & savings interest

Loan type Maturity period rate rate rate rate

Hlarian (daily) 22 days 3.5 4.8 6.5 10.0 10.8

Pasaran (every 5 days) 60 days 8.0 4.0 12.0 20.0 6.9

Minguan (weekly) 12 weeks 10.0 3.6 10.0 20.0 6.9

Bulanan (monthly) 3 months 10.0 3.3 10.0 20.0 5.3

Lapanan (every 35 days) 175 days 20.0 3.4 20.0 40.0 5.6

Musiman (seasonal) 6 months 12.0 2.0 10.0 22.0 2.2

Source: BPD, Central Java.

39 - ~~~~~~~ANNEx 3Table 5

INDONESIA


Badan Kredlt Kecamatan Lending Program

No. of Growth Cumu- Cumu- Totalloans in no. Growth Average lative lative loans

No. of during of loans Amount in amount size no. of amount out-units year annually loaned loaned of loan loans loaned standing

(X) (Rp mln) (%) (Rp) - (Rp million) -

1972 200 119,870 - 443 - 3,692 119,870 443 213

1973 350 277,860 131.80 1,179 166.14 4,241 397,730 1,622 498

1974 432 377,059 35.70 2,032 72.35 5,390 774,789 3,654 858

1975 465 360,352 -4.43 2,480 22.05 6,881 1,135,141 6,134 1,096

1976 486 304,909 -15.39 2,632 6.13 8,632 1,440,050 8,766 1,306

1977 486 232,044 -23.90 2,726 3.57 11,748 1,672,094 11,492 1,420

1978 486 212,988 -8.21 2,994 9.83 14,059 1,885,082 14,486 1,581

1979 486 213,746 0.36 3,597 20.14 16,829 2,098,828 18,083 1,886

1980 486 212,391 -0.63 5,437 51.15 25,598 2,311,219 23,520 2,508

1981 486 267,933 26.15 7,70, 41.71 28,758 2,579,152 31,225 3,320

1982 486 311,455 16.24 10,893 41.38 34,973 2,890,607 42,118 4,818

1983 491 385,196 23.68 15,630 43.49 40,576 3,275,803 57,748 6,598

1984 496 475,468 23.44 22,115 41.49 46,512 3,751,271 79,863 9,421

1985 496 533,578 12.22 26,993 22.06 50,590 4,284,849 106,856 11,943

1986 497 398,584 -25.30 22,642 -16.12 56,A06 4,683,433 129,498 14,097

ANNEX 3Table 6

INDONESIA


Credit Program Outreach

No. of loans/borrowers/participants ('000)

Cumulativesince inception 1985 Average loan size (Rp)

Bank-assisted treecrop projects /a 105 - 553,000 - 4.5 million

KIK/KMKP 1,707 96 5.2 - 7.7 million

KUPEDES 2,585 942 459,496

BKK 4,683 534 56,806

Total 9,080

/a Number of participating smallholders.

41- ANNEX 3Table 7

INDONESIA


Analysis of KIK Arrears - January 1985(Amounts in Rp million)

Loansaffected by arrears Arrears

Amount X Amount

Over 3-6 months 22,487 11.8 2,008 2

Over 6-12 months 33,543 17.5 7,513 7.6

Over 12-24 months 58,919 30.8 28,885 29.2

More than 2 years 76,406 39.9 60,464 61.2

Total 191,355 100.0 98,870 100.0


INDONESIA


BRI KIK/KMKP Arrears - August 1986(Amounts in Rp million)

Loans outstanding Arrears Arrears ratio (Z)Number Amount Number Amount On number On amount

KIK 53,961 113,290 43,516 57,230 80.64 50.52

KMKP 227,311 442,402 137,024 133,258 60.28 30.12

Total 281,272 555,692 180,540 190,488 64.19 34.28

Source: BRI.


INDONESIA


Claims on ASKRINDO Insurance(Amount in Rp million)

Year Number of claims Amount of claims

1973 and 1974 69 27.4

1975 166 15.3

1976 12,064 894.9

1977 6,403 2,062.5

1978 6,183 2,445.8

1979 8,030 4,682.1

1980 14,644 6,316.4

1981 15,614 8,599.7

1982 18,173 20,412.3

1983 40,523 58,966.7

1984 70,874 99,288.9

1985 72,816 101,432.6

Total 265,659 305,144.7

Source: ASKRINDO*


INDONESIA


KUPEDES Default Ratios(Rp million)

Loss ratioAmount Amount Amount Loans out- Long- Short- Defaultloaned repaid overdue standing term /a term /b ratio /c

1984 171,263 60,200 597 111,063 0.98 1.36 0.54

1985 510,100 281,136 4,856 228,964 1.70 3.02 2.12

1986 948,196 623,291 14,042 324,905 2.20 2.94 4.32

/a Total overdue payments to total payments due.

/b Payments missed in a month to payments due in that month.

,c Overdue payments to total loans outstanding.

INDONESIA


Badan Kredit Kec*aatan Loss Ratios

Long ShortCum. Repay- Cum. Incr. Total Incr. Total term/ term/

Amount amount ment Amount amount amount amount amount loans bad bad Defaultloaned loaned due repaid repaid overdue overdue outst. outst. debt debt rate

-…- (Rp million) --- --- - (%)-

1972 443 443 261 230 230 31 31 213 213 11.88 11.88 14.551973 1,179 1,622 953 894 1,124 59 90 285 498 7.41 6.19 18.071974 2,032 3,654 1,763 1,672 2,796 91 181 360 858 6.08 5.16 21.101975 2,480 6,134 2,306 2,242 5,038 64 245 238 1,096 4.64 2.78 22.351976 2,632 8,766 2,504 2,422 7,460 82 327 210 1,306 4.20 3.27 25.041977 2,726 11,492 2,647 2,612 10,072 35 362 114 1,420 3.47 1.32 25.491978 2,994 14,486 2,846 2,833 12,905 13 375 161 1,581 2.82 0.46 23.721979 3,597 18,083 3,371 3,292 16,197 79 454 305 1,886 2.73 2.34 24.071980 5,437 23,520 4,922 4,815 21,012 107 561 622 2,508 2.60 2.17 22.371981 7,705 31,225 7,008 6,893 27,905 115 676 812 3,320 2.37 1.64 20.361982 10,893 42,118 9,527 9,395 37,300 132 808 1,498 4,818 2.12 1.39 16.771983 15,630 57,748 14,043 13,850 51,150 193 1,001 1,780 6,598 1.92 1.37 15.171984 22,115 79,863 19,651 19,292 70,442 359 1,360 2,823 9,421 1.89 1.83 14.441985 26,993 106,856 25,015 24,471 94,913 544 1,904 2,522 11,943 1.97 2.17 15.941986 22,642 129,498 20,658 20,488 115,401 170 2,074 2,154 14,097 1.77 0.82 14.71

941


INDONESIA


Sources of Funds of Selected Credit Schemes(%)

External Internal sourcessources Equity and Total Total

World retained Savings external internalGOI/BI Bank earnings deposits sources sources

Tree Crops

NES projects 100 - - - 100 0

SRDP I and SCDP 24 70 6 94 6

SRDP II 28 65 7 93 7

KIK/KMKP 55 25 20 80 20

KUPEDES 53 - 19 28 53 47

BKK 22/a - 64 14 22 78

.a Borrowings from BPD.


INDONESIA


Cost of Financial Intermediation

OperatingEffective expensestlending Cost of loans

Nominal lending rates funtds Intermediation outstand- Intsirest rate subsidyrates (2 p.a.) (2 p.a.) (X) margin (X) ing (2) to borrower (2 p.a.)

NES I-VIPhase I 0.0 6.4 0.no Handling fee n.e. 0Phase II 10.5 12 of loans outstandingPhase III 10.5 6 2.52 of loans under

repaymentNES VIIPhase I 0.0 7.7 0.no n.a. 0Phase II 12.0Phase III 12.0

SRDP I-Phae I 0.0 6.5 1.42 5.08 n.a. Phase I - 14.5Phase II 12.0 Phases II & III - 3.5Phase III 12.0

SCDPPhase I & II 0.0 3.02/b 1.62 1.38 n.a. Phase I - 3.85Phase III 6.0 Phase II - 7.35

Phase III - 1.35

8RDP IIPhase I 0.0 6.5 8.30 -1.8 n.a. Phase I a 14.5Phase II 12.0 Phases II & III - 3.5Phase III 12.0

RIK/KMKPK1K 12X for 8 years., 12.0 7.20 6.3jd n.a. 0

4-year grace period

KMKP 12X for 4 years, 12.0 7.20 6.31/d n.a. 01-year grace period

RUPEDES Based on orig. ant.Investment 12 per month 22.0 5.80 14.2 1f.2 0Working capital 1.5Z per month 32.0 12.20 19.8

BRK /a 26.0 c 12.20 13.8DaT1Ty 57.6 129.6 117.4 10.4 0Every 5 days 48.0 82.8 70.6Weekly 43.2 82.8 70.6Monthly 39.6 63.6 51.4Every 35 days 40.8 67.2 55.0Seasonal 24.0 26.4 14.2

/a Includes forced savings festure in the estimation of effective rate.

/b 20 years with 8-year grace period.

/c Ratios of actual interest income to loans outstanding In 1985.

/d Including 1.52 p.a. GOI subsidy to the banks.

INDONESIA


Financial Assets Available to Savers in Indonesia

Rp minimum Maturity Rates of Return 'taxability Withdrawal Availability Other features

Demand deposits 500,000 on demand 0 to St p.a. Taxable anytime All banks Cheque writingTABANAS general 250 on demand 12 to 15% p.a. Exempt per no. { State banks { LotteryTABANAS special 50 on demand 12 to 151 p.a. Exempt I per mo. B BRI unlt desas ( eI guaranteed

TASKA 250 12 months 9% p.a. Exempt penaltv Post offices { No tax investigation

SINFEDES 1,000 on demand 0 to 12% p.a. Exempt anytime aRI unit desas LotteryGov't bank protected

Contractual savings 1,000 1 to 20 yrs 12 to 15% p.a. Exempt emergencies Some banks Some lotteriesCompulsory savings /a loan period 0 to 10% p.a. Exempt /a Rural lenders Condition of loanOther savings 1,1M on demand 12 to 212 p.a. Exempt anytime Some banks Some lotteries

Secondary banksTime deposits 100,000 I to 24 no 10 to 17% p.a. Exempt emergencies All banks

Secondary banksCert. of deposits 100,000 I to 24 no. 10 to 17.4% p.a. Exempt resalable Some banks 8I guaranteed

No tax investigatlon

Bonds (b) 1 million 5 years 15.75 to 16.52 Varles Ac resalable - Interest A capital risk

Danareksa Income (b) 1 million n.a. 15.75 to 16.5% Taxahle resalable - Interest & capital risk

Danareksa general (b) I million n.a. 17% p.a. Taxable resalable - Dividend & capital risk

Shares (b) I million n.a. 13 to 14% p.a. Taxable resalable - Dividend & cavital risk

/a The minimum a'-ount depends on the size of the borrower's loan. Most require 10% of the initial loan amount be wetd on deposit until

the loan Is repaid in full. In some cases, mainly cooperatives, not all the funds are then withdrawable. Interest may o may not

be paid on these deposits. @ X

/b The minimum amount varies with each Investment. Figures based on an average security price of Rp 10,000 and a minimum trading lot

size of 100 shares or certificates. It could be possible to purchase one share but it would not be easy to resell.

Tc The first bond issue was fully tax exempt, and the second and third issues were subject only to a flat 10% Interest withholdingtax. Interest paid on all subsequent issues have been fully taxable.

INDONESIA


Indonesian Rsak Deposits. by Type. 1981-86

'I81 1982 1983 1984 18 98la Is Growth rateRp bln X Rpbln Rp bMn I Rp bln J Rpbln I Rp bHn Xg982 1983 1984 1985 19A6

Demand deposits /b 3,847.00 48.49 4,134.00 47.11 4,177.00 34.77 4,817.00 30.79 5.560.00 27.04 5,406.00 25.30 7.00 1.00 15.00 15.00 -3.00TAANAS /c 384.20 4.84 445.90 3.08 540.70 4.50 669.60 4.28 935.60 4.55 1,044.90 4.89 16.00 21.00 24.00 40.00 12.00TASA /c 0.20 - 0.30 - 0.40 - 0.50 - 0.40 - 0.40 - 50.00 33.00 25.00 -20.00 -

SIIPROES /d - - - - - - 0.30 - 5.13 0.02 15.54 0.07 - - - 1,600.00 203.00Other savings /e 693.10 6.74 994.50 11.33 1,641.70 13.67 2,602.00 16.63 3,691.77 17.95 4.174.56 19.54 43.00 65.00 58.00 42.00 13.00 1Time deposits If 1,001.10 12.62 1,104.40 12.58 2,586.40 21.53 3,212.80 20.52 5,107.80 24.84 5,507.30 25.78 20.00 134.00 24.00 59.00 7.82 4PForeign currencydeposits 1,094.00 13.79 1,406.00 16.02 2,289.00 19.05 2,944.00 18.82 3,378.00 16.43 3,369.00 15.77 29.00 63.00 29.00 15.00 -1.00

Government deposits 914.00 11.52 691.00 7.87 778.00 6.48 t,397.00 8.93 1,884.00 9.16 1,849.00 8.65 -24.00 13.00 80.00 35.00 -2.00Total Deposits 7.933.60 100.00 8.776.10 100.00 12.013.20 100.00 15,643.20 100.00 20.562.70 100.00 21,366.70 100.00 11.00 37.00 30.00 31.00 4.00

/a Figures are for end of June 1986.

b Demand deposits with deposit money banks.

e Inetudes all commercial and savings bank deposits.

/d Deposits with SRI Unit Deaes.

Net of TASANAS, TASKA. SINPEDES and state bank time deposits subtracted from deposit money bank time and savings deposits plus savisgs banks savings.tf Time deposits n state banks only leas government and nonresident deposits.

Sources Sank Indonesisa, Indonesia Ftnancial Statistics, October 1986.

II!9


INDONESIA


Distribution of BI Liquidity Credits by Bank

March 1983 March 1984 March 1985 March 1986% dis- % dis- % dis- % dis-tribu- tribu- tribu- tribu-

Rp bln tion Rp bln tion Rp bln tion Rp bln tion

State commercialbanks 3,550 80.0 3,565 75.0 5,916 78.0 6,640 77.4

BAPINDO 326 7.3 445 9.4 510 6.7 564 6.6

National SavingsBank 245 5.5 398 8.4 561 7.4 767 8.9

Regional devel-opment banks 110 2.5 117 2.7 138 1.8 158 1.8

other banks 208 4.7 232 4.8 463 6.1 455 5.3

Total 4,439 100.0 4,757 100.0 7,588 100.0 8,584 100.0

INDOlISIA

RURAL CUEDIT StCTOR REVw

Iboen's Participation in Credit Proaram and institutions

Effecttve2 of Approximate ave. monthly Level

Progr*m or . loans to noavI loan size Collateral Interest of

lnstitution (by no. of loans) (in Rp) required rate operation Sources

Pawn shop 80X 5.000 Y 3-42 Kabupaten Observatlons at one Gomernment PawnShop, Pandaan, E. Java; Ministry of LFinganc

MMK (Sadan Kredit Keeanatan) 602 55,000 N 2.G-4.8S Kecamatanl Goldmark and Rosegard, Credit to

Central Java vlllage Indonesian Entrepre euiTlAITsess-

went of cue aaan HreMPt leeauatanlypgrcpu. wasnington, D.C. Develop-3iietAlternatives. 1983; BMM records.

KUMI (Kredit Usaha takyat Kecil) 571 n.a. N 3.31 Village Dirk van Book, 1USE and Iadura

East Java Evaluation. 14; IUSEIsPD Java Timorrecords.

Bank Pasar (Denpasar) /a 291 736.000 Y 2.5-3.0S Provincial Limted sauple from Dank Pasar bookscity

KUPEDES (SRI Unlt Desas) 251 loans to woen 330,000 Y 1.7-2.62 Keeaatan CPIS (Center for Policy and

75 of coseineus women Iuplemetation Studles), Jakarta

KEI/UlKP (state and private 23.41 5,000 Y 3-4S Kabupaten CPHU "Economic Impact of UIKRW

banks) lb (transport 30.RX) (SEOP I and II)" Jakarta: Bank

(other services 30.51) Indonesia. 1966.

/a Largely urban clientele (Denpasar population approximately 150,000).7t Much of KIK/IWCP lending is not In rural areas.


INDONESIA


Characteristics of Loans by Economic Class and Sex of Borrowers:West Java Study of Three Villages

Average Average annual% of loans % of loan effective rate

No. of used for loans in amount (Weighted byloans consumption cash (Rp) no. of loans)

WomenLow 11 63.6 27.2 39,555 281

Medium 20 60 15 32,325 136.5

High 0 - - -

All 31 61.2 19.4 34,510 187.8

MenLow 25 64 68/a 24,788 34.7

Medium 35 31.4 65.7/a 110,616 151.5

High 5 0 80 840,000 58.8

All 65 41.5 67.7 161,989 99.6

/a Includes one loan in gold.

Source: Jensen, Karl F. "Rural Credit in Banten, W. Java: A. Shapshot,"1986, mimeo.

- 53 ANNEX 5Table 3

INDONESIA


Self-Employed and Employers in Rural Areasby Sex and Industry L-ruX

--- 00-0)-

Agriculture Secondary Tertiary Total

Men 12,566 1,317 3,054 16,937

Women 3,648 842 2,196 6,686

Total 16,214 2,159 5,250 23,623

Women as %of total 72.5 39.0 41.8 28.3

Source: 1980 Census of Population, Biro Pusat Statistik, Jakarta.

-54 ANNEX 6

Page 1

FINANCIAL INSTITUTIONS IN INDONESIA

1. Bank of Indonesia (BI). The financial system in Indonesia operatesunder the supervision of BI, the central bank. BI however is not exclusivelya central bank; it also operates as a government bank, receiving funds fromcentral government, and deposits from state banks, and other government orprivate nonbank depositors and lends these resources through its liquidityloans to banks. At the end of 1985, BI funds amounted to 39% of all bankcredit.

2. State Commercial Banks. There are five large banks that controlabout 73% of the assets of commercial and development banks. Although allfive banks operate as commercial banks, they have specific areas ofresponsibility: Bank Bumi Daya - estate financing; Bank Dagang Negara - tradefinancing; Bank Expor Impor Indonesia - export credits; Bank Negara Indonesia1946 - industrial financing; and Bank Rakyat Indonesia - credit for agricul-ture, fisheries and cooperatives. The government (BI) subsidized creditprograms flow through the state banks according to their areas ofspecialization. In addition the government operates a National Savings Bankthat collects deposits through 14 branch offices and approximately 2,700 ofIndonesia's 3,000 post offices.

3. Private Banks. Private banks account for 23Z of all commercial anddevelopment bank assets. There are 10 national banks authorized for foreignexchange transactions, and 11 foreign banks. Additionally there are 59 smalland medium-sized banks that operate at the local provincial level. BIrestricts their expansion depending on their ability or willingness to mergewith other banks. No bank licenses are being granted under the presentbanking law. With few exceptions, private banks operate in urban centers atthe provincial level, although there is some bank activity at the districtlevel.

4. Development Banks. These are 27 regional development banks (BPDs)owned by the provincial governments, one public national development bank, andone private national development bank. These banks specialize in projectfinancing. In some regions they operate as coordinators and supervisors ofBKK-type credit networks.

5. Non-bank Financial Institutions. Of the 14 non-bank financialinstitutions, three deal with development finance, 9 with investment financeand two with other activities. Their assets, which weve over Rp 2,000 billionin June 1986, are comparable to those of the foreign banks (7% of bankassets). Most operate in Jakarta and are not involved in rural lending.

6. Pawnshop. There are 479 government-run pawnshops which operate atthe district level. They lend amounts ranging from Rp 2,500 to Rp 300,000,against the security of household goods such as bicycles and TVs or valuablessuch as gold and jewelry. For loans under Rp 20,000 the interest in 3% p.a.with maturities up to six months; larger loans are given at 4% with up toseven months. Loan amounts are 84% and 89% of the value of the collateral.The borrowers are farmers (36%), fishermen (6%), rural traders (24%) and

- 55 ~ ANNEX 6Page 2

others (34Z). Although pawnshops are very active (in FY85/86 they processed16.5 million loans), their total assets were only Rp 61.4 billion in June1986, barely 0.2X of total assets of the money banks. Pawnshops are manageddirectly by the Department of Domestic Monetary Affairs of the Ministry ofFinance and funded by BI and the central government budget. They do notmobilize savings.

7. Petty-Trader Banks (Bank Pasar). These are market banks, specializ-ing in trade loans. Of the 175 Bank Pasars, about 56% are private (99) mostlyowned by commercial banks, 10% are cooperatives (17) and the remaining 34X arepublic (59). They are limited to one branch and may receive demand or timedeposits, with a maximum period of three months. Lending interest rates aresubject to a ceiling of 5% per month and loans are bound to a 12 month maximummaturity. However, the current market rate for Bank Pasar lending is only3.3-4% per month. The three-month limit on deposits is not honored, and thebankers enter agreements to extend deposits to periods up to one year.Borrowers must make a compensation deposit of 5% of the loan which is placedin a special savings account and receives no interest. Despite the 12-monthmaximum maturity, Bank Pasar may lend for longer terms by rolling over thefacility. Loans are based on collateral with a minimum value of 150% of theloan amount. This collateral may be trading inventory, fixed assets, such asa market stall, or even durable consumer goods. The Bank Pasars aresupervised and audited once a year by BRI under delegation from BI. Thissupervision usually concentrates on the accounting system and procedures ofthe Bank Pasar.

8. Village and Paddy Banks. There are 3,338 village credit institu-tions (BKD - Badan Kredit Desa), an institution inherited from the Dutchgovernment, with surviving healthy remnants in some regions (East Java) butailing in others. There are also 2,065 paddy banks (lumbung desa), 26 villagebanks (Bank Desa) of which 23 are private, and 217 production banks (BKPD-BankKarya Produksi Desa). With the exception of the BKPD, these institutions arelocated at the village (desa) level and are supervised by BRI on behalf ofBI. The BKPD are based at the subdistrict (kecamatan) level, and operateweekly posts at the desa level to conduct credit transactions. The BKDs, atthe end of 1985, had outstanding loans amounting to Rp 19 billion, only0.08Z of the total credit market. They are operated by the village chief,and have two staff members (komisi), a cashier and an accountant who earnsalaries amounting to 2.5% of the value of the loans disbursed. The resourcesof the BKD are kept with BRI in a giro (demand deposit) account that earns1.6% interest per year. Loans are granted for trader's working capital up to10-week periods, at 23% for the 10-week period (which implies a 194% p.a.effective interest rate). BKDs operate out of the village public building oneday per week and are owned by the local governments. They report monthly tothe BRI branches. Paddy banks are similar but are also authorized to lendrice in kind.

9. BRI-Unit Desa. At the end of December 1986 there were 2,272 unitdesas and 1,226 village posts operated by BRI. This system originated underthe subsidized rural credit program (BIMAS). When these programs were phasedout, BRI undertook the pioneering step to offer more standard banking servicesat the kecamatan level. Through the unit desa system, BRI operates programs

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for rural credit (KUPEDES) and mobilization of savings (SIMPEDES) aimed at asegment of the market that is not being served by the large financial institu-tions. At end 1986, loans outstanding of the unit desa system wereRp 325.0 billion, and savings were Rp 165 billion. Given the broad coverageof the unit desa network and the institutional strength derived from itsdependence on a large nation-wide bank, it will undoubtedly have a crucialrole in the development of rural financial markets, and serve as a model forthe expansion of the banking system to the rural sectors.

10. BKK-type institution. Since 1972, the provincial government hasbeen operating subdistrict credit institutions (BKK-Badan Krtdit Kecamatan) inCentral Java through the regional development banks (BPDs-Bank PembangunanDaerah). Similar institutions have been established in East Java (KURK-KreditUrusahan Rakyat Kecil), West Sumatra (LPN-Lumbang Pitih Negara), Bali (LPD-Lumbang Perkreditan Desa), and in West Java (LPK-Lumbang PerkreditanKecamatan). USAID has provided technical assistance to the BPD for thedevelopment and expansion of this program. Under these programs, the loantypes are usually based on the maturity of the loan and has a forced savingsprovision. Effective interest rates ranged from 29% p.a. for a 48-week KURKloan and 1302 p.a. for a 12-week BKK loan. The provincial government usuallyprovide the capital for these institutions and additional funds are securedfrom government funds or soft loans from the Ministry of Finance, through BI,or the BPDs. The BKK-type institution are supervised by a representatives ofthe provincial government, and at the technical level, by the BPD.. Ingeneral, local people identify with these institution and their loyalty isseen as a factor that may help contain bad debts and increase savings, givenproper management scheme.

11. Rural Credit Cooperative (KUDs). The KUD (Koperasi Unit Desa) isthe basic unit of the rural cooperative system. Over 6,000 KUDs operate atthe subdistrict level under a provincial cooperative (PUSKUD-Pusat KoperasiUnit Desa) that offers technical services through centers (PKK-Pusat KelayanahKoperasi). The purposes of KUD are: (a) to organize members for financialself-help through savings and loan (Simpam-pinjam); (b) to provide commercialmarkets to member's products; and (c) to buy inputs and materials formembers. The Department of Cooperatives stated that 36.7% of rural familieswere affiliated in 1983 while the Central Bureau of Statistics places thecoverage at 13.3%. In either case, KUDs have large memberships organized intogroups of 30-50 members. The services of the cooperative are primarilyoffered to its members. The usual staff is five people but may go as high asten. Most of the staff are employed by the government.

12. BRI provides the resources for the credit funds of KUDs and is alsoresponsible for supervision and auditing. The loans of BRI to KUDs are fundedwith BI resources (100% for food procurement loans to KUDs) and othergovernment sources (90% of the loans to KUDs for other programs). Loans fromBRI to KUDs are insured by the Cooperative Development Fund Corporation (PPKK)for about 90% of their value. Most of the credit programs run by the KUDs areconceived at the central government and imposed on the KUDs, as is the case offood procurement for BULOG or cooperative credit for buying of dairy cattle.These programs have very high arrears. In October 1986 BRI estimated thatRp 72.2 billion of their Rp 289.2 billion outstanding loans to KUDs are bad


debts that must be covered by PPKK. Funds obtained from BI at 3% p.a. arelent by BRI to KUDs at 9X p.a.. which are then onlent at 12% p.a. to KUDmembers.

13. There are three classes of cooperatives based on performance. Class"A" KUDs which are self-sufficient and financially sound number only 922.Class "B" KUDs, which are considered solvent, but are deficient in terms ofprofitability or management, and are dependent on government funds number2,930. Also, there are 1,272 class C KUDs, which cannot be consideredsolvent, but are not entirely hopeless, and 1,658 unclassified KUDs, which maybe considered candidates for dissolution or liquidation. The savings and loanprograms of the KUDs (simpam-pinjam) had loans outstanding at the end of 1985of Rp 28.2 billion. Their government sponsored credit program for very smallborrowers (KCK-Kredit Candak Kulak) had loans outstanding of Rp 14.3 billionin September 1986 and arrears were 291 of loans outstanding. The total loansof KUDs funded by BRI except the simpan-pinjam, amounted to Rp 266 billion atthe end of 1985, and arrears were 22%.

Informal Credit Markets

14. Informal private credit mechanisms operating in Indonesia include:(a) money lenders, (b) savings and loans associations; (c) trade-linkedlending; (d) land related credit; and (e) labor related credit. Institutionsand associations of particular interest are briefly described below:

15. Arisan (rotating saving and credit associations). A number ofindividuals regularly contribute a fixed amount to a common fund which is thenallocated as credit to each member in a rotation determined by drawing lots.In Indonesia the arisan arrangement is commonly composed of women who use partof their household savings to contribute to an arisan. The amount can varyfrom a few thousand rupiahs total to Rp 100,000 each, depending on theeconomic status of the participants. Arisans are important element in thevillage social life in Indonesia where self-help (gotong-royong) traditionsare deeply seated. They are indigenous in origin, flexible and simple inoperation, and capable of evolving into valuable links with formal bankinginstitutions.

16. Simpan-Pinjams (savings and loan associations). Simpan-pinjams arearisans that have taken on lending functions but credit is given at explicitinterest rates and vary according to demand at a point in time. Furthermore,lenders and borrowers do not coincide as in the arisan. Simpan-pinjams can befor a particular purpose depending upon the activities of the village. Thusfarmers, tradesmen and cottage industry operators form simpan-pinjams. Onevariant of the simpan-pinjams is for emergencies (for example, to defrayfuneral expenses). A committee of village elders or other economic leadersadminister the association, in contrast to formal institutions that depend onthe village headman appointed by the government (lurah). The most significantattribute of these associations is that group pressure and community spiritensure a degree of success not found in the formal arrangements. They aretherefore indigenous, close at hand and run by the villages themselves. Theavailable evidence indicates that most villages do not have simpan-pinjams,since they require sophistication, discipline and organization beyond that of


an arisan. Yet, simpan-pinjams offer good prospects for future growth offinancial intermediation, given the increasing monetization of the ruraleconomy, and the need to hold savings and to apply them profitably. The fastturnover of funds is an important source of liquid resources.

17. An advanced simpan-pinjam is the veterans loan fund, Koperasisimpan-pinjam (KOSIPA), found in Java. It lends in the village, but thesavings are generated in both urban and rural areas. Loans vary in maturityfrom 4 to 30 days and carry interest rates up to 4-52 a month. KOSIPA agentsoperate in many locations, thus diversifying the risk by village. Onedistinguishing feature is that it is external to the village, but the army'sinfluence in the village (from which the KOSIPA cadre is ultimately drawn)ensures good organization and ease of collection.

18. Usaha Bersama (self-reliance group). The usaha bersama arrangementis a step above the simpan-pinjam in the ladder of informal rural financialarrangements. About 300 usaha bersamas are known to exist in Java. Inaddition to saving and lending activities, these arrangements function as ajoint entrepreneurs for production, processing and marketing of products. Aunique attribute is that credit limits are set at a multiple of the savingsheld by the borrower. Repayments rates are high among the usaha bersamas,well above 90%. Loans are made only to members and guaranteed by anothermember, and group pressure is brought to bear for prompt repayment.

19. The usaha bersama and sinpim-pinjam have come under pressure fromthe Department of Cooperatives to register as Koperasi Unit resas (KUD) butmany of these associations are resisting in order to keep the voluntaryassociation from becoming a bureaucracy and to avoid the regulations whichgovern KUDs. To date they have resisted inspite of some benefits of KUDstatus such as an automatic credit guarantee.

20. Grumpjungan (labor related credit). Found in Central and West Java,grumpjungans are groups of landless laborers who had primarily joined tonegotiate collective labor contracts with landowners. Usually eachgrumpjungan consists of about 15 households. Out of the earnings of groupactivities, at least 15% is saved in a common fund. These funds are then usedto finance off-farm activities such as trade, the production of householdgoods, and purchases of animals for improving the productivity of joint laborleasing operations. Grumpjungan are voluntary saving associations that permitthe use of funds for financing working capital of off-farm activities andinvestments in animals. In this function, they substitute for both formal andinformal financial intermediaries. While as individuals they are not eligiblefor formal credit, they combine a labor market operation with a savingsfunction, which is the basis of the group saving and investment activity.This could be extended to collective or joint liability. At present, land isthe most important collateral; therefore the landless have little access tocredit. Substitution of joint or group liability for land collateral couldimprove access to credit for the landless poor.


SELECTED SPECIAL CREDIT PROGRAMS

A. WORLD BANK ASSISTED TREE CROP PROJECTS

Background

1. Many of the GOX special credit programs involve tree crops as partof the Government's overall tree crop planting/rehabilitation program. Sometree crop projects have been externally assisted with loans amounting toUS$1.1 billion. World Bank loans, totaling US$828 million, represent over 73Zof the total while the Asian Development Bank provides US$164 million or14X. The Commonwealth Development Corporation and the Saudi Fund (SFD),cofinancing with the World Bank, and KfW (German bilateral agency) are theother external financiers.

2. The Bank projects fall under two major schemes, the nucleus estateand smallholder (NES) and project man4igement unit (PMU) systems of implementa-tion. While the smallholder credit camponents of both schemes have beenimplemented through BRI, under the NES scheme BRI acts as a channeling bankand as an executing bank in the PMU projects (SRDP I, SCDP, and SRDP II). Thechanneling versus executing arrangements have differences in the source oflocal (nonbank) funds and risk sharing. These differences affect the incen-tives for BRI participation and effectiveness in achieving the goals of theproject.

Objectives

3. The main objectives of the GOI tree crop projects involving small-holders have been to increase Indonesia's foreign exchange earnings from treecrops and to raise the income and welfare of the srallholders, many of whomare poor. GOI uses a handling bank, BRI, to deliver and collect the creditthrough its extensive presence in the rural areas but also to use some of itsown resources especially when GOI's resources are constrained. It has alsobeen argued that the credit is more efficient for cost recovery than taxes orcesses.

Credit Features

4. The implementation of the tree crop projects are broken into threephases: Phase I is the construction or planting period (about 3 years); PhaseII is the loan conversion period (2-4 years); and Phase III, the repaymentperiod.

NES

5. Under the NES schemes, the public enterprise (PTP/PNP) plants anarea in blocks, with the smallholders employed as laborers for Phase I. Atthe beginning of Phase II (after 3 years) the smallholders enter into a creditagreement with BRI after they have provisional title to their two hectarefarms. The agreement includes all credit expenditures by the PTP/PNP during

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Phase I, and provisional estimates during year four after planting, for oilpalm and coconut establishment and during years four and five for rubberestablishment. The agreements are amended between year 5 and 6 to include theactual credit expenditures to bring the trees to maturity.

6. As a channeling bank, BRI does not have any of its resources inthese loans. The funds are from the Bank (and cofinancing institutions, whenapplicable), and OI counterpart funds from the budget. Until early 1984these funds were channelled through BRI to the PTP/PNPs, but since then theyhave been given ("dropped") directly to the PTP/PNPS by GOI. As mentionedabove, BRI's activities begin after conversion, at which time it is paid a 1%fee of the loan converted. BRI also receives 2-1/2Z of the loans actuallycollected. The Ministry of Finance bears 100X of the repayment risk.

7. The smallholder loan term and conditions vary with type of cropand/or project. The maturity of the loans for rubber varies from 20 years(NES VIII) to 23 years (NES VI); most of the other orojects are for 21years. The rubbeV/loan; have a grace period of six years, except under NESVII with 5 years .- Oil palm loans (NES IV and NES V) are for 17 years with 5years of grace, except fcr those under NES VII which are 20 years with 5 yearsgrace.

8. The interest charged to the smallholders is 0% for the first threeyears (Phase I) and 10.51 from year 4 (after conversion) to maturity exceptfor loans under NES VII which bear 12% (Table 2). The interest chargedbetween conversion and the repayment period is capitalized and added to theprincipal and is paid during the repayment period.

9. In contrast loans under projects financed without externalassistance (PIR) had shorter maturities for oil palm and coconuts (10 yearswith 3 years grace). Rubber under PIR has 10 years with 7 years' grace. Thesmallholder interest rates under the PIR projects are higher at 121, but underthe old scheme the grace period interest was paid by government who alsoshouldered 4.51 during the repayment period. The smallholder paid no interestfor the first 3 years (non-rubber) or 7 years (rubber) and thereafter paid7.51 for 7 years (non-rubber) or 13 years (rubber). Under the new scheme thesmallholder pays the total 121 after conversion with interest capitalizedbetween the conversion and repayment period, as in NES projects, except thatthe interest charge is higher (apart from those under NES VII).

10. BRI activities under the NES projects have been minimal to datebecause of the lk of the physical and, therefore, financial conversion underalmost projects._ As of November 1986, only two of the projects were shownon BRI's books. They were 387 loans for about Rp 1.4 billion under NES I, and224 loans for Rp 1 billion under NES V. None of these loans were due for

1/ Grace from payment of interest and principal.

2/ The conversion issues are detailed in a separate paper, Credit ConversionIssues in NES Projects, AEPA4.

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repayment since they had been recently converted. About Rp 7 million inhandling fees was due BRI from MOF on NES, but had not been paid.

PMU

11. BRI acts as an executing Bank under the PMU schemes (SRDP I, SCDPand SRDP I1) with its own resources being part of the smallholder loans, andbearing part of the default risk. Funds for the smallholder credit areprovided to BRI through financing arrangements between GOI and BRI. UnderSRDP I and SCDP, 70% of these loans are from the World Bank at 0. cost, 24%from liquidity credits at 3%, and only 6X from BRI's own resources. UnderSRDP II, however, the ratios between the Bank, BI, and BRI, respectively, were65% at 9.9%, 28% at 3X and 7%.

12. During Phase I, the credit for the tree crop development istechnically in the form of a loan from BRI to the Directorate General ofEstates (DGE), the government agency responsible for tree crops. At the endof the three years, the loan to DGE is supposed to be converted to individualsmallholder loan accounts with 8RI.

13. The interest charged on the smallholder loans and the portion borneby the smallholder vary. Under SRDP I and SRDP II, the interest rate to thesmallholder is 12% p.a. for 20 years with seven years of grace. The interestis waived for the first three years, compounded in years 4-7 (Phase II) andcapitalized at the end of the grace period. MOP pays BRI an interest subsidy(on behalf of the smallholders) of 14.5% from year 1-3 and 3.5% from years 4-20, which brings total interest paid to BRI of 14.5% in years 1-3 and 15.5%until maturity. Under SCDP, however, the smallholder interest rate is 6X p.a.for 10 to f0 years with a grace period of 3 to 8 years depending upon type ofactivity.3 The lower interest rate is waived for Phase I and II, duringwhich GOI pays an interest subsidy of 3.85% (Phase I) to 7.35% (Phase II).The GOI subsidy is reduced to 1.35% during the repayment period. Totalinterest paV to BRI under SCDP then is 3.85% in Phase 1, and 7.35% for PhasesII and III.Z' GOI (MOF) bears 100% of the risk on loan principal defaultduring Phase I, and 75% (split equally between MOF and BI) for Phases II andIII. BRI's risk is 0% for Phase I, 25% for Phase II and III on principal and100% on interest throughout the life of the loan. The risk sharingarrangement is the same for SRDP I and II, except that under those projects,the 75% share for Phases I and II are borne disappropriately by MOF (70%) andBI (5%).

3/ Planting talls: 20 years with 8 years grace; developing talls andplanting/replanting with hybrids: 15 years with 6 years grace; andrehabilitation: 10 years with 3 years grace.

4/ MOF on September 6, 1985 changed terms of SRDP I to the same as unde-SRDP II, with effect from April 1, 1986. Until then SRDP I terms werethe same as SCDP terms.

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14. There is quite an elaborate set of procedures for the flow of fundsfrom the different sources through BRI to DOE and finally to the PMUs. Theprocedures under SRDP II bear this out. For a particular year's activities,on the World Bank's 65X of the smallholder borrowings:

(a) DGE applies to MOP;(b) MOP gives World Bank share to DGE (Prefinances);(c) DGE "drops" to PMU;(d) PMU reports to DOE after use of funds;(e) DOE reports to MOP;(f) MOF applies to World Bank for reimbursement;(g) World Bank "drops" to MOF;(h) MOP debits BRI account at BI; and(i) BRI debits DOE account.

For the BI and BRI portion of 35%:

(a) DOE applies to BEI for the 35Z;(b) BRI applies to BI for its 28% share;(c) 8I drops its 28X to BRI;(d) BRI adds its 7Z and drops the 35X to DCE and debits DOE; and(e) DOE drops to PHU.

The dropping to the PMU from DOE from all sources are supposed to happensimultaneously; however, the Project Completion Report (PCR) of SRDP I by thegovernment reports that under that project, "the release of BI/BRI funds tothe project have generally been much delayed."

15. The PCR also reports that due to some technical problems, there hasbeen no account conversion and, since conversion is a precondition for farmerrepayment, the cost recovery function of BRI has not yet begun. As ofNovember 1986, only SCDP (under the BRI executing arrangement) shows loansoutstanding to 94 smallholders of Rp 52 million. These loans are not yet inthe repayment period. Of the COI interest subsidies due of Rp 348 million andRp 93 million for SRDP I and SCDP respectively about Rp 302 million and Rp 52million have been paid. Interest subsidy and handling fee payments to BRIwere reported to be not as prompt as BRI would want.

B. KIK/KMKP CREDIT PROGRAMS

Background

16. BI, in 1969, established a Kredit Investasi Biasa (KIB) to provideinvestment credit of up to 10 years maturity (15 years in the case of BAPINDO)at interest rates of between 10.5% and 13.5% (depending on loan size) throughall the commercial and development banks. The loans under the program carrieda BI rediscounting facility of 65% to 80% at 4% p.a. The KIB program wasoriginally intended to cover small, medium, and large scale enterprises. Thestate commercial banks were, however, reluctant to lend to small-scaleenterprises due to the higher risk and administration costs, and the lack ofcollateral requirements and required operational/financial data.Consequently, BI introduced two new credit programs--KIK and KHKP--in 1974specifically designed for small-scale enterprises.

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Objectives

17. The objective of KIK (Kredit Investasi Kecil - Small-ScaleInvestment Credit) and KMKP (Kredit Modal Keria Permanen - Permanent WorkingCapital Credit) was to provide term financing to indigenous small-scaleenterprises in any sector engaged in labor-intensive activities, but incapableof raising their own funds. As their names imply, KMKP provides short-termfinancing, while KIK provides longer term financing. Specific objectivesinclude: (a) creation and sustenance of employment; (b) geographic dispersionof productive investment, development of entrepreneurial opportunities andtechnical skills; and (c) provision of markets for local small scaleenterprise products and raw materials.

Participating Banks and Sources of Funds

18. The implementation of the two programs is handled by the five state-owned commercial banks, BAPINDO, selected regional development banks (whoenter into co-financing arrangements with BAPINDO), and certain privatenational commercial banks (which enter into cofinancing arrangements with thestate commercial banks). Banks are allocated sectors for program lendingoperations, but these allocations are flexible to take into account particularlocal conditions.

19. The participating banks were required to finance from their ownresources 20% of KIK loans and 25% of KMKP loans. The remaining funds comefrom BI liquidity credits at 3% p.a. These arrangements have been revisedsince 1979 under the World Bank funded Small Enterprise Development Projects(SEDP I to III). Under SEDP I and II the World Bank loans and creditsfinanced part of only KIK loans, while it covered both KIK and KMKP under SEDPIII. Under SEDP I World Bank funds were used to replace part of the BI 80% ofKIK loans. Under SEDP II (1981-1984), however, the World Bank loan was tofinance the 20% participating banks' contribution at 9.6% p.a., while BIcontinued to provide liquidity credits for 80% of the KIK loans at 3% p.a.This meant 100% financing by GOI at a blended cost of funds Lo the banks at4.32%. Under SEDP III (since 1984) World Bank funds cover both KIK andKMKP. It replaces 25% of the BI liquidity credits at 10.1%. Therefore, thecurrent sources of funds for KIK and KMKP are: BI, 55% at 3% p.a.; WorldBank, 25% at 10.1% p.a.; and Participating Banks, 20%. The current blendedcost of funds to the handling banks for 80% of the KIK/KMKP loans is about,4.175% p.a.

Terms and Conditions

20. There are two eligibility criteria for participation in KIK/KMKP.The enterprises financed must have "pribumi" or indigenous majority ownershipand be registered with the authorities with less than Rp 40 million in networth (excluding land and buildings). KIK loans are for eight years at 12%p.a. with a grace period of four years on the repayment of principal. Themaximum loan amount is Rp 15 million. The handling bank holds a lien on theassets purchased with the loan and requires an additional 50% of the loan ascollateral. KMKP loans are for five years at 12% p.a. with a one-year graceperiod. The loan ceiling and collateral requirements are the same as under

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KIK loans. The handling banks receive an additi3nal 1.5% annual directsubsidy on the total amount of KIK/KMKP loans from the Ministry of Finance toincrease their spread.

Insurance Co erage

21. KIK/KMKP loans are insured against the risk of default by P.T.Askrindo, the government owned insurance company. A 3Z up-front premium,shared equally by BI and the handling bank, covers 75% of potential losses.On loans exceeding five years (KIK loans), the insurance premium is 5Z, two-thirds of which is paid by BI and the remainder by the handling bank.

KIK/KMKP Lending

22. The KIK/KMKP programs grew emarkably from their inception in 1974to 1980, with a period *Inual growth rates of 582 for KIK and 732,respectively, for KMKP._ Since then, however, both programs have declined innumber and value of loans except for 1985. The value of annual KIK loanapprovals had a period decline of about 30% from Rp 130 billion in 1982 toabout Rp 91 billion by the end of 1985. Annual KMKP approvals went down 442from Rp 303 billion in 1982 to Rp 170 billion in 1984 with a big increase ofmore than 1002 to Rp 399 billion in 1985. The average size of KIK loansincreased from about Rp 4.9 million in 1982 to Rp 7.3 million in 1985.Consequently, the growth in KIK/XMKP loans outstanding has declined over theperiod. The 1985 loans outstanding for KIK and KNKP were Rp 338 billion andRp 885 billion respectively.

23. BRI is the largest lender for both KIK and KMKP, accounting for 38%of KIK loans outstanding in 1985, 18% of the 1985 KIK loan approvalsm, 44Z ofthe 1985 KMWP loan approvals, and about 54% of the KMKP cumulative approval.

24. The sectoral distribution of the 1985 approvals shows trade as themajor sector benefiting from the KIK and KMKP programs with shares of 412 and71%, respectively. The next major sector for KIK/KMKP loans was industry,with agriculture accounting for only 8% of KIK and 62 of KMKP approvals in1985.

C. KUPEDES CREDIT PROGRAM

Background

25. The Kredit Umum Pedesaan (KUPEDES) or General Rural Credit Program,run out of the village units (Unit Desa) of Bank Rakyat Indonesia (BRI), hasits origins in the now defunct BIMAS credit scheme. BIMAS was part of a GOIprogram aimed at improving agricultural production and practices through theprovision of physical inputs, technical assistance and short-term creditfacilities. The BRI unit desas were set up to facilitate the credit part ofthe program at subsidized interest rates (12% p.a.). The source of funds for

5/ World Bank, "Indonesia: Rural Credit Study, 1983".


the BIMAS credit program was BI liquidity credits at 3% p.a.; GOI/BI bore upto 75X of the credit risk and provided an administrative subsidy to BRI tocover the operating costs of the Unit Desas. GO announced the collapse ofthe program due to massive defaults in 1984 with effect from April 1985.

26. BRI through the Unit Desas, established the Kredit Mini (1973) andKredit Midi (1980) programs provide term finance to borrowers outside theBIMAS program but too small for the KIK/KMKP program. The loans were for allproductive activities, but mainly for off-farm economic activities. Loansizes were between Rp 10,000 and Rp 200,000 for Mini and Rp 200,000 andRp 500,000 for Midi credit. Both programs were financed 100% by BI liquiditycredits at 0% for Mini, 3% for Midi investment loans and 4% for midi workingcapital loans. Mini and Midi working capital loans had maturities up to 3years at 12% p.a., and Midi investment loans had up to 5 years at 10.5% p.a.Unlike the BIMAS program, BRI Unit Desa staff were solely responsible for theselection of borrowers, and BRI bore 1001 of the risk. These two featuresplus the fact that the mini scheme gave BRI its biggest spread (121) of allthe GOI programs were responsible for the good repayment performance of theseprograms.

27. The collapse of the BIMAS program meant that BRI would lose theadministrative subsidy for the Unit Desas. BRI had the option of abandoningthe Unit Desas or making them profitable. The Mini and Midi credit schemeshad shown that there was a large demand for working capital and, to a smallerextent for investment capital for rural enterprises. The problem was theinterest rate ceiling which required a large loan volume to break even andmake profit. With the financial sector reforms of 1983, the banks are able tocharge market rates on their non-priority loans. BRI with the support of theMOF replaced the Mini and Midi credit schemes (and BIMAS) with KUPEDES, a newgenera-purpose credit program as the main credit function of the UnitDesas.Y BRI's goal was to develop the Unit Desas into financially viableentities to mobilize savings and make loans in the rural areas of Indonesia.A decision was also taken then that the Unit Desas would no longer participatein administered credit programs.

Terms and Conditions

28. Eligibility. KUPEDES loans are made for any productive activity(non-targeted as long as a letter from the borroqvers' village head (kepaladesa) certifies that the activity is productive._> With the knowledge thatmost rural families derive their family income from several activities, andthat loans can be repaid from activities other than the one specified by theborrower, the enterprise listed for the loan is mainly to prove the borrower'sability to repay. The Unit Desa staff review the cash flow of the listedactivity and recommend a repayment schedule that fits the activity. All loan

6/ Kredit Mini and Midi were terminated at the end of 1984 and KUPEDESoperations began in February 1984.

7/ Borrowing for consumption is not permitted.

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applications require a cosigner, usually the applicant's spouse, andcollateral.

29. Collateral. The value of the collateral must be at least 1001 ofthe loan in the form of land, buildings or any property. Tks experience todate is that most KUPEDES borrowers use land as collateral.- Since the legalsystem for foreclosure and collateral is complicated and expensive, collateraldocumentation is really to establish a borrower's ability and willingness torepay.

30. Loan Types and Sizes. KUPEDES has two types of loans, workingcapital loans and investment loans. While the minimum is Rp 25,000, very fewloans gf less than Rp 100,000 have been made. The maximum loan of Rp 2 mil-lion,.9 is available only to repeat customers with good repayment records.All borrowers are classified on the basis of their repayment records, whichdetermines their limit for subsequent loans. A borrower may use the samecollateral for subsequent loans provided the value is 100l of the new loan.

31. Term Structure. Various maturities with or without grace periodsavailable under KUPEDES for working capital loans range from 3 to 24 months,and those for investment loans go up to 36 months. Single baloon paymentsfor 3 to 12 month maturities are also available for working capital loans.Possible repayment schedules are shown in standard illustrative tables fromwhich the Unit Desa loan officer and the borrower can read correspondinginstallment payments for any loan size up to Rp 2 million. These tableseliminate the need to calculate loan terms for each borrower, speed up thelending process and minimizes calculation errors. The average time betweenloan application and disbursement is about two weeks for first-time loans andabout two days for repeat loans.

32. Interest Rates. The interest rate on KUPEDES working capital loanis 1.5% per month, and 1% per month for investment loans. Both are calculatedon the original loan amount not on the declining balance. The correspondingannual effective rates are about 32Z for working capital loans and about 22%for investment loans. In addition to these interest rates, there is anInsentif Pembayaran Tepat Waktu (IPTW) or Incentive for Prompt Payment of

8/ Any proof of land ownership such as a statement signed by localgovernment official may be used for loans up to Rp 400,000. Landcertificates are required for loans above Rp 400,000.

9/ Until April 1986 the maximum for KUPEDES loans was Rp 1 million.


0.5Z, which is collected along with the monthly payment and E6turned toborrowers if they pay all installments in full and on time.'

33. Unlike its predecessors (BIMAS, MINI, MIDI) and other governmentcredit programs which emphasized cheap credit to the final borrowers, KUPEDESfocused on two tenets: (i) prompt delivery of credit, and (ii) the financialviability of the Unit Desas. The underlying assumption is that access tocredit is more important to small borrowers than the interest rate charged.To achieve its goals without relying on government BRI had to mobilizevoluntary savings and set deposit rates high enough to attract savings. Thehigher cost of funds also meant that the Unit Desas had to set lending rateshigh enough to cover their operating costs and risks and earn a reasonableprofit. With the TABANAS interest rates then set at 15% p.a. (for amountsless than Rp 1 million), the above KUPEDES rates were set at levels to givethe system a spread of 15X p.a. between cost of funds and onlending rates) andto break even when total loans lotstanding reached about Rp 200 billion whichwas reached in. September 1985,

Lending Operations

34. Volume of Lending. The volume of KUPEDES lending has grownremarkably fast. The number of loans increased from about 640,000 in 1984 toabout 992,000 in 1985, an increase of about 552. With almost 100,000 loansadded from January to October 1986, the total was about Rp 2.6 million at theend of October 1986. The value of these loans increased even faster fromfp 171 billion in 1984 to Rp 339 billion in 1985, or 98% and over 15% from1985 to October 1986. The value of loans for the 10 month period wasRp 391 billion. Cumulative loans from the beginning of the program to endOctober 1986 was about Rp 901 billion. The average size of a loan, therefore,has increased from about Rp 268,000 in 1984 and Rp 342,000 in 1985 (a periodincrease of 28%) to Rp 410,000 by end October 1986 (20% from 1985). Thecontrast with the maximum loan limit of Rp 2 million possibly reflects cautionon the part of the Unit Desas. The volume of loans outstanding was at aboutRp 111 billion by the end of 1984, increased by 1062 to Rp 229 billion by theend of 1985 and by 372 to 313 billion from 1985 to end October 1986.

35. Type and Maturity. Working capital loans account for about 932 ofloans outstanding as of June 30, 1986. Survey findings show that for theperiod January-June 1986 working capital loans with a 12 month maturityaccounted for 57% of the number of loans and 45% of the value. Eighteenmonth working capital loans accounted for another 162 of the number and 18% of

10/ Where the loan is for more than one year, the IPTW is refunded at the endof each year. In all cases it iq deposited in the borrower's savingsaccount to be withdrawn at will.

11/ The risk cost or loan losses assumed within the spread was 4.5% orapproximately twice the loss ratio of the Kredit Mini.


the value and, respectively, it month working capital loans for 142 of thenumber and 212 of the value.- At mid 1986, 69Z of the loans outstandingwere listed for trading and only 271 for agriculture.

36. Geographic and Gender Distribution. At end June 1986, 751 ofKUPEDES loans outstanding were in Java, which has 622 of Indonesia'spopulation and 641 of BRI Unit Desas. (BRI has Unit Desas in 14 of the 15provinces in which it has branches.) Sample surveys have also fouytthatapproximately 251 of all borrowers and 75% of cosigners are women.,

Sources of Funds

37. KUPEDES funds come from a government grant, BI liquidity credits,and savings deposits. The Government grant to BRI for the Kredit Mini programat the end of 1983 was Rp 66.7 billion. When KUPEDES replaced Kredit Mini inearly 1984, GOI turned this grant over to KUPEDES to distribute equally amongthe Unit Desas as equity contribution of Rp 19.0 million each. This grantrepresented about 19% of KUPEDES resources at the end of June 1986.

38. Total BI credits to BRI for Kredit Mini at its termination, wereRp 43 billion. BI agreed to convert these to general liquidity credits forKUPEDES. MOF directed BI to give an additional Rp 100 billion in liquiditycredits to support the program at 151 for those onlent as working capitalloans and 31 for the funds onlent as investment loans. With an assumedworking capital/investment blend of 75/25, the average interest rate on BIliquidity credits was 12X. From February 1986 BI (at the instruction of MOF)agreed to supply additional liquidity credits of Rp 50 billion for each Rp 75billion increase in KUPEDES loans outstanding. The agreement ensures that BRIprovides at least a third of the incremental resources required froi its ownfunds. The Kredit Mini and other BI liquidity credits accounted for about 531of KUPEDES resources at the end of June 1983.

39. Under a proposed World Bank project - BRI/KUPEDES Small CreditProject - Bank funds would replace the BI liquidity credits (from July 1987 toSeptember 1989). Bank funds of US$100 million would be onlent to BRI at aninterest rate equal to the average cost of BRI's customer deposits (excludingnon-interest - bearing deposits from GOI or GOI owned entities).

40. Savings Mobilization. The Unit Desas mobilize savings under theGovernment's (BI) TABANAS savings program and their own SIMPEDES (VillageSavings Program). TABANAS accounted for about 19X and SIMPEDES for 4.5% ofKUPEDES resources at the end of June 1986. With other deposits representingabout 4% of resources, the total of savings and other deposits accounted for27% of the June 1986 resources of KUPEDES.

12/ IDF, Yellow Cover SAR, BRI/KUPEDES Small Credit Project.

13/ Ibid.

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Repayments Performance and Sustainability

41. The default ratio, total amount overdue as a percentage of totalloans outstanding, was 4.31 at the end of November 1986. While relativelysmall, it has been increasing over time, from 0.5% in December 1984 to 2.1Zfor the same period in 1985. More relevant are the long term bad debt ratiowhich is total amount overdue as a percentage of all payments due arid shortterm bad debt ratio which is payments missed in a particular month as apercentage of payments due in that month. These were low at 2.2% for the long-term and 2.9% for the short-term in November 1986. These ratios have alsobeen increasing from less than 1% and 1.41, respectively, in December 1984.The 2.2% long term bad debt ratio is less than half the 4.51 risk cost assumedin the initial derivation of KUPEDES interest rates. Despite this goodrepayment performance, BRI has been concerned. A review showed that over 50%of all arrears are concentrated in 22 branches. Special BRI teams, with bothhead office and regional staff, have been formed to examine the 22 branches toidentify the reasons. The teams' findings are expected to be instrumental inidentifying and adopting standardized procedures for future operations.

42. If KUPEDES can maintain this repayment performance, Indonesia has amodel for a non-subsidized, self sustaining credit program. This point needsemphasizing because the KUPEDES program, while clearly a success, is onlythree years old.

D. BADAN KREDIT KECAMATAN (BKK)

Introduction

43. The Badan Kredit Kecamatan (BKK)141 program was begun in 1972 by theCentral Java Provincial Government (CJPG) in order to make capital availableto the rural poor to raise their incomes and standard of living, protect ruraldwellers from usurious money lenders, create employment opportunities in therural are, and educate villagers about the benefits of financialsavings. At present there are 497 BKKs, covering all Kecamatans and 2,69village posts, where the BKK employees (three young school leavers per BKK)_H/lend and collect loan repayments, usually on market days.

Organization

44. The governor of Central Java is the titular head of the BKK program,with coordinating functions of the program invested in a ten member provincialBKK Coordinating Body and a four member District BKK Coordinating Body at the

14/ Sub-district Credit Body.

15/ The BKK program had a project status until when the CJPG and the CentralJava Provincial Assembly turned into a CJPG institution via Decree No. 11of 1981.

16/ Consisting of a unit chief, bookkeeper and a cashier.

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district or Kabupatan level. Operationally, the sub-district head (c..mat) ofeach kecamatan has responsibility for the BKKs in his Kecamatan. The CentralJava Regional Development Bank, Bank Pembangunan Daerah (BPD), advises theBKKs and performs the technical/supervision functions of the BKKS for theprovincial government. The program also receives technical assistance underthe USAID Provincial Development Project (PDP), through which 65 BKKs in fivepoorer districts have received direct support (including capital injections)The remaining 30 districts and municipalities have received indirect supportincluding training and equipment (computers).

Sources of Funds

45. The external,sources of funds for the BKKs, outside the PDP funds,have been initial capitalization from the CJPG through the BPD, loans from theBPD, and forced savings from borrowers. Each BKK, which is financiallyautonomous, received Rp 1 million loan from CJPG at one percent per month witha one year grace period on principal repayment. The one percent monthlyinterest was to go to the BPD to cover its administrative and supervisoryexpenses, with the principal repayment going into a provincial/developmentbudget. Subsequent to this, ten BKKs received additional loans of'Rp 1 million for good performance, while some of the weaker ones, through arehabilitation program, received Rp 350 million between 1981 and 1983. Aspart of this rehabilitation and upgrading exercise, in 1981, GOI through theMOF made an interest free Rp 3 billion loan to the CJPG through the BPD whichwere then lent to the BKKs at the usual one percent per month. Unlike otherfunds, however, only 0.6% of this interest went to the BPD for administrativeexpenses. The other 0.4% was to go into a BKK program development fund. Itshould also be noted that unlike the funds from GOI and CJPG, the USAID PDPfunds were grants set up as a revolving fund within the BPD which enables theBPD to relend the principal repayments to the BKKs.

46. Funds lent by the BPD to any BKK depends upon the BKKs performanceclassification. For this, BKKs are classified by the BPD into five categoriessemi-annually on the basis of six factors, namely: total equity, a ratio ofvillages to village posts, number of new borrowers, portfolio quality, totalsavings, and capital circulation. Fifty percent of the total weight of theperformance classification is placed on the BKKs' equity, which is defined ascash on hand plus total loans outstanding, minus loans overdue more than sixmonths, loans to the BKK and borrower savings. The remaining five factors areweighted equally (10% each) in arriving at the weighted average of the sixwhich determines each BKK's absorptive capacity for working capital andprofitability. The current credit ceilings for BKKs in class I to V,respectively, are Rp 12 million, Rp 10 million, Rp 9 million, Rp 7 million,and Rp 5 million. Regardless of class or category, BKK borrowings from theBPD are released in tranches through the subdristrict head (Camat), who signsfor all BKK borrowings. BKK borrowings from government and the BPDrepresented about 20 percent of BKK sources of funds at the end of 1985, and22 percent in September 1986.

47. The third external source of BKK funds is the forced savings fromborrowers. A portion of a BKK loan to a borrower (6.5% to 20%, depending uponthe type of loan - is retained by the BKK as forced savings for the borrower


to be paid back to him after full repayment of his or her loan. It has,however, been reported elsewhere that many BKKs do not allow or encourage suchwithdrawals. The BPD informed the mission that while the purpose of theforced saving element was to encourage villagers' financial savings, they planto replace it with voluntary savings mobilization. Borrower savingsconstituted about 161 of BKK sources of funds in 1985 and 141 inSeptember 1986.

48. More than 501 of BRK loanable funds come from the BRRs' own internalretained earnings. The BKK system's annual profit plus accumulated earningshave increased from less than 601 of sources of funds in 1984 to 62Z in 1985and 1986 (September).

Loan Types and Lending Procedures

49. The BKKs onlend these funds through one of six different types ofloans. The maturity of these loans range from 22 days (Harian or dailyrepayments) to a six month seasonal (musiman) repayment with nominal interestrates for the periods of 3.51 and 121, respectively, or nominal monthlyequivalents of 4.5Z and 21 respectively. The above nominal interest rates areon the original loan amounts (not on a declining balance) and, with acommitment fee of 11, yield effective moyigly interest rates of 10.81 (on 22day loans) and 2.21 (on seasonal loans).

50. The weekly repayment (minguan) system is the one used by most of theBKKs. Under this system the borrower repays 10% of the amount borrowed eachweek for 12 weeks. The first payment goes towards interest repayment, thesecond for forced savings and the remaining ten payments towards principalrepayments.

51. BKK lending procedures are designed to be simple and fast tominimize cost and risk. A borrower picks up an application form at thenearest BKK office or village post, whichever is convenient for him or her.After the borrower receives the required character reference from his villagechief the form is returned to the BRK for approval. The BKK staff can approveloans under Rp 25,000; amounts over Rp 25,000 require the approval of thesubdistrict head. No collateral is required for BKK loans; however,subsequent loans are based on a borrowers repayment record. Each borrowerbegins with a small loan and gradually increases his loan size as he repaysand demonstrates that he is a good risk.

52. The only departure from the above BKK procedures, terms andconditions was in the mid 1970s when a special (Khusus) program was initiatedthrough which the BKKs acted as collection agencies for the ProvincialGovernment's special technical service agencies.

18/ One percent of loan principal is usually subtracted from each loan as acommitment fee.


Performance

53. Coverage. The number of BKKs has grown from 200 in 1972 and 486between 1976 and 1982 to the current 497 BKKs. With a BRK in every Kecamatanand over 2,6001village posts, the BKK system covers about 312 of the 8,455villages in Central Java.

54. Loans. The number of loans granted has increased from about 120,000in 1972 and 300,000 in 1982 to over 500,00 in 1985. Growth in the value ofthese loans have been even more spectacular from about Rp 400,000 in 1972 toRp 11 billion in 1982 and more than double this amount, Rp 27 billion by theend of 1985. The average size of loan, consequently, has increased graduallyto about Rp 50,000 in 1985; this is still small compared to other creditprograms. Total loans outstanding which were about Rp 200,000 in 1972 andthen more than doubled from about Rp 5 billion in 1982 to 1985 when it stoodat about Rp 12 billion.

55. Repayment Performance and Sustainability. The default ratio,defined as all loans overdue over total loans outstanding appears high atabout 16% by the end of 1985. The rate actually started out high - 151 - in1972, increased to more than 251 in 1978 and has declined to the 1985 level of16%. However, given the very short term nature and high turnover of BRK loansthis measure does not accurately reflect the repayment performance of the BRKsystem, especially in the later years of the program.

56. Other indicators of repayment performance are the long term andshort term bad debt ratios. The long-term bad debt ratio is defined as thetotal amount of loans overdue over the total amount due and the short term isthe increase in amount overdue in any year over the repayments due in thatyear. The short term bad debt has declined from 121 in 1972 to about 2% in1985. The long term bad debt ratios, which can be looked at as long term lossratios under the assumption that all loans overdue would not be repaid, hasdeclined from 12% in 1972 to less than 2% by the end of 1985.

57. In fact, the repayment performance of the BKK system has beenremarkable. The bad debt is mainly from the early years under the RKK Khususprogram, The BKK system does not have a write off policy yet. Thesupervisors of the program reported that an estimated 40% of the loans overdueare deemed unrecoverable, and that plans are underway to find a mechanism towrite off the bad debts.

58. The viability and therefore, self-sustainability of the BKK programis evident in their profits. The BKK net profit for 1985 was about Rp 2 bil-lion (revenues of Rp 3.5 billion and expenses of Rp 1.5 billion). If theinterest expense is increased from the stated Rp 228 million to Rp 841 million(the latter being 12% of liability), personnel expenses increased by 50% (toalmost Rp I billion to reflect a third of staff being civil servants and paidslightly higher by the CJPG), and bad debt of Rp 239 million, (2% of loansoutstanding) added, then total expenses would increase from fp 1.5 billion toRp 2.6 billion. This still leaves a system wide profit of about Rp 900 million.

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SAVINGS INSTRUMENTS IN INDONESIA

1. This section provides details on the various savings instrumentsavailable in Indonesia. These include demand deposits, TABANAS, TASKA,SIMPEDES, contractual or goal savings plans, compulsory savings accounts,other savings accounts, time deposits, certificates of deposit, foreigncurrency accounts, and securities.

A. Demand Deposits (Giro)

2. Demand deposits are interest bearing accounts available at allcommercial and development banks. Most banks require a minimum deposit of atleast Rp 500,000 for accounts with a check writing facility, but require nosubsequent minimAm balance. However, interest is dependent on the lowestmonthly balance and, in some cases, fees may be charged on smaller accounts.Some examples ef the interest rate scaling includet Bank Dagang Negara, nointerest on balances of less than Rp 1 million, then 4% p.a. on Rp 1 up to 10million, 5% on Rp 10 up to 50 million, 6% on Rp 50 to 500 million, and 8% p.a.on balances over Rp 500 million; Bank Negara Indonesia 1946, no interest onbalances of less than Rp 1,000,000 and 6% p.a. on larger accounts; and theregional development bank of East Java, no interest on balances of up to Rp250,000, then 1.8% p.a. on Rp 250,001 to 50,000,000, and 3% p.a. on overRp 50,000,000. Unlike a savings or time deposit, any interest earned ondemand deposits are subject to normal taxation.

B. TABANAS (Tabungan Pembangunan Nasional)

3. TABANAS was introduced by BI on August 20, 1971 to promoteindividual savings. It has traditionally offered a high interest rate forsmall depositors and account balances are guaranteed in full by BI.

Conditions

4. In recent years interest has been paid on a sliding scale with ahigher rate paid on lower balances. The current rate is 15% p.a. on balancesof Rp 1,000 to 1,000,000 and 12% p.a. on any additional amounts. Thisinterest is calculated on the minimum monthly balance, paid annually, andexempt from taxation. Since 1977, account holders with active accounts andbalances of Rp 1,000 or more have also been eligible for lottery drawings atboth the national and regional level. Balances with less than Rp 1,000, ifinactive, may be subject to special services charges and eventually closed.

5. Normal TABANAS accounts require a minimum deposit and balance ofRp 250 and subsequent deposits of at least Rp 50. Withdrawals are notavailable during the account's first month and then are limited to twicemonthly except in an emergency. The minimum withdrawal is Rp 250. Bothwithdrawals and deposits can be made only at the branch that opened theaccount.

6. As shown in Table 1, a number of special TABANAS savings schemes areavailable for children, students and scouting organizations. Special accounts

74 -ANNEX 8! - 74 ~ Page 2

require only Rp 50 to open, have a minimum deposit of Rp 25, and allow onlyone withdrawal per month. The youth and cub scout schemes may also allow adepositor's parent or guardian to withdraw the funds. These programs areactively promoted in the schools and at scout meetings.

Table 1: TABANAS ACCOUNT CLASSIFICATIOYJS

Number ofaccounts Deposits

Type Purpose '000 Rp million

TABANAS Umum General accounts 13,258 1,002,370TABANAS Pelajar Students ] 1,340 12,029TABANAS Pramuka Scouts 1TABANAS Pegawai Employer or group savings 1,327 44,567

Total 15,925 1,058,966

Source: Bank Indonesia, January, 1987

7. The employer or group savings accounts are a form of payroll savingsdeductions and are organized by either the employer or the employeesthemselves. They differ from a general TABANAS account in that the depositsare set for a fixed amount each pay period. Then the scheme's coordinatordeposits all of the funds at the same time with a list of the respectiveaccounts. Although each depositor has his own passbook, any withdrawals mustfirst be approved by the scheme's coordinator. These plans are used primarilyby government departments/agencies and in practice participation is almostmandatory. Indeed in some agencies the paymaster rounds the pay down to thenearest thousand rupiah and deposits the extra amount directly into theemployee's account. While the schemes ensure a high number of accounts, suchfrequent transactions of less than Rp 1,000 are hardly profitable for thebanks. Mandatory group savings may also explain why government owned bankshave lower average TABANAS balance particularly at the provincial level.

Lottery

8G Each passbook receives an account number and a lottery number.However, accounts, are not eligible for the lottery if the balance is under Rp1,000 or with Rp 1,000 but with no transactions for two years. The TABANASlottery is conducted nationally every six months and at the regional levelonce a year. The national lottery has one first prize of Rp 5,000,000, ninesecond prizes of Rp 500,000, ninety third prizes of Rp 100,000, nine hundredfourth prizes of Rp 25,000 and one thousand fifth prizes of fp 5,000 each.The regional lotteries in each of TABANAS six regions have one first prize ofRp 2,000,000, nine second prizes of Rp 200,000, ninety third prizes of Rp25,000, nine hundred fourth prizes of Rp 2,500 and one thousand fifth prizesof Rp 1,500. These winnings are automatically credited to the winner's

_ 75 _ i~~~~~NNEX 8- -5AM

- ~~~~~~~Page 3

TABANAS account, provided it was eligible for entry. Not all prizes areawarded, and in 1986/87 Bank'Indonesia budgeted only Rp 1,274 million for thelottery prizes and drawings.

Availability

9. Banks must be specially licensed to offer TABANAS/TASKA accounts andapplications are currently limited to Class I or II institutions under BI'sfive prudential categories. As of January, 1987, there were only 38 handlingbanks which include the five state commercial banks, the National Savings Bankand its Post Office agency system, 20 regional development banks, 9 privateforeign exchange banks, and 3 private non-foreign exchange banks. Therelative importance of these institutions is shown in Table 2.

Table 2: TABANAS/TASKA DEPOSITS AND ACCOUNTS BY TYPE OF BANKJUNE 1986

Amount AverageNo. of Billion Account Balanceaccounts Rps fp

State banks 13,293,000 888.7 66,854.74Private national banks 1,085,000 110.5 101,843.32Development banks 1,000,000 46.1 46,100.00

Totals 15,378,000 1,045.3 67,973.00

Source: Bank Indonesia, Indonesian Financial Statistics,October 1986, pp. 82-83.

It is surprising that more private banks are not active in TABANASas there is no charge for the government guarantee on TABANAS deposits. Thefree guarantee provides an effective subsidy for private national banks; alldeposits with the state banks are already government guaranteed. Ininterviews, private bankers indicated that this guarantee was not important indeposit raising.

Promotion

10. The TABANAS savings promotion is organized at the national level bythe National Savings Drive Committee (Gerakan Tabungan Nasional) which is madeup of representatives from the Ministries of Home Affairs, Education, amdInformation, BI, Bank Negara Indonesia 1946, BRI, Private National BanksAssociation, and national scouting organizations. The National Committee isthen duplicated at the provincial level with the provincial counterparts fromHome Affairs, Education and Information, BI, BRI and/or Bank Negara Indonesia1984, regional scouting bodies, and sometimes the provincial development bankfor that area. The private national banks are not represented at this


level. There are also similar committees at the district level with localgovernment representatives. The BI (or BRI where there is no 8I Branch)representative chairs each of these committees.

11. In terms of promotion, the National Committee uses a range ofmethods including a 15 to 30 minute TV drama shown nationally on the 4thSunday morning of each month. These plays have a simple story line thatemphasizes the value of savings and typically ends with the hero winning amajor TABANAS prize. This TV show is supplemented at the national level witha range of booklets and other promotional materials. The National Committeealso operates a special stand at the annual Jakarta Fair and major scoutingevents, sponsors a float in the Independence Day parade, and is active inother similar events at the regional level. It also broadcasts TABANAS dramason regional radio in local languages. All of these promotional expenses arepaid by BI and amounted to an estimated Rp 800 million in 1986. The NationalSavings Drive Committee also meets with the TABANAS handling banks at leastonce a year to consider changes to TABANAS and better promotional efforts.The handling banks also actively promote TABANAS following the Committee'sdirections. These instructions are usually very specific and include even thesize and exact wording for banners. While the Committee to date hasconcentrated almost exclusively on TABANAS promotion, in 1987 it might expandits efforts to include time deposits and certificates of deposits.

Recent Developments

12. As shown in Table 3, TABANAS accounts and deposits have grown atfairly constant rate, but this may change over 1987. In January one militarydistrict and some state enterprises in Sumatra began paying salaries viaTABANAS accounts. While these additions will greatly increase thetransactions for the handling banks, they should also gain greater savings andother forms of banking business.

Table 3: TABANAS SAVINGS ACCOUNTS AND DEPOSITS BY YEARS

AverageNo. of Amount accountaccounts billion balance

Rps (Rp)

1981 9,480,000 384.2 40,527.431982 9,952,000 445.9 44,805.061983 10,887,000 540.7 49,664.741984 12,425,000 669.6 53,891.351985 14,712,000 935.6 63,594.351986(June) 15,362,000 1,044.9 68,018.49

Source: Bank Indonesia, Indonesia Financial Statistics,October, 1986, pp. 80-81.


13. In early 1987, the government was considering lifting the currentinterest rate controls on TABANAS accounts and allowing handling banks to settheir own rates, terms and conditions. The first phase might allow handlingbanks to offer their own lotteries, in addition to the Bank Indonesiaefforts. The second step might be to set a maximum or possibly a range ofinterest rates rather than requiring a uniform one. Other possible changesinclude permitting withdrawals four times a month, increasing the minimumdeposit to Rp 1,000, using one interest rate rather than the current two stepinterest rate (possibly 12%), and perhaps paying the interest four timesrather than once a year.

14. Interestingly, interviews revealed considerable differences inopinion about TABANAS, but no one spoke favorably about the existing system.Some felt TABANAS deposits are too expensive, given the interest rate and theadministration costs. If free to do so, they would limit withdrawals to oncea month, raise the minimum deposit to at least Rp 1,000, and reduce thecurrent interest rate from 15% and 12% to one rate of 9% or 10X. In contrastothers wanted to allow more frequent withdrawals and to pay a higher rate of141 to 15% on all savings.

C. TASKA (Tabungan Asuransi Berjangka)

15. TASKA is a national insurance savings scheme designed to provideindividuals with a combination of savings and life insurance coverage. Underthis program depositors receive life insurance coverage equal to 12 times anagreed monthly payment. The deposits earn 9.0% p.a. if the program issuccessfully completed, but only 6.0% with an early withdrawal or failure tomeet all payments. TASKA account holders are also included in the lottery forTABANAS. As with other life insurance policies, TASKA's attraction is limitedbecause many Indonesians believe that it is unlucky to purchase death relatedinsurance coverage and, as shown in Table 4, it has not grown much in terms ofeither deposits or account numbers.

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Table 4: TASKA ACCOUNT NUMBERS AND OUTSTANDINCS

No. of Rupiahaccounts (billion)

1981 13,000 0.21982 16,000 0.31983 16,000 0.41984 16,000 0.51985 18,000 0.41986/a 16,000 0.4

/a Figures as of June, 1986

Source: Bank Indonesia, Indonesia Financial Statistics,September, 1986, pp. 80-81.

D. SIMPEDES (Simpanan Pedesan)

16. The SIMPEDES program was developed by BRI to attract sa ings fortheir unit desa rural banking system. It is a convenient, safe and liquidsavings instrument developed from market surveys of local villages and thenadjusted to its present form from pilot studies. SIMPEDES was first introducedat one BRI branch (Sukabumi in West Java) with 16 u-iit desas in November1984. An additional 12 pilot branches followed and further expanded in lateApril 1986 to become nationally offered by June, 1986. Though developed byBRI head office staff, 8IMPEDES is available only through BRI unit desa systemand not through the BRI branch offices.

17. A SIMPEDES account requires a minimum deposit and a minimum balanceof Rp 1,000. Interest is paid on a sliding scale so that accounts with aminimum monthly balance of Rp 25,000 or less receive no interest, Rp 25,001-200,000 earn 92 p.a., and over Rp 200,000 earn 12X p.a. The interest isposted monthly (TABANAS is annually) and paid rounded to the nearest multipleof Rp 10. To limit inactive accounts, a unit desa may close any SIMPEDESaccount that has had no transactions for three months and a balance of only Rp1,000. In practice, though, most SIMPEDES accounts are active with an averageof 1.26 transactions per month (.99 deposits and 0.26 withdrawals).

18. In addition to interest, SIMPEDES accounts receive one lotterychance for every multiple of Rp 5,000 in their minimum monthly balance. Thiscoupon is issued to account holders on a monthly basis (one coupon with asmany lottery numbers as multiples of Rp 5,000). The lotteries are conductedevery six months on a district or BRI branch level. The prizes are decided bythe local branch. One branch in Bali offered a motorcycle, TV, and radio asthe first three prizes and 10 fourth prizes of clothing material.

- 79 - ANNEX

19. Due to the scaling of interest rates and deposit and withdrawalactivity during the month, the real interest rate costs average around 0.82p.m. compared to the 1% p.m. rate offered. The total cost of SIMPEDES savingsis confidentially estimated by BRI at approximately 14.51 or 16.11Z if BankIndonesia's reserve requirements are considered. This percentage includesinterest costs of 9.54Z, prizes of 1.25%, taxes on prizes 0.16% (now paid bythe prize recipient), the coupon issue of 0.12%, and the promotion of 0.5%.The labor costs were 2.94X.

20. While TABANAS is available only to individuals, a SIMPEDES accountcan also be in the name of an organization or business. Many local schools,village funds, professional bodies and religious groups have already openedSIMPEDES accounts and BRI believes that there is considerable potential formore throughout Indonesia. Business accounts, too, should prove important andone unit desa in Bali estimated that approximately 60% of its SIMPEDESaccounts were held by small local businesses and provided an even higherpercentage of its total SIMPEDES deposits.

21. In the village in question, an estimated 70% of SIMPEDES depositorswere male compared with some 60% females for TABANAS accounts. Balances of Rp25,000 or less accounted for some 26.28% of account numbers, but only 0.99% ofdeposits. In contrast, balances in excess of Rp 200,000 comprised 18.61% ofaccounts, but 84.83% of deposits. Middle range balances (25,001 to 200,000)were 55.1 and 14.18X respectively.

22. As shown in Table 5, SIMPEDES accounts have increased significantlyboth in terms of account numbers and total deposits. The latter exceeded theBRI unit desa system's TABANAS balances for the first time in October, 1986.This growth should continue for the immediate future as there is stillconsiderable untapped potential savings outside Java/Bali where SIMPEDES hasstill not been well promoted due to the lack of promotional materials at manyunit desas. The program also suffers from poor marketing skills at the BRIbranch and unit desa level and from confusion over the recent unit desarationalization program and the role of unit desa village savings posts.

ANNEX 8- 80 - Page 8

Table 5: SIMPEDES ACCOUNTS AND DEPOSITS, 1985-86

AccountNo. of Deposits balance

1985 accounts (Rp'000) (Ave. Rp)

January 3,564 279,766 78,497.76February 4,550 277,372 60,960.88March 5,376 320,366 59,581.89April 6,921 283,092 40,903.34May 8,132 415,627 51,110.06June 8,822 481,947 54,630.13July 14,889 1,077,586 72,374.64August 20,925 2,031,179 97,069.49September 25,852 2,713,705 104,970.79October 33,353 3,629,067 108,807.81November 33,786 4,436,793 131,320.45December 36,563 5,134,179 140,420.06

1986

January 39,312 5,462,719 138,958.05February 42,127 5,858,286 139,062.50March 44,978 6,829,061 151,831.13April 54,028 8,060,202 149,185.64May 80,889 10,951,588 135,390.32June 105,104 15,541,639 147,869.14July 145,454 23,485,557 161,463.80August 198,934 30,746,137 154,554.46September 244,428 42,445,085 173,650.66October 306,504 55,542,744 181,213.76November 358,352 69,943,000 195,179.59December 418,945 82,405,000 196,696.46

Source: Bank Rakyat Indonesia, January, 1987

E. Contractual or Coal Savings Plans

23. As yet Indonesian banks have made limited use of contractual planswhich are designed to meet special customer savings requirements. While theseprograms may have a limited potential within the rural market, neverthelessthey may appeal to certain clients and generally help encourage the savingshabit. Some goal directed savings plans are a Retirement Savings Accounts,Scholarship Savings Accounts, Savings for Religious Ceremonies, Savings forHome Purchases, and a Down Payment Savings Scheme for Housing Loans.


Retirement Savings with Lottery (Tabungan Hari Tua Berhadiah)

24. The Retirement Account is a special purpose account introduced byBank Dagang Bali for retirement savings. It earns interest of 15% p.a. paidmonthly (1.25X pm) on the minimum balance. In addition to interest theaccount is also eligible for the Bank's monthly lottery with one chance pereach Rp 1,000 of the month's minimum balance.

25. Under the Retirement Account the customer chooses an end savingstarget and agrees to make a set regular payment of at least Rp 1,000 per monthuntil age 55. While the customer may later discontinue the payments, theaccount balance is still only available for withdrawal at age 55 except foremergencies. On retirement customers may still maintain the funds on depositand receive a monthly interest payment on the remaining balance. Since theRetirement Account was introduced on 4 December 1982, it has been wellreceived by the Bank Dagang Bali's customers and, as shown in Table 6, hasbeen a small, rapidly growing, source of regular long term deposits.

Table 6: RETIREMENT SAVINGS SCHEME ACCOUNT NUMBER AND DEPOSITS

No. of Total savings Average Rpaccounts Rp balance

1982 112 406,000 3,6251983 3,599 66,481,900 18,4721984 7,319 224,507,925 30,6751985 10,144 477,758,763 47,0981986 13,899 857,163,675 61,671

Source: Bank Dagang Bali, January, 1987

Scholarship Savings Plan (Tabungan Bea Siswa Berhadiah)

26. The Scholarship Savings Plan is another goal savings schemeintroduced by Bank Dagang Bali on April 12, 1983 (Table 7). Customers set atarget date and monthly amount to some for higher education of theirchildren. Like the retirement plan, once the cuistomer determines the monthlypayment (Rp 1,000 minimum) and the maturity date, he cannot withdraw the fundsuntil that date except in an emergency. There is no penalty if a payment ismissed, but, as with the retirement plan, the end benefit is reducedaccordingly. Interest is paid at 15% p.a. on the minimum monthly balance.

- 82- ANNEX 8Page 10

Table 7: SCHOLARSHIP SAVINGS SCHEME

No. of Total savings Average Rpaccounts Rp balance

1983 21 65,000 3,0951984 3,726 68,422,623 18,3641985 6,447 215,912,013 33,4901986 9,306 483,105,688 51,913

Source: Bank Dagang Bali, January, 1987

Savings for Religious Ceremonies (Tabungan Upacara Agama)

27. This program was introduced by Bank Dagang Bali in January 1987 tohelp Bali residents prepare for funeral expenses. Custom requires anelaborate cremation ceremony which, if not provided for in advance, couldplace the family into considerable debt. While no accounts had been acceptedin early 1987, tne program is expected to have more appeal than life insurancesince the marketing emphasis is on the ceremony. Outside of Bali there is asimilar potential for burial savings among Torajan people of South Sulawesi.There the traditional burial ceremony includes the sacrifice of a buffalowhich cost Rp 1 to 3 million. Villagers must make a substantial savingseffort to meet the costs.

Savings for Home Purchase (Tabungan Pembclian Rumah)

28. Savings for Home Purchase is another goal savings plan recentlyintroduced by Bank Dagang Bali. It operates like the bank's scholarship orretirement plan the amount of monthly payment and maturity set when openingthe account.

Down Payment Savings Scheme for Housing Loans (Tabungan UangMuka Kredit Pemilikan Ruman)

29. This plan was introduced by the National Savings Bank in 1985 toencourage potential depositors to save for the down payment required for theirplanned home purchase. The customer must save a set amount each month equalto approximately one third of his normal salary for a period of 24 to 36months depending on the payment size and the end housing loan lesired. Thesedeposits earn interest at 12% p.a. calculated on the lowest monthly balanceand paid annually. Under the plan those completing the terms and conditionswill then be eligible for the bank's housing finance.


Haj Pilgrimage Expenses Savings (Tabungan Ongkos Naik Haji)

30. The Raj Piligrimage Expense Savings plan is a form of compulsorysavings plan designed to finance the expenses of a pilgrimage to Mecca. Thecustomer designates the amount of payment for either a weekly or monthlybasis. Most plans are relatively short-term and seldom for more than ayear. In 1985 there were 34,554 accounts outstanding with a total savingsbalance of Rp 108.1 billion. These plans are presently offered by Bank RakyatIndonesia, Bank Negara Indonesia 1946 and Bank Ekspor Impor Indonesia, and arelikely to be offered by other banks in future.

F. Compulsory Savings Accounts

31. Though not significant in terms of total deposits, compulsorysavings accounts are important to some secondary banks and smaller ruralfinancial institutions. These deposits are not compulsory savings related toestablishing a savings record with the bank before being granted a loan (somemultiple of deposits). They are instead a form of compensating balancewhereby, with a Rp 10,000 loan the applicant will actually receive Rp 12,000with Rp 1,000 for the flat interest charged and Rp 1,000 for the compulsorysavings. In some cases the savings amount is returned after the loan is fullyrepaid, but not always. These compulsory balances may or may not receiveinterest depending on the institution.

G. Other Savings Accounts

32. In addition to the TABANAS and goal savings accounts, some banksoffer their own ordinary or special purpose savings plans, each with their ownterms and conditions. More banks are considering such plans and among thesecondary banks, the BKKs plan to accept deposits in the near future.

Ordinary Savings Plans

33. While TABANAS/TASKA accounts are limited to only 12 of Indonesia'sprivate national commercial banks and are not available for the secondarybanks, the secondary banks offer their own savings account plans incompetition to the TABANAS scheme. Most allow more frequent withdrawals thanTABANAS and pay much higher interest rates. Indeed, some Bank Pasar in tste1986 were paying up to 21% per annum for such funds.

34. One of the more interesting examples of private bank savingsaccounts is offered by Bank Dagang Bali. It offers a monthly lottery and acompetitive interest rate of 1.0% p.m. on the minimum monthly balance. Whilethis interest rate is less than TABANAS, there are no restrictions onwithdrawals and the lottery chances are based on the account balance ratherthan one chance per account. In contrast to SIMPEDES, the lottery drawingsare made monthly rather than twice yearly and the coupon numbers are based onthe number of multiples of Rp 1,000 rather than Rp 5,000 in the account'sminimum monthly balance. The prizes are also larger with a Rp 10 millionhouse awarded every six months, a Rp 6 million mini van every three months,and a Rp 81 million motorcycle every month.

-84 - ANNEX 8Page 12

Cashier Guarantee Savings

35. At least one state bank requires that all tellers or cashiers pay 21of their salary into a special savings account, the balance of which cannot bewithdrawn until after retirement. This requirement is intended to guaranteeagainst possible theft and in return the bank pays an attractive rate ofinterest, 15% p.a.

Save and Borrow Account (Rekening Simpan Pinjam)

36. This is a form of overdraft account offered by Bank Dagang Balithrough which the customer has access to an automatic credit facility (Rp 5million maximum) equal to 25 times the agreed monthly savings payment (Rp40,000 per month for an overdraft facility of Rp 1,000,000). There is no settime requirement for repaying the loan, but the agreed monthly savings must becontinued. The savings component earns 0.025% per day on deposit balancesover Rp 1,000. Alternatively the customer is charged 0.11 per day on anynegative account balance.

37. As additional incentive, save and borrow account customers can pay aBp 10,000 fee and receive an Automatic Teller Machine (ATM) card. The ATMintroduced by Bank Dagang Bali on May 1, 1986, was the first in Indonesia.There were 180 ATM cards outstanding as of December, 1986 and the ATM had onlya half dozen transact4.ons per day totalling approximately Rp 100,000. Thebank is very selective both in the opening of these Save and Borrow accountsand in issuing ATMs.

Proposed Commercial Bank Ordinary Savings Schemes

38. In interviews, state commercial banks such as Bank Dagang Negara andBank Negara Indonesia 1946, indicated that they were considering theintroduction of their own ordinary savings accounts to compete with theircurrent TABANAS account program. The Bank Dagang Negara scheme would not havea lottery, but would allow withdrawals four times a month and pay 14Z intereston all savings. The bank hopes to attract larger savers as smaller ones wouldfind the 15% plus lottery offered by TABANAS (on deposits up to Rp 1,0,oo000)more attractive. The Bank Negara Indonesia 1946 savings account would requirean opening balance of Rp 5,000 and a minimum balance of Rp 2,500. The termsmight allow up to five withdrawals per month and would pay interest on thelowest monthly balance of 15% p.a.

Proposed BKK Savings Scheme

39. In January 1987 the BKKs could not accept voluntary savings, but asavings program was in the planning stage with a pilot program expectedsometime in 1987. Unlike other rural savings schemes, this program is intendedto work on a coupon basis instead of a passbook. The coupons will beavailable in varying denominations with the amount of interest dependent onthe number of months held. The back of each coupon will have a scheduleshowing the interest per month and the issue date will be stamped on thefront. Those redeeming the coupon in between months would receive interest upto the previous month. Interest would be paid only on redemption. Each


coupon would be numbered and the name of the holder indicated on the couponbook stub as well as in an index. The coupon would be redeemable only at theissuing BKK and on each redemption the number checked against the recordedholder and his national identification card. The controls seem adequate topreclude fraud and some provisions are included for the redemption of lostcoupons. The BKK's main incentive for a coupon system rather than a passbookis to reduce is the labor cost and secord keeping associated with postinginterest on customer ledger books. Unlike SINPEDES, the BKK savings planhopes to compete strictly on an interest basis and wil' offer a higher rate(probably 15% p.a.) instead of a lottery. BKK wanted to avoid the highadministrative costs and supervision that a monthly lottery based programentails.

H. Time Deposits

40. Time deposits are attractively priced short to medium term (1 to 24months) savings vehicles with the interest rate fixed over the period and theinterest paid monthly. The interest on one month to 24 month deposits isexempt from taxation and since 1983, the source of funds used for thesedeposits are free from Taxation Department investigation.

41. Prior to June 1983 all interest rates, were set by BI. While statebanks are now free to set their own rates, BI imposes a minimum interest raseof 12% p.a. on the 24 month time deposits accepted by government ownedbanks. BI also limits the secondary banks from offering time deposits with amaturity of over three months.

42. As shown in Table 8, there are substantial differences in timedeposit rates. There are also differences in the minimum deposit sizes, andprice competition is encouraged since retail deposit rates are collected andpublished daily in the Indonesia press (Kompas). Among the state commercialbanks, however, there is a gentleman's agreement as to the maximum advertisedinterest rates, but these banks, may provide up to an additional 0.5% to theirbetter clients.

Table 8: RANGE OF TIME DEPOSIT INTEREST RATES BY TYPE OF BANK(5 January, 1987)

State Private Other Private ForeignBanks FX Banks National Banks Banks

1 month 13.0-13.50 12.5-14.50 13.0-15.0 9.50-14.003 months 13.5-14.25 13.5-15.00 14.5-16.0 9.50-14.756 months 14.5-14.50 14.0-16.00 15.0-17.0 10.00-15.5012 months 15.0-15.00 14.0-16.00 15.0-18.0 10.25-16.0024 months 14.0-15.00 15.5-17.00 -

Source: Interviews with Bank Indonesia, 1987.

86 - ANNEX 8Page 14

43. State commercial banks and regional development banks use a lowerminimum deposit size than the private banks. The Regional Development Bank ofEast Java, for example, requires a minimum of Rp 100,000 for time deposits asdoes Bank Dagang Negara. In contrast, Bank Dagang Bali requires a minimumdeposit of Rp 500,000, and Bank Central Asia, a minimum of Rp 1,000,000. Theprivate banks also offer a more limited range of maturities, Bank DagangBali, for example, will accept only up to 12 months. As showu in Table 9, the12 month maturity is also the most popular deposit maturity among statecommercial bank customers, but prior to the 1983 interest rate liberalization,24 month deposits were the most popular.

Table 9: TIME DEPOSITS WITH STATE BANKS BY MATURITY(billions of rupiah)

1980 1981 1982 1983 1984 1985 1986/a

24 months 656.2 765.2 854.4 538.7 277.3 471.3 451.518 months - - - 1.4 2.3 3.8 1.612 months 134.5 42.8 39.0 837.9 1,676.2 2,691.2,789.06 months 38.7 18.5 11.8 298.7 557.9 719.6 750.33 months 4.9 2.6 3.2 212.1 247.0 710.2 797.1<3 months 0.1 0.1 - 237.0 225.0 659.3 648.5

Total 734.4 829.2 908.4 29125.8 2,985.9 5,255.6,438.0

/a June.

Source: Bank Indonesia, Indonesia Financial Statistics, September,1986, pp. 78-79.

44. As shown in Table 10, individuals account for the largest singlesource of state bank time deposits because most businesses prefer che addedliquidity of a certificate of deposit. Jakarta is traditionally the majorsource of time deposit funding and in July 1986 accounted for 72% of deposits,Java and Bali together accounted for 89% of the total, Sumatra 71,Kalimatan/Sulawesi 21, and other areas 2%.

87 - AME 8Page 15

Table 10: OUTSTANDING TIME DEPOSITS WITH STATE BANK BY GROUPS OFOWNERSHIP, 1981-1986(billion of rupiah)

1981 1982 1983 1984 1985 1986/a

Government 5.4 6.6 100.2 273.6 216.8 394.9Official entities 135.6 174.8 220.2 300.9 348.6 366.7State savings banks 17.8 6.1 - - - -N.B.F.I. 61.9 56.1 132.6 21.0 57.6 91.5Insurance companies 116.7 183.7 467.0 493.0 829.41,141.9State enterprises 45.8 59.4 270.3 498.4 819.5 890.8Pawnshops - - 0.8 - - -Private enterprises 61.8 48.0 157.2 108.7 158.0 137.7Social foundations 160.5 215S. 353.1 590.4 832.3 875.8Cooperatives 2.7 4.5 1.2 1.5 4.8 2.9Individuals 312.5 293.6 675.2 941.9 1,731.51,698.9Others 41.8 1A.8 41.3 204.4 257.7 250.2Von-residents 1.0 0.2 1.2 0.5 1.4 1.9Unclassified 44.0 48.0 267.5 52.6 68.4 48.9

Total 1,007.5 1,111.2 29687.8 3,486.9 5.326.05,904.1

/a June

Source: Bank Indonesia, Indonesia Financial Statistics,September, 1986, pp. 76-77.

45. In addition to the normal range of monthly maturities on timedeposits, better customers can also open time deposits with other maturi-ties. Prior to 1 January, 1987, these funds were included within the "other"category of Bank Indonesia's TAMANAS figures but are now reported separatelyin the time deposit. section. These deposits are not particularly comon, butare often issued for large amounts of funds.

I. Certificates of Deposits

46. Certificates of deposit are similar to commercial bank time depositsin terms of their interest rates, terms and conditions. But certificates doprovide slightly higher rates for the longer term maturities. The rates alsodiffer with issue size with CDs for Rp 100 million typically offering anadditional 0.25X to 1.0% p.a. with the difference increasing with maturity.

47. The main advantage of a CD is that it can be sold either to anotherindividual or to any branch of the issuing bank. In contrast a time depositcan only be redeemed at the branch from which it was issued. Investors have achoice of paying the full face value and receiving the interest and principleat the end period, or purchasing the CD at a discount from its face value with

88 - ANNEX 8Page 16

the difference providing the effective interest rate. While there is usuallyno difference in the effective annual rates or taxation treatment, mostinvestors prefer the latter arrangement. Recent rates are shown in Table 11.

Table 11: CERTIFICATE OF DEPOSITS NOMINALINTEREST RATES, JANUARY 1987

Interest in Interest onadvance maturity

1 month 12.9 13.02 months 13.0 13.3 _3 months 13.5 14.26 months 13.5 15.012 months 13.0 16.124 months 11.5 17.4

Source: Bank Bumi Daya, January, 1987.

48, Certificates are sold in specific size denominations from Bp100,000, Rp 100 million. However, many banks, limit CD's for large deposits.One, for e-xample, requires a minimum of Rp 5 million and most are issued foramounts between Rp 25 to 100 million. The minimum maturity is technically 15days, but few institutions offer this facility.

49. A major drawback in raising large deposits through CDs is a functionof their bearer nature. Most state enterprises and other large holders ofsurplus cash are criticized by thei- auditors if they hold investments whichare not registered in their name. Individuals may also be concerned over thepotential theft of these instruments, but in any case individuals account fora small proportion of the total issues.

50* Commercial banks need BI permission to issue CDs. In January, 1987,only 25 commercial banks were authorized. Government owned banks are alsorequied to pay at least 12% p.a. on certificates with a 24 month maturity. Inpractice, this restriction is of little significance since 6 monthcertificates are by far the most important followed by 1 month maturities.

J. Foreign Currency Accounts

51. As there are no restrictions on holding foreign currencies, manyIndonesians prefer to place their savings in non-rupiah denominatedaccounts. These accounts typically require a minimum balance of theequ:%.valent of US$ 2,000 to 5,000 and are either a demand deposit or timedeposits. The interest rates are adjusted according to the equivalentSingapore deposit rates, but are usually lower particularly on smalleramounts. Nevertheless in a local foreign currency time deposit account still


some advantages as the interest received is tax exempt whereas, the incomefrom an off-shore deposit is not. These deposits are not confined to Jakartaand one private bank branch in Malang (East Java) obtained Rp 6,000,000 of itsRp 35,000,000 in deposits from foreign currency related deposits.

K. Securities

52. Though corporate equities and debt securities are available theseinstruments have not proved popular with individual investors particularlybecause alternatives investments are tax exempt.

Shares

53. Equity investments in Indonesian companies may be purchased eitheras a normal share or, in some cases, through a back-to-back share certificateof DANAREKSA9 (the National Unit Trust Company). Both types may be purchasedthrough the state banks, stock brokers, the investment finance and developmentfinance corporations and or directly from other investors.

54. Direct Share Investments. Currently 24 companies with their sharesare listed on the Jakarta Stock Exchange. At the end of 1985 these companieshad a total market value of Rp 2,749.8 million. The last firms were listed in1984; since then no subsequent listings or new share offerings have beenmade. While the average yield on share investments is 13 to 14%, there hasbeen little prospect of capital gains as most shares are now selling muchbelow their highs and often below their initial issue price. Semen Cibinog,for example, recently missed a dividend payment and dropped to Rp 10,000compared to a high of Bp 16,000 in 1986 and an all time high of Rp 19,200 in1983. Similarly where as BAT Indonesia shares initially sold at Rp 12,000,but are now worth only Rp 3,250. Indeed of the 24 companies, only 10 are nowselling above their issue price.

55. Back-to-back Certificates. The back-to-back share certificates weredeveloped by DANAREKSA as a means to encourage greater Indonesian investmentin local stocks. The advantage of these certificates over a normal sharepurchase is that DANAREKSA will repurchase the certificates on demand even ifthere is secondary demand for the underlying shares on that day.

56. Three companies have shares available through back-to-back sharecertificates: Semen Cibinog, BAT Indonesia and Unilever Indonesia. Wheninitially issued, each of these certificates was structured to sell for Rp10,000 to 12,000. Thus each certificate represents different numbers ofshares is priced accordingly: Semen Cibinog back-to-back certificatesrepresent one share, BAT Indonesia 5 shares, and Unilever Indonesia, 2 shares.Once issued, DANAREKSA has only acted as a purchaser of these certificates andby December, 1986, it had retired some 502 of the initial Semen Cibinogcertificates, 70% of BAT Indonesia and 40% of Unilever Indonesia.

Bonds

57. Public bond issues to date have been limited to government entitiesand through 1986 confined to three issuers: Jasa Marga (toll road

90 - ANNEX 8- 90 - ~~~~~~page 18

construction), Bapindo (national development bank), and Papan Sejahtera(housing construction). Since their initial issues in 1983, all three havereturned to the market for additional bond issues and both Bapindo andSejahtera plan another Rp 50 billion issue each over 1987. The first bondissne in February, 1983, Jasa Marga 1, was fully tax exempt just like savingsand time deposits. The next two issues (Bapindo and Papan Sejahtera) in 1983were also given a tax concession, but this was limited to a flat 102 finalwithholding tax. All subsequent issues, however, have had no special taxtreatment. As result, only investors not subject to taxation have found their15.75 to 16.5X yields attractive. Pension and superannuation funds, whoseinvestment income is fully tax exempt, have been the main purchasers eitherdirectly or through DANAREKSA income unit trusts. These securities areunlikely to attract private investors until they are given tax exemptionsimilar to savings and time deposits. Though the bonds are listed on theJakarta Stock Exchange, most trading is over-the-counter between institutionsas an adjunct to money market dealing rather than on the exchange.

Unit Trusts (DANAREKSA)

58. DANAREKSA currently offers two types of unit trusts: a general unittrust and an income unit trust. DANAREKSA Series A,B, C, D, are generalunits, while the DANAREUKSA Unit Pendapatan I, II, III are income units. Thegeneral units series are invested approximately 52% in shares, 302 in bonds,and the rest in money market securities, and the income funds hold around 90%of their funds in bonds and the remainder in money market securities. Inearly 1987, the Rp 60 billion worth of general units provide a dividend andcapital gains return of approximately 172 p.a. compared to 15.75 to 16.5% p.a.on the Rp 80 billion worth of income units.

59. The units are sold in minimum lots of 100 units or certificates.With the current price of the general and income units around Rp 10,100 to10,550, this means an initial investment of some Rp 1,010,000. DANAREKSAunits may be purchased through any stock exchange member, but the stategovernment banks and (13 of 27) provincial development banks are its mainagents. By the end of 1985 it had 21,824 general certificate holders.Jakarta residents are the largest holders of these certificates and accountfor 76.6% of the general units.

60. DANAREKSA differs from a commercial unit trust operator since itguarantees a return on its units often higher than commercially available byusing its own investment portfolio to provide the subsidy. It also operatesin close cooperation with the Ministry of Finance and the Capital MarketExecutive Agency (BAPEPAM) and new DANAREKSA unit issues are made directly tosupport new debt or equity issues.

61. In addition to its current unit trust operations, DANAREKSA iscurrently forming a closed end investment fund, the Indonesia Fund, to attractforeign portfolio investment. The Fund is to start with a US$ 10 millionissue underwritten by Prudential Bache and GT Investments. It is expected tobe listed on the Luxembourg Stock Exchange and marketed mainly to Europeaninstitutional investors. It will have no special tax exemption and DANAREKSAwill deduct the standard 35% corporate tax on any dividend income and capitalgains. There are no withholding taxes on any direct payments to unit holders.

-91 - ANNEX 8Page 19

62. DANAREKSA is also involved in government discussions on an over-the-counter market. This market would entail the creation of a new financialinstitution, the private investment company, which would act as a market makerfor these unlisted securities. DANAREKSA is expected to be a part owner ofone of these institutions. It also expects to create a new Rp 5 billionclosed end stock exchange listed fund for investment in smaller companies.Known as "growing certificates" these new units would guarantee a 12X dividendreturn with any extra income reinvested in additional shares.

public disclosure authorized indonesia rural credit sector...

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