The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian

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

BANK INDONESIA POLICY ROLE TO

ACCELERATE ACCESS TO FINANCE FOR MSMEs

Eni V. Panggabean, Ph.D

Executive Director

Financial Access and SME Development Department

2014

OUTLINE
I

BACKGROUND

II
III
IV
V

MSME CHALLENGES
REGULATION TO ACCELERATE MSME FINANCING
BI INITIATIVES TO PROMOTE MSME FINANCING

THE WAY FORWARD

I. BACKGROUND
A. THE ROLE OF MSMES
The strong resilience of the Indonesia economy among other is due to the
strong domestic demand, which is supported by the pivotal role of MSME

99.9% of 55
million business
units

absorb around
97,2% of total
labor force.

contribution
around 57,48%
to the GDP

contribution
around 14.06%
to export (non
oil and gas)

Indonesias economy resilience

Source : Ministry of Cooperatives and SME

B. FINANCING STRUCTURE

Indonesia has a huge economic potential and large market for financial services.

More than 13,000 islands

Population: + 237.6 million 1)
GDP of USD878.2billion in 2012, the 16th largest economy with estimated 6.23% GDP
growth rate 2)
GDP per capita 2012: USD 3,606 3)
Banking industry covers 78.8% of assets in financial sector
Market Share of Indonesia Financial System by Total Assets
Multifinance
Companies
6.7%

Pension Rural Banks

1.2%
Funds
2.6%

Pawn Broker
0.5%

Insurance
Companies
9.9%

Commercial
Banks
78.8%
1) 2013, BPS
2) World Bank
3) BPS

Credit
Guarantee
Company
0.1%

Venture
Capital
0.1%

Number of Total Assets (IDR Trillion)

Commercial Banks

4,954.47

Insurance Companies

623.59

Multifinance Companies

420.03

Pension Funds

162.48

Rural Banks

77.24

Pawn Broker

30.77

Venture Capital

8.70

Credit Guarantee Company

7.87

Source : Bank Indonesia and FSA (Dec 2013)

C. OUTSTANDING OF MSME LOAN

MSME Loan Outstanding

Share of MSME loans to total loans in

August 2014 reached 19.5%.
Share of MSME accounts to banking
accounts in August 2014 is 24.36%.
The portion of MSME loan is largely
distributed to the trade sector (52.55%).

MSME Loan Accounts

MSME Loan by Sector

II. MSME CHALLENGES

A. BARRIERS TO FINANCIAL ACCESS
A. Survey by ADB, 2010

B. Survey by Bank Indonesia, 2010

Lack of collateral is considered as the common barrier to financial access of MSME

6

B. WEAKNESS OF MSME
Wage of
Labour
1%
Skill
1%
Transportation
3%

Fuel/Energy
4%

Materials
11%

Others
10%

Financing
35%

Marketing
35%

Financing and Marketing aspects are the main challenges of the MSME
Source : National Economic Census 2006

III. REGULATION TO ACCELERATE MSME FINANCING

A. MSME ACT DEFINITION OF MSME

Act No. 20/2008 on MSME

Micro

Small

Medium

IDR50-million
(USD4,167)

IDR500-million
(USD41,667)

IDR10-billion
(USD833,833)

Annual IDR300-million
Sales
(USD25,000)

IDR2,5-billion
(USD208,333)

IDR50-billion
(USD4,2 million)

Assets

Assumed: USD 1 equal to IDR12.000

B. REGULATION ON MSME FINANCING (1)

Bank Indonesia Regulation No. 14/22/PBI of 2012

Mandates that 20% of banks

portfolios should be lent to
MSME segment by 2018
2015 : 5%
2016 : 10%
2017 : 15%
To meet this requirement,
Banks are allowed to directly
lend to MSME or through
linkage
and
on-lending
programs.

Bank
Indonesia
provides Technical
Assistance
to
increase capacities
of FI and MSME in
the
form
of
research, training,
provision
of
information,
and
facilitation.

Penalty for the

failure to achieve
target of MSME
lending: Bank has
to allocate certain
budget
for
provision
of
training to MSME.

B. REGULATION ON MSME FINANCING (2)

(BI & OJK)

Leniencies for commercial banks that provide loan for MSME:

Lower Risk-Weighted Assets for Micro and Small loan which is
only 75% compared to 100% for corporate loan.
Asset Quality Assessment for MSME loan is based only on one
pillar, which is the timely payment on principal and interest,
compare to three pillars for corporate loan.
Exception of Legal Lending Limit for loan to plasma-nucleus
partnership.
Special treatment for MSME financing in certain regions that
are affected by natural disasters.

10

C. EVOLUTION ON MSME FINANCING

Not feasible,
not bankable
Productive Poor

CSR
(PNPM,
PKBL,
PUAP)

Not feasible
Productive poor,
Micro and Small
Enterprises

Subsidized
Credit
Program
- KKPE
- KPENRP
- KUPS

Feasible, not
bankable
Micro and Small
Enterprises

Feasible,
Bankable
Micro, Small and
Medium Enterprises

MSME Financing

Guaranteed
Credit
Program
KUR

Max 80% guarantee

Commercial
Credit

Collateral Needs/ Guarantee

Soft Loan

Government Credit Program

Credit

PKBL : Program Kemitraan Bina Lingkungan (Partnership and Community Development Program)
PUAP : Pengembangan Usaha Agribisnis Perdesaan (Rural Agribusiness Development)
PNPM : Program Nasional Pemberdayaan Masyarakat (National Program for Community Empowerment)

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IV. BI INITIATIVE TO PROMOTE MSME FINANCING

Final
Objective
Short Term
Objective
Strategy

Program

Methods

The Growth of MSME & Real Sector and Inflation Control

Supporting food security and creation of new economic centers in the regions
Capacity
Building for
MSME

Increasing Access
to Finance

Minimize the
Asymmetric
Information

Coordination &
Strategic
Partnership

Cluster (Value
Chain)
Development
Entrepreneurship
Development

Financial transaction
recording movement
Strengthening Financial
Infrastructure
Facilitation of
Government Credit
Program (KUR, KKPE,
KUPS)

Provision of
study/research
Dissemination of
Information
Development of
MSME Microsite in
the website of
Bank Indonesia

Coordination with
local
government,
central
government and
international
institutions

Training

Provision of
Information

Facilitation

Research

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A. MSME CAPACITY BUILDING

Clusters
Development
Provision technical assistance
to improve MSME
competitiveness in following
aspects:
Marketing,
Production,
Finance,
Human Resources/Social
Capital.

Entrepreneurship
Development
To create new
entrepreneur by
providing technical
assistance and
business coaching

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B. INCREASING ACCESS TO FINANCE

Financial Infrastructure Institutions
Regional Credit
Guarantee Agency
To address lack of
collateral faced by
MSME in the
region.
Initiated by joint
cooperation among
government
ministries and Bank
Indonesia

Financial Infrastructure Instruments

SME Credit Rating

The Utilization of
Land Certificate

To overcome
asymmetric
information
between SME and
banks.

To encourage the
use of land
certificates to
improve access to
finance for MSME.

Pilot Project as a
cooperation
between Bank
Indonesia, OJK,
banks and rating
agencies.

Joint cooperation
among related
Ministries,
National Land
Agency, and Bank
Indonesia.

Cattle Insurance
To address the risks
inherent in the
cattle farm
business.
Joint cooperation
among Bank
Indonesia,
Ministries of
Agriculture and
insurance
companies.

14

V. THE WAY FORWARD

Challenges :
a) Coordination among institutions
b) Changing Banks paradigm to treat MSME as a partner
c) ASEAN Economic Community 2015
Opportunity :
The widespread Information, Communication, and Technology (ICT)
implementation, such as: online business, utilization of mobile phones

Strategies :
a) Innovation, such as financial transaction recording through ICT devices (personal
computers, laptops and smart phones)
b) Widening financing sources (Value Chain Financing, Angel Investors)
15