Barriers and Issues to project financing

in Indonesia

Betty J. Parinussa
Executive Researcher
Banking Research and Regulation Directorate
Bank Indonesia
September 13th , 2006
1
 Outline

• Bank Indonesia (BI) role to

encourage banks intermediary
function

• Barriers and Issues of Financing CDM

/ Renewable Energy Project, Carbon
Trading

• Conclusion and Recommendation

2
 Bank Indonesia role (1)
Bank Indonesia (BI) role to encourage
banks intermediary function

1. Monetary policy approach ( BI Rate)

2. Regulatory policy :
a.linkage between loan to deposit ratio and
reserve requirement,
b.relation of asset quality assessment of the bank
and the requirement for debtor’s company to
fulfill AMDAL (analysis of the impact to
invironment).

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 Bank Indonesia role (2)
Bank Indonesia (BI) role to encourage
banks intermediary function
2. Regulatory policy :
c.BI loosen the requirement for quality credit assessment
from 3 aspect (Bussiness Prospect, Debtor Performance,
Repayment Capacity) to become only based on
Repayment Capacity for Small Credit and Other Credit up
to Rp.500 million, and especially for certain regions
based on BI consideration are up to Rp. 1 Billion.

d.The asset quality assessment of Securities including

commercial paper will be Current/Sound as far as the
securities are active traded in the Indonesian Market, have
transparancy market value and are not delinquent (no
suspension of obligation).

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 Bank Indonesia role (3)
Bank Indonesia (BI) role to encourage
banks intermediary function
2. Regulatory policy :
e.Classification of Cash Collateral are broaden; include
Indonesian Government Guarantee, Securities which fulfill
quality earning asset as Sound/Current according to BI
regulation, beside another Cash Collateral such as, Cash,
Current Account, Saving Account, Time Deposit Account,
SBI, SUN.
(The asset quality assessment of Securities including
commercial paper will be Current/Sound as far as the
securities are active traded in the Indonesian Market, have
transparancy market value and are not delinquent (no
suspension of obligation).
f. Regulation regarding Credit Restructuring are broaden and
cover all Credit Quality Classification.
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 Bank Indonesia role (4)
Bank Indonesia (BI) role to encourage
banks intermediary function
3. Strengthen the linkage program
between conventional banks and
Rural Banks.
4. Improving UMKM/SME access to
credit and financing:
a. Facilitate the formation and monitoring
of credit and financing guarantee scheme.
b. Encourage banks to increase financing
of UMKM/Small Medium Enterprise.
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 Bank Indonesia role (5)

Guarantee Scheme

Guarantee Scheme Proposal

Local Parliament
BANK INDONESIA
(Mediator)

Approval

MOU-
MOU- Banking
Association,
Local gov. MOU *) ASKRINDO Guarantee
BDS
Local credit guarantor
institution

Guaranteed credit

Building skill
Debtors (SME’s)
*) 1. Overhead cost or
2. Risk Sharing
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 Bank Indonesia role (6)
Bank Indonesia (BI) role to encourage
banks intermediary function
4. Improving UMKM/SME access to credit
and financing:
c. Facilitate the signing of MoU on loan
guarantee scheme between Askrindo with
local government of 4 provinces (Riau, Jawa
Timur, Gorontalo, Sulawesi Utara) and 9
regencies, including Bank Pembangunan
Daerah (Regional Development Bank).

d. Facilitate the signing of MoU on loan

agreement scheme by Askrindo and 5
regencies/ municipalities.

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 Bank Indonesia role (7)
Bank Indonesia (BI) role to encourage
banks intermediary function
4. Improving UMKM/SME access to credit
and financing:

e. Improvement and harmonization of legal

provisions hampering operation of the regional
credit guarantee scheme launched by BI and
relevant agencies.

f. Building of public awareness on the loan

guarantee scheme in some provinces.

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 Bank Indonesia role (8)
Bank Indonesia (BI) role to encourage
banks intermediary function
4. Improving UMKM/SME access to credit and
financing:

g. Increase access to sharia financing for UMKM/SME

through development of guarantee programs for sharia
financing.

h. Encourage sharia banks to increase the percentage

of profit-sharing based financing.

i. Monitoring the implementation of credit guarantee

scheme, as of December 2005, the cumulative amount
credit guarantee certificates are Rp. 22.8 billion.

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 Bank Indonesia role (9)
Bank Indonesia (BI) role to encourage
banks intermediary function
Current Banking Development
(T Rp)
Growth (%)
2000 2004 2005
2004/2005
Total Assets 1030.50 1272.28 1469.83 15.53
Deposit 699.10 963.11 1127.94 17.11
Credit 320.50 595.06 730.16 22.70
SBI 67.094 125.94 93.999 -25.36
Government Bonds 429.98 290.34 289.65 -0.24
Loan to Deposit Ratio (LDR) 45.84 61.79 64.73
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 Barriers and Issues (1)
Barriers and Issues of Financing CDM /
Renewable energy project, Carbon Trading

1. Internal Barriers and Issues :

a.Administrative and legal document of
Company Profile (such as
Financial Report including
Financial Projection of Balance Sheet,
Profit and Loss Report, Cash Flow
Projection, Capital Structure, Sensitivity
Analysis of Market Risk,
Licence Documents, etc.

b. Collateral.
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 Barriers and Issues (2)
Barriers and Issues of Financing CDM /
Renewable energy project, Carbon Trading

2. External Barriers and Issues :

a.some obstacles in processing legal
document relating to document of
licence (too long chain of procedure).
b.CDM/Renewable energy projects,
carbon trading mechanism are not yet well
popular for banking business, financial
institution and are not yet well introduce
to Supervisory / Regulatory
Agency
c.particularly Carbon Tradings are not yet
recognize in the Indonesian Market. 13
 Conclusion and Recommendation (1)

Conclusion and Recommendation

1. Knowledge dissemination of
comparative advantage of CDM / Renewable
energy projects, Carbon Trading Mechanism,
should be intensive published through
seminar for each level,among Supervisory
Agencies/Regulatory Institution include
Ministry of Trade/Bappebti , Ministry of
Finance/DJLK-Bappepam, Ministry of
Environment, Ministry of BUMN,
Bank Indonesia, Bankers Association,
Brokers Association and Public.

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 Conclusion and Recommendation (2)

Conclusion and Recommendation

2. Financing CDM / Renewable energy

projects, could be analyse and be treated
as a common practise in lending activity in
banking business and should fulfill all
technical bank requirement.
The opportunity of the credit proposal of
CDM Project has the same chance as
another kind of Investment Credit, Working
Capital Credit, as long as the bank
technical requirement could be comply.

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 Conclusion and Recommendation (3)

Conclusion and Recommendation

3. Particularly in financing Carbon

Trading, it requires strong commitment,
coordination and supporting, intra
Supervisory Agency of Commodity Future
Trading/Bappebti, DJLK- Bappepam and Bank
Indonesia,
to establish and develop a new mechanism
and technical requirement, relating to legal
aspect and regulation of Carbon Trading in
Indonesian market, base on International
best practises.

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Thank You

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