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By: Choirul Djamhari Deputy Minister for Business Development and Restructuring Ministry of Cooperatives and SMEs Chairman of Board of Supervisors of Perum Jamkrino 1 The Indonesian economic growth is 6.1% in 2010 with GDP of USD 714 billion. Indonesian SMEs (Small & Medium Enterprises including cooperatives and micro enterprises): Contributing 53,3% of GDP; Providing 96,2 million job opportunities accounting for 97,3 of total labor force; Serving as sources of income among grass root, thus contributing to poverty alleviation; Driving innovation and developing new products in efficient ways Nurturing mentality and spirit of entrepreneurship; Fostering industries, as big companies need supports from SMEs; 2 ◦ ◦ Generating export opportunities Ensuring equitable and sustainable development as they are spread out all over the country. SMEs have proven their resilience to survive within the ailing national economy. As SMEs are the largest group in the economic structure and they represent the “people’s economy” of Indonesia, then SMEs should be given of the foremost priority in the national development. 3 SMEs in Indonesia • • • • • • • • Net assets: more than IDR10 billion (USD1 million), or Annual sales: more than IDR50 billion (USD 5 million) • • Number of entity: ±4,372 unit or 0,01% Share to : - total employment : 2,96% - GDP: 44,44% - non oil export: 79.83% - total Investment : 47,11% Net assets: more than IDR500 million (USD50.000) up to IDR10 billion (USD1 million), or Annual sales: more than IDR2,5 billion (USD250.000) up to IDR50 billion (USD5 million) • • Number of entity: ± 39,657 unit or 0,08% Share to : - total employment: 3,48% - GDP: 13,43% - non oil export : 13,10% - total Investment : 23,81% Net assets: more than IDR50 million (USD5.000) up to IDR500 million (USD50.000), or Annual sales: more than IDR300 million (USD30.000) up to IDR2,5 billion (USD250.000) • • Number of entity: ± 520.221 unit or 1,01% Share to : - total employment : 4,26% - GDP: 10,08% - non oil export : 4,85% - total Investment : 20,69% • Number of entity : ± 50,697,659 unit or 98,90% Share to : - total employment : 89,30% - GDP : 32,05% - non oil export : 2,22% - total Investment : 8,39% Max net worth (excl. land & building) : IDR 50 million (USD 5,000) Max. annual sales : IDR 300 million (USD 30,000) Data source: Statistics Indonesia, 2009 (data as of 2008) MSME definition refers to MSME Act No. 20/2008 • 4 Indonesian SMEs generally have some handicaps to access to financing for their business development. A lack of formal credit access due to lack of collateral. Currently, banking system is the most significant source of financing for SMEs, and other alternatives are saving & loan cooperatives, pawnshop, multi-finance companies, non-bank financial institutions. 5 SMEs FINANCIAL SERVICE PROVIDERS Non Bank Institution CGC Saving and Loan Cooperative Pawnshop Multi finance/ Leasing Company Non Bank/Cooperativ es/Microfinance Institution Rural Bank Bank Commercial Bank SMEs 51.25 million business unit Non Bank Informal Institution Money Lender Source: Central Bank of Indonesia 6 Number of Banks (as of Arpil 2011) Commercial Banks (conventional) Rural Banks (conventional) Sharia Commercial Banks: -Sharia Commercial Banks -Sharia Business Unit of Comm Banks Sharia Rural Banks Grand Total Tot Banks Tot Offices 121 14.140 1.680 3.996 11 23 1.276 315 153 293 1.988 20.020 Source: Banking Statistic, Central Bank of Indonesia, April 2011 7 Need of Credit Guarantee To bridge the need of SMEs financing and the banks’/creditors’ requirement of credit lending. Credit Guarantee for SMEs is a key to greater access to financing. Given to the feasible SMEs but not bankable in terms of collateral requirement. 8 Feasibility Enterprise Large Medium Feasible for Go Public √ √ Feasible & Bankable √ √ √ √ Feasible but not Bankable Not feasible & not bankable Small Financing Micro Guaranteed by CGC Capital Market No √ Bank Lease financing Venture Capital Optional Optional Optional √ √ Bank Lease financing Venture Capital Rural Bank Pawn Shop Micro finance Inst Guarantee Optional Optional Optional Optional Optional √ √ Pawn Shop Micro Finance Inst Money Lender No No No 9 Legal Background: ◦ Presidential Decree No. 2/2008 of Guarantee Institutions ◦ MOF Regulation No. 222/2008 of Credit Guarantee Company and Credit Re-guarantee Company As legal background, the grand design of credit guarantee system in Indonesia consists of: ◦ National and Regional Credit Guarantee Companies ◦ Credit Re-guarantee Company ◦ Government support as: Regulator: Capital Market Supervisory Body and Financial Institutions Shareholder for National Credit Guarantee Company Local government as the shareholder of Regional Credit Guarantee Companies 10 At the moment, there are 4 CGCs in Indonesia namely: ◦ Perum Jamkrindo ◦ PT Penjamin Kredit Pengusaha Indonesia/PKPI (private CGC) ◦ Jamkrida Jatim ◦ Jamkrida Bali Mandara. The government support is given to the establishment of regional credit guarantee as well as the supervision of the existing CGCs. 11 Current Guarantee Issues: Government Policy to Enhance SMEs loan Banking/FIs Sector Government - Reducing Risk Weighted Assets on credit for SMEs for credit that guaranteed by the state owned/accredited CGCs. - Loan for Food Securty and Energy - Loan for Cattle Breeding. - Partnering with CGCs to increase SMEs loan lending. KUR Guarantee Program & other Govt Loan Program Improving Regulation for CGCs 12 Target of Commercial Bank SMEs clasification Feasible & Bankable Feasible but not Bankable Target of SMEs Credit Guarantee Increasing the Guarantee Capacity Not Feasible, Not Bankable Additional Government Shares Target of Government Program Feasible and not Bankable > Guarantee Capacity 13 KUR Program supported by Indonesian CGCs (Jamkrindo and Askrindo), in which the government induced Additional Government Shares (AGS), totally IDR 3.75 Trillion since 2007. KUR Program targets 10x of Gearing Ratio, at least 10 times of the AGS (IDR 37.5 Trillion) to be lent as KUR Loan to the SMEs. The guarantee for KUR is provided in “Conditional Automatic Cover” mechanism, the evaluation of the credit fully conducted by the banks. KUR Program has been monitored by the Policy Board (interdepartmental committee). 14 ◦ To support the growth of CGC industry, the Government through Capital Market Supervisory Body and Financial Institutions is improving the regulation for CGC: No. 222/2008 of Credit Guarantee Company and Credit Reguarantee Company. ◦ Points of Improvements: Initial capital for CGCs establishment; Reserved capital management of CGCs; Investment management of CGCs; Financial Ratios (liquidity, claim and gearing ratio, etc); Credit Guarantee Products & Services; Credit Guarantee Agency; Etc. 15 CHALLENGES OF THE INDONESIAN CGCs Challenges include : 1. CGCs financially sustainable Generally, credit guarantee perceived as an unprofitable business and take insurance business market. CGCs should find appropriate model of guarantee business to meet the expectation of the stakeholders (Govt, shareholders, SMEs, banks/FIs). 16 CHALLENGES OF THE INDONESIAN CGCs ii) Credit Guarantee Culture • • • • SMEs’ mindset of subsidized loan and rates if CGC plays the role and their moral hazard. Financial institutions’ moral hazard if loans are guaranteed. High interest rate and collateral requirement even though risk is mitigated by guarantee Guarantee fees will result in higher borrowing cost for SMEs. 17 CHALLENGES OF THE INDONESIAN CGCs iii) CGCs capacity and competency - - Increasing capacity and capability to provide the initial CGCs capital for establishment. Finding appropriate business model for CGCs. Increasing human resources competency to provide excellent services and products improvement. Increasing capacity in managing CGC’s financial and investments. 18 KEY SUCCESS FACTORS Government Support • Implicit support from shareholders & Government to facilitate growth and sustainability of Indonesian CGCs. •Improvement of CGC Regulation. Proper CGCs Business Model • Appropriate guarantee business model that meets the needs of Shareholders, Government, Bank/FIs as well as SMEs. • Adequate CGCs’ capital and sound financial management. TO Improvement of CGCs’ Products & Services • Strategic business synergies with other corporations/ insurance. • Balance between financial sustainability and SMEs empowerment outreach. SUSTAINABLE & GROWING INDONESIAN CGCs 19 20