Low Credit Growth in Indonesia, but Micro Credit Program (KUR) on Course
Although generally credit growth in Indonesia has been weak so far this year, disbursement of micro credit (in Indonesian: Kredit Usaha Rakyat, or KUR) has been solid in the first eight months of the year. KUR is a government-sponsored subsidy offered to the country’s smallest entrepreneurs (for example street food vendors). Through KUR, Indonesia’s commercial banks can provide working capital at lower interest rates (compared to most other micro loans). This is made possible by an insurance plan involving state-owned insurance firms Perum Jamkrindo and Askrindo.
In the first eight months of 2016, Indonesian banks disbursed IDR 67.2 trillion (approx. USD $5.1 billion) worth of KUR to Indonesian clients, or 67.2 percent of the full-year target. In the 2016 State Budget Indonesia allocated a total of IDR 100 trillion to the KUR program (with the biggest portion being allocated to state-owned lender Bank Rakyat Indonesia, or BRI).
Mohammad Irfan, Director of Micro, Small and Medium Enterprises at BRI, said his institution may likely exceed its target in terms of KUR disbursements this year. Per 13 September BRI’s microloans had already reached IDR 50.5 trillion, or 75 percent of its full-year target. The central government already announced that it will allow a higher KUR ceiling for BRI in order to meet robust demand.
The Indonesian government launched its KUR program in 2007. And - as can be imagined - it is a risky investment for banks (and therefore requires backing from the government). Within the KUR program the amount of bad loans (non-performing loans, NPL) at banks is high. In fact, NPL ratios between 21 and 31 percent were recorded at some lenders last years, far above the 5 percent threshold that is set by Indonesia’s financial authorities for regular loans.
Due to the risks involved, banks previously set very high interest rates for this microfinance program. However, in 2015 the government cut the interest rate from 22 percent to 12 percent. In the third economic policy package, unveiled by the government in early October 2015, it promised to cut the interest rate on KUR further.
Recently, the government also decided to include ten new financial institutions into the KUR program, including Bank Central Asia (BCA), Bank Permata, Bank Sinarmas, Maybank Indonesia, and five regional banks.
Together, Indonesia’s micro, small and medium sized enterprises account for 99 percent of the country’s total amount of enterprises. They also account for about 60 percent of Indonesia’s gross domestic product (GDP) and create employment to nearly 108 million Indonesians. This implies that these micro, small and medium sized companies are in fact the backbone of the Indonesian economy, and, if they grow more rapidly, then the whole country will grow more rapidly accordingly.
Realization Indonesia's KUR Program:
| Bank | Amount Disbursed (in IDR million) |
| Bank Rakyat Indonesia (BRI) | 50,493,499 |
| Bank Negara Indonesia (BNI) | 8,590,094 |
| Bank Mandiri | 7,924,913 |
| Regional Development Bank NTT | 90,641 |
| Regional Development Bank Bali | 52,096 |
| Bank Sinarmas | 22,271 |
Source: Kontan