TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
New KUR system creates higher costs for govt
The government should investigate whether the new format of the subsidized loan program, called the People’s Business Credit (KUR), is ineffective in improving access to finance and has raised costs rather than benefiting the country’s economy, a report by the World Bank suggests
Change Size
The government should investigate whether the new format of the subsidized loan program, called the People’s Business Credit (KUR), is ineffective in improving access to finance and has raised costs rather than benefiting the country’s economy, a report by the World Bank suggests.
In the March edition of its Indonesia Economic Quarterly, the World Bank highlights that micro, small and medium-sized enterprises (MSMEs) play an important role in Indonesia’s economic development and poverty reduction as there were almost 60 million of them across Indonesia in 2013, accounting for more than 99 percent of all firms.
However, it points out that the redesigning of the KUR has instead created a major intervention with significant fiscal costs as the program’s focus has changed from facilitating access to loans for first-time MSME borrowers through the provision of partial credit guarantees, to the provision of loans at subsidized interest rates to MSMEs, regardless of their previous access to finance.
The redesign has led to a 10-fold increase in the cost of the program to the government, in terms of both direct and indirect subsidies, which amount to roughly Rp 12.3 trillion (US$922.59 million) per year, the report says.
“While it is notable that the government has dedicated substantial resources to the MSME finance sector, there are many reasons to doubt that interest rate subsidies are the most appropriate and fiscally sustainable instruments for creating a conducive business environment for this market segment,” the World Bank wrote in the report.
MSMEs employed over 114 million people, equal to more than 97 percent of total employment in the private sector, and contributed to about 60 percent of the country’s GDP, the report shows.
The administration of former president Susilo Bambang Yudhoyono established the KUR program in 2007 to provide MSMEs with access to bank loans through the provision of subsidized, partial credit guarantees.
The program was reformed in late 2015 under the administration of President Joko “Jokowi” Widodo and the government now provides interest subsidies to participating banks, allowing them to lend to MSMEs at capped interest rates.
The KUR’s interest rate was significantly reduced from the previous 22 percent to 12 percent, and is currently at 9 percent, well below average commercial lending rates charged by banks for MSMEs, in a bid to lure more small business owners to apply for the credit.
The government allocated Rp 15.8 trillion in interest rate subsidies in the 2017 state budget, similar to the amount allocated in the previous year.
However, given the current fiscally constrained budget caused by weak revenues, the government’s interest rate subsidies come at the expense of spending on other priority sectors that are still underfunded, yet can have a greater impact on poverty and growth, such as infrastructure, health and social assistance, the World Bank says.
“We are convinced that with a more selective target market, costs may decline and they can be reallocated to other sectors with more benefits to the public,” World Bank country director for Indonesia Rodrigo Chaves said.
KUR realization amounted to Rp 94.4 trillion last year, just slightly below the targeted Rp 100 trillion, with more than half the figure disbursed in Java, according to data from the Cooperatives and Small and Medium Enterprises Ministry.
The total number of MSME recipients stood at 4 million. The number of recipients only amounted to 7 percent of the total 57 million MSMEs recorded by the Central Statistics Agency (BPS).
Meanwhile, Financial Services Authority (OJK) chairman Muliaman D. Hadad said the OJK and the government were currently assessing the KUR’s business model for productive sectors—such as manufacturing, agriculture and fisheries—outside the traditional sectors like trading and services that have dominated the program.
