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Jakarta Post

Govt to provide interest subsidy for small borrowers as COVID-19 hits hard

  • Ghina Ghaliya and Marchio Irfan Gorbiano

    The Jakarta Post

Jakarta   /   Wed, April 22, 2020   /   09:06 pm
Govt to provide interest subsidy for small borrowers as COVID-19 hits hard Fatimah, 62, the owner of a small kiosk in flood-stricken Kayu Putih subdistrict in East Jakarta, waits for customers inside her kiosk on March 4. (JP/Dzulfiqar Fathur Rahman)

The government has announced that it is to provide interest subsidies for small borrowers in banks and finance companies to help small businesses cope with the effects of the COVID-19 pandemic.

Finance Minister Sri Mulyani Indrawati said the government, the Financial Services Authority (OJK) and Bank Indonesia (BI) were currently finalizing the regulations as a response to President Joko “Jokowi” Widodo’s call for financial assistance for small businesses to survive the pandemic.

The subsidy will be designed for individuals as well as micro, small and medium enterprises (MSMEs) with the financing capped at Rp 500 million (US$32,269), which is the credit limit in the government’s microcredit program (KUR).

“We are working on regulations for small borrowers in banks, whose loan sizes are almost the same as entities in the KUR program. They’re not KUR [entities], but they borrow money from finance companies,” Sri Mulyani said on Wednesday.

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She said that businesses that borrow from finance companies were in a similar situation to KUR entities as they carried the “same burden”.

“[Those people], for example, have borrowed money to buy motorcycles to run a business, such as ojek [motorcycle taxi] drivers. They will be treated according to the same policy that is applied to [KUR borrowers],” added Sri Mulyani.

Similar to KUR, the small borrowers are also eligible for relief in the form of delays in interest payments for six months. The full interest subsidy is to be applied in the first three months of the relief program, while the half subsidy is to be applied in the latter three months.

The policy, she asserted, would involve banks and financial institutions with a good track record.

“The government will avoid moral hazard. The track record of the financial institutions is very important. We’re making policies to help the people but we want to remain prudent," added the finance minister.

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Cooperatives and Small and Medium Enterprises Ministry acting finance deputy Hanung Harimba Rachman estimated that 70 percent of the total existing KUR entities would be able to join a business restructuring program with the government’s interest subsidy.

However, those entities are required to have loan-quality classifications described as Collectability One (pass) and Collectability Two (special mention) and to have no major cash flow problems before the pandemic.

"We have submitted an additional budget to the Finance Ministry for this program,” Hanung said in a virtual meeting with House of Representatives Commission VI overseeing SMEs on Wednesday.