President Yudhoyono recently announced his intention to expand the reach of the Kredit Usaha Rakyat (KUR) program. The expansion will increase disbursement of micro-loans by as much as IDR 100 trillion (USD 10 billion) over the next five years. The goal of the KUR program is to encourage commercial banks to expand their services into the microfinance sector by providing government guarantees. Under the KUR program, the government provides funds to guarantee loans disbursed by certain banks to microfinance sector, thereby, sharing in the loss should the loans turn bad. Critics point out that under the KUR program, micro-loans will be subject to the rigors of commercial regulation, which includes collateral requirements from borrowers. Critics argue that by subjecting micro-borrowers to these commercial standards, the KUR program effectively precludes millions of rural farmers from obtaining micro-loans due to their lack of eligible collateral.
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