MICROCAPITAL BRIEF: Government of Indonesia Signs Memorandum of Understanding with Indonesian Microfinance Institutions and Small and Medium-Sized Enterprises to Update Provisions for Microfinance, Accelerate Disbursement of $1.45b in Government-Sponsored Microloans

The government of Indonesia will update provisions for the microfinance sector, according to Coordinating Economic Minister Hatta Rajasa, in order to accelerate admittedly slow disbursement of IDR 13.1 trillion (the equivalent of USD 1.45 billion) in government-sponsored microloans, especially to small and medium-sized enterprises (SMEs). The Indonesian government hopes such an accelerated disbursement will enable financial access for SMEs, and thus create employment opportunities for low-income individuals and spur economic growth. The government recently signed a memorandum of understanding on these provisions with several key players, including SMEs and “credit insurance companies Jaminan Kredit Indonesia (Jamkrindo) and Asuransi Kredit Indonesia (Askrindo); and microcredit providers BRI, Bank Mandiri, BNI, Bank Tabungan Negara, Bank Bukopin, and Bank Syariah Mandiri” [1].

The Indonesian government has taken several actions to “improve” provisions for disbursing government-sponsored microloans, including increasing the ceiling of approved non-collateralized microcredit from IDR 5 million (the equivalent of USD 558) to IDR 20 million (the equivalent of USD 2,232); and providing 80-percent guarantees for microcredit disbursed to Indonesian migrant workers. The government is also providing a 13-year loan for cash-crop plantations and increasing its 70-percent guarantee on upstream industrial sectors, including agriculture and fisheries, to 80 percent [1]. According to Mr Rajasa, the Ministry of Economics defines a small business as having capital of less than IDR 50 million (the equivalent of USD 5,580) and an annual turnover of less than IDR 300 million (the equivalent of USD 33,500) [1].

By Lindsey Shaughnessy, Research Associate

Sources and Additional Resources:

[1] The Jakarta Post, “Govt improvising provision of microcredit loans to SMEs”, September 17, 2010. http://www.thejakartapost.com/news/2010/09/17/govt-improving-provision-microcredit-loans-smes.html

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