MICROCAPITAL.ORG STORY: Indonesian Government And Central Bank Plans To Cut Interest Rates For Microfinance Loans

In a report by Mr Mustaqim Adamrah in the Jakarta Post entitled ‘Govt, Bank Indonesia seek lower rates for micro loans’ [1], it was stated that the Indonesian government and the central bank of Indonesia, Bank Indonesia [2], will work together to bring down interest rates charged by banks to small businesses to around 13 percent under its microcredit program or ‘KUR’. This move was seen as necessary to help Indonesia’s micro, small and medium enterprises. The article notes that Bank Indonesia recently cut its key base interest rate to 6.5 percent last December. It is not known whether the decision to reduce interest rates under the KUR program is related to this development. The details set out in the Jakarta Post article have yet to be confirmed by other public reports or sources at this stage.

Current interest rates under the KUR program are still above 16 percent, according to Mr Edy Putra Irawady, deputy to the Coordinating Minister for the Economy on Trade and Industry [3]. Mr Irawady hopes to reduce KUR rates to the average level of commercial lending rates at around 13 percent. He added that the government would consider ‘real sector conditions’ in determining appropriate KUR rates in the future. At the moment, commercial lending rates fluctuate dynamically, while KUR rates tend to remain fairly flat. He stated that consideration would be taken of the overhead costs of banks engaged in microfinance and was aware that those banks ‘need profit margins as well’. Mr Adamrah reported that the banks were open to the possibility of lowering their KUR rates to around 12 to 14 percent. At the moment, there is no information in the public domain in English that provides further details on the scale and volume of funds under the KUR program. It is also unclear whether the interest rates quoted in the Jakarta Post are on an annual basis and / or whether they are applicable to an amortising loan or a declining balance.

In any event, the Indonesia Chamber of Commerce and Industry (KADIN) [4] deputy chairman on micro, small and medium enterprises, Mr Sandiaga S. Uno, welcomed the statement by Bank Indonesia and the government to reduce interest rates for the KUR program. Mr Uno was quoted as stating that the disbursement of KUR loans under the microcredit program has been slow, amounting to only Rupiah 1.9 trillion (approximately USD 119 million) in the first six months of this year, partly due to the high KUR interest rates charged. This year’s state budget allocation for KUR loans is set at Rupiah 20 trillion (approximately USD 2 billion). The government disbursed around Rupiah 12.5 trillion (approximately USD 1.2 billion) of KUR loans last year, out of Rupiah 14 trillion (approximately USD 1.4 billion) allocated in the 2008 state budget. Microfinance under the KUR program is channeled by six banks, namely Bank Negara Indonesia [5], Bank Mandiri [6], Bank Rakyat Indonesia [7], Bank Pembangunan Daerah [8], Bank Syariah Mandiri [9] and Bank Bukopin [10].

Related Microcapital.Org stories on the microfinance sector in Indonesia have been set out in the Bibliography section below.

By Chinq Yee Chong, Research Assistant

Bibliography

[1] Jakarta Post article entitled ‘Govt, Bank Indonesia seek lower rates for micro loans’: http://www.thejakartapost.com/news/2009/08/19/govt-bi-seek-lower-rates-micro-loans.html

[2] Bank Indonesia: www.bi.go.id/

[3] Ministry for the Economy on Trade and Industry: www.depperin.go.id/Eng2006/

[4] Indonesia Chamber of Commerce and Industry (KADIN): www.kadin-indonesia.or.id/en/

[5] Bank Negara Indonesia: www.bni.co.id/

[6] Bank Mandiri: www.bankmandiri.co.id/english/index.aspx

[7] Bank Rakyat Indonesia: www.bri.co.id/

[8] Bank Pembangunan Daerah: www.asbanda.com/

[9] Bank Syariah Mandiri: www.syariahmandiri.co.id/