How can the banking sector support MSMEs?
SUPRAJARTO: Around 70% of 56m MSMEs still lack funding, a gap that needs to be bridged in order to support these companies, which represent a huge part of the country’s economy. Most of the MSMEs are unbankable, a challenge that must be solved between the banking sector and the government. Our aim is to keep increasing the growth of the MSME segment in our portfolio. Our current portion of MSME lending is 75%, around Rp490trn ($36.9bn), and we expect to maintain our focus on channelling loans to MSMEs, increasing the proportion to 80% by 2022. We will focus on loans for agriculture, trade and domestic businesses.
Microfinance loans currently cover around 40% of total MSMEs, and this will keep increasing steadily in the near future, as it has huge potential in the country. In remote areas of Indonesia it is clear that credit application is still low, and it can be enhanced and multiplied, especially to boost sectors that are productive.
Another way of supporting small businesses is to continue with the disbursement of loans through the Credit for Business Programme. The government is aiming to disburse Rp110trn ($8.3bn) in 2017, with BRI distributing around Rp71trn ($5.4bn) of this total, in order to further promote MSMEs and their access to credit, which will in turn accelerate growth and help reduce poverty and unemployment. BRI will remain focused on micro-loan expansion, for example with the government-subsidised Kredit Usaha Rakyat loan, which is intended to serve the unbanked segment. Eligible borrowers pay a lower interest rate than on regular commercial loans, and it uses credit default insurance. Since its launch in August 2015 BRI has disbursed over Rp132trn ($9.9bn) through the scheme.
What role do state-owned banks play in the country’s infrastructure development?
SUPRAJARTO: It is important for state-owned banks to contribute to these projects, as improving infrastructure will allow Indonesia to take advantage of its full potential. However, we have to choose carefully which projects to get involved with, thinking about the impact they will have on the economic growth of MSMEs and the microfinance segment, and developing specific geographical areas. For example, toll road developments and power generation projects have an immediate multiplying effect on regional economic activity. The Jakarta Light Rail Transit, with an investment of Rp27trn ($2bn), will be 33% financed by the national budget, with the other 67% financed by banks, most of which are state-owned. This shows the importance of the support of the banking sector, particularly state-owned banks, in infrastructure development.
Could mobile and branchless banking help increase the number of micro-loans in remote areas?
SUPRAJARTO: Indonesia has a unique geography, with more than 17,000 islands and over 250m people, most of them on Java. For those on the main island connectivity is not that big an issue, for many others it is a big challenge, but it can be overcome by branchless banking. BRI is extending its network to remote areas through both conventional and innovative outlets. In the non-conventional channel we are expanding our services via branchless banking. Many of our units can’t reach remote areas, so this is an efficient option, especially with the help of a satellite we recently acquired.
Mobile and digital banking are part of the solution for reaching the unbanked population and increasing penetration. I have high expectations for the growth of micro-loans in the near future. There are productive sectors that we still haven’t exploited, and many rural and remote areas are still untapped. We see microf-inancing and support to small businesses as a major growth driver for financial inclusion in Indonesia. Better distribution of micro-loans can only contribute to economic growth and public welfare, especially in areas that are still poorly connected to the rest of the country.
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