Indonesia eyeing more Islamic microfinancing for MSMEs, cooperatives, under national scheme

Photo: BANDUNG, INDONESIA - JANUARY 15, 2016: Unidentified man cooking in his small food stall at night in Bandung, Indonesia. The government's Kredit Usaha Rakyat (KUR) scheme is designed to help micro or small businesses like this access financing. Khairul Effendi / Shutterstock.com

The Indonesian government hopes Shariah-compliant microfinancing under its Kredit Usaha Rakyat (KUR) scheme will increase this year as more Islamic financial institutions join the programme, Iskandar Simorangkir, deputy minister for macroeconomic and financial coordination told Salaam Gateway.

Last year, Bank Rakyat Indonesia Syariah (BRI Syariah), the Islamic arm of majority state-owned Bank BRI, disbursed 500 billion Indonesian rupiah ($37.5 million) in Islamic microfinancing.

However, this amount was not accounted for separately in Bank BRI’s overall accounting, said Simorangkir.  

“We want BRI to separate their Islamic financing from conventional loans,” he said.

The government wants participating KUR banks to better track the conventional-Islamic split as the country tries to meet its goal of increasing Islamic banking market share to at least 15 percent by 2023 from just over 5 percent now.

According to Simorangkir, several other Islamic financial institutions, including regional development bank Nusa Tenggara Barat (BPD NTB), and Islamic Savings and Credit Cooperative (Baitul Maal wat Tamwil, BMT) are willing to participate in the government’s KUR scheme from this year.

BRI Syariah’s microfinancing was equivalent to 0.5 percent of the total 94.4 trillion rupiah ($7 billion) conventional and Islamic microloans last year, according to Simorangkir.

KUR 2017

The government has allocated 9 trillion rupiah ($675 million) this year from the state budget for its KUR scheme, which it hopes will help support loan and financing growth for micro-, small- and medium-sized enterprises as well as cooperatives.

This should allow the mainly state-owned distributor banks to cut the lending rate for KUR loans or financing to 9 percent compared with over 20 percent for non-subsidised microcredit.

The subsidy is intended as a stimulus measure to support growth in response to a broadly weaker macroeconomic environment.

The government is targeting KUR loans of 100 trillion rupiah ($7.5 billion) this year, up around 6 percent from last year’s disbursement of 94.4 trillion rupiah.

The growth in KUR loans and financing this year should make up around 20.6 percent of the banking sector's total loan increase, based on the central bank's estimate of 10 percent to 12 percent bank credit growth this year. Loan growth last year was 7.8 percent.

Established in 2008, the KUR is aimed at providing access to financing for unbankable entrepreneurs, MSMEs and cooperatives in Indonesia. The government provides a subsidy against banks' interest or profit rates plus an additional 1 percent for credit guarantees. Through KUR, working capital is provided to microfinance institutions by commercial banks.

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