Academic journal article Journal of Southeast Asian Economies

Indonesia's Guaranteed Microfinance Programme (KUR): Lessons from the First Stage of Implementation

Academic journal article Journal of Southeast Asian Economies

Indonesia's Guaranteed Microfinance Programme (KUR): Lessons from the First Stage of Implementation

Article excerpt

This paper analyses the first stage of the Kredit Usaha Rakyat (KUR) programme, the guaranteed microcredit programme for supporting the development of SMEs in Indonesia. KUR is a partial credit guarantee programme that helps to fulfil the collateral requirement hindering SMEs from accessing credit. By gaining access to credit, SMEs are expected to develop while also creating employment and generating income for the poor and near poor. Based on KUR's loan disbursement, its number of participating banks, and its number of borrowers, this paper shows that the implementation of the programme attracted millions of SMEs. This paper then highlights the ways in which KUR has or has not addressed market failures in the credit market for SMEs. This paper also shows that KUR's role in accelerating poverty reduction is still questionable as there are many poor households unable to access the programme. Hence, the main policy challenges are: first, improving the design of KUR to reduce information asymmetry; second, ensuring that KUR meets its anti-poverty objectives by reaching the right sectors and the right regions; and third, strengthening the KUR Policy Committee's oversight and ability to coordinate across key stakeholders.

Keywords: KUR, credit guarantee, loan access, SMEs, poverty alleviation, Indonesia

1. Introduction

Small and medium enterprises (SMEs) are an important part of the Indonesian economy. In 2013, they accounted for over 99 per cent of all enterprises, 97 per cent of employment, 58 per cent of GDP, and 16 per cent of Indonesian exports (Ministry of Cooperatives and SMEs 2015). SMEs play a vital role in the lives of the poor and near poor by providing job opportunities, sources of income, and also goods and services to meet their basic needs (Firdausy 2005, p. 261; P2E LIPI 2014, p. 33). Using economic and social indicators, around 67 per cent of employees in SMEs can be categorized as poor or near poor (P2E LIPI 2014, p. 21).

Despite occupying an important role, SMEs have not lived up to their full potential to contribute to the Indonesian economy. This can be seen from at least three indicators: (i) the number of SMEs formally registered as a start-up is much lower in Indonesia than those in both its ASEAN neighbours and global competitors; (1) (ii) in comparison with its ASEAN neighbours, there are significantly fewer medium and large enterprises as a percentage of total enterprises in Indonesia, suggesting that the country's micro and small enterprises are not growing or developing to become medium and large enterprises (World Bank 2015); (iii) the productivity gap between SMEs and their larger counterparts have widened over the last ten years (Adam 2009a). This suggests that SMEs have failed to maintain their competitive position in the market. In turn, this will reduce their capability to contribute to GDP, create employment, generate income and support exports.

Empirical studies point to four main obstacles for SMEs to improve their productivity and competitiveness, namely: capital constraints; narrow markets; limited technology; and informational restraints (Yamamoto 2001; Adam 2009b; Bhasin and Venkataramany 2010). One important policy response taken by the government of Indonesia to assist SMEs to deal with these obstacles is the introduction of Inpres (Presidential Instruction) No. 6/2007 on the Acceleration of the Development of the Real Sector and Empowerment of SMEs to increase their competitiveness. One of the most significant aspects of the Inpres is the implementation of the KUR (Kredit Usaha Rakyat) programme--the microcredit programme for SMEs--a partial government-guaranteed system of microloans. To take stock, this paper analyses the KUR programme's first stage of implementation which ran from 2007 to 2014, in order to provide lessons for the second stage onwards. (2)

The main objective of the KUR programme is to assist SMEs in gaining increased access to capital through financial institutions or formal banks. …

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