1. INDONESIAN CREDIT GUARANTEE CORPORATION (CGCs): FUTURE AND CHALLENGES
By: Choirul Djamhari
Deputy Minister for Business Development and Restructuring
Ministry of Cooperatives and SMEs
Chairman of Board of Supervisors of Perum Jamkrino

2. Role of Indonesian SMEs
The Indonesian economic growth is 6.1% in 2010 with GDP of USD 714 billion.
Indonesian SMEs (Small & Medium Enterprises including cooperatives and micro enterprises):
Contributing 53,3% of GDP;
Providing 96,2 million job opportunities accounting for 97,3 of total labor force;
Serving as sources of income among grass root, thus contributing to poverty alleviation;
Driving innovation and developing new products in efficient ways
Nurturing mentality and spirit of entrepreneurship;
Fostering industries, as big companies need supports from SMEs;

3. Role of Indonesian SMEs (contd)
Generating export opportunities
Ensuring equitable and sustainable development as they are spread out all over the country.
SMEs have proven their resilience to survive within the ailing national economy.
As SMEs are the largest group in the economic structure and they represent the “people’s economy” of Indonesia, then SMEs should be given of the foremost priority in the national development.

4. SMEs’ Roles in Indonesia Economy
SMEs in Indonesia
SMEs’ Roles in Indonesia Economy
Definition
Net assets: more than IDR10 billion (USD1 million), or
Annual sales: more than IDR50 billion (USD 5 million)
Number of entity: ±4,372 unit or 0,01%
Share to :
- total employment : 2,96%
- GDP: 44,44%
- non oil export: 79.83%
- total Investment : 47,11%
Large Enterprise
Net assets: more than IDR500 million (USD50.000) up to IDR10 billion (USD1 million), or
Annual sales: more than IDR2,5 billion (USD ) up to IDR50 billion (USD5 million)
Number of entity: ± 39,657 unit or 0,08%
Share to :
- total employment: 3,48%
- GDP: 13,43%
- non oil export : 13,10%
- total Investment : 23,81%
Medium Enterprise
Net assets: more than IDR50 million (USD5.000) up to IDR500 million (USD50.000), or
Annual sales: more than IDR300 million (USD30.000) up to IDR2,5 billion (USD )
Number of entity: ± unit or 1,01%
Share to :
- total employment : 4,26%
- GDP: 10,08%
- non oil export : 4,85%
- total Investment : 20,69%
Small Enterprise
Number of entity : ± 50,697,659 unit or 98,90%
Share to :
- total employment : 89,30%
- GDP : 32,05%
- non oil export : 2,22%
- total Investment : 8,39%
Max net worth (excl. land & building) : IDR 50 million (USD 5,000)
Max. annual sales : IDR 300 million (USD 30,000)
Micro Enterprise
Data source: Statistics Indonesia, 2009 (data as of 2008)
MSME definition refers to MSME Act No. 20/2008

5. SMEs ACCESS TO FINANCING
Indonesian SMEs generally have some handicaps to access to financing for their business development.
A lack of formal credit access due to lack of collateral.
Currently, banking system is the most significant source of financing for SMEs, and other alternatives are saving & loan cooperatives, pawnshop, multi-finance companies, non-bank financial institutions. 5

6. SMEs FINANCIAL SERVICE PROVIDERS
Non Bank Institution
SMEs
51.25 million business unit
Commercial Bank
Rural Bank
Saving and Loan Cooperative
Pawnshop
Multi finance/ Leasing Company
Non Bank/Cooperatives/Microfinance Institution
Money Lender
CGC
Non Bank Informal Institution
Bank
Source: Central Bank of Indonesia

7. Indonesian Banking Sector Overview
Commercial Bank
Commercial Bank (Conv)
Sharia commercial Bank
Rural Bank
Rural Bank (conv)
Sharia Rural Bank
Number of Banks (as of Arpil 2011)
Tot Banks
Tot Offices
Commercial Banks (conventional)
121
14.140
Rural Banks (conventional)
1.680
3.996
Sharia Commercial Banks:
Sharia Commercial Banks
Sharia Business Unit of Comm Banks 11 23
1.276
315
Sharia Rural Banks
153
293
Grand Total
1.988
20.020
Source: Banking Statistic, Central Bank of Indonesia, April 2011

8. Indonesian Credit Guarantee Practices
Need of Credit Guarantee
To bridge the need of SMEs financing and the banks’/creditors’ requirement of credit lending.
Credit Guarantee for SMEs is a key to greater access to financing.
Given to the feasible SMEs but not bankable in terms of collateral requirement. 8

9. FINANCING SCHEME & NEED of CG
Feasibility
Enterprise
Financing
Guaranteed by CGC
Large
Medium
Small
Micro
Feasible for Go Public √
Capital Market No
Feasible & Bankable
Bank
Lease financing
Venture Capital
Optional
Feasible but not Bankable
Rural Bank
Pawn Shop
Micro finance Inst
Guarantee
Not feasible & not bankable
Micro Finance Inst
Money Lender

10. CREDIT GUARANTEE SYSTEM IN INDONESIA
Legal Background:
Presidential Decree No. 2/2008 of Guarantee Institutions
MOF Regulation No. 222/2008 of Credit Guarantee Company and Credit Re-guarantee Company
As legal background, the grand design of credit guarantee system in Indonesia consists of:
National and Regional Credit Guarantee Companies
Credit Re-guarantee Company
Government support as:
Regulator: Capital Market Supervisory Body and Financial Institutions
Shareholder for National Credit Guarantee Company
Local government as the shareholder of Regional Credit Guarantee Companies

11. CREDIT GUARANTEE SYSTEM IN INDONESIA
At the moment, there are 4 CGCs in Indonesia namely:
Perum Jamkrindo
PT Penjamin Kredit Pengusaha Indonesia/PKPI (private CGC)
Jamkrida Jatim
Jamkrida Bali Mandara.
The government support is given to the establishment of regional credit guarantee as well as the supervision of the existing CGCs.

12. Current Guarantee Issues: Government Policy to Enhance SMEs loan
Banking/FIs Sector
- Reducing Risk Weighted Assets on credit for SMEs for credit that guaranteed by the state owned/accredited CGCs.
- Partnering with CGCs to increase SMEs loan lending.
Government
KUR Guarantee Program & other Govt Loan Program
- Loan for Food Securty and Energy
- Loan for Cattle Breeding.
Improving Regulation for CGCs
Playing such an important role to the economy, however, the Indonesian SMEs are facing some problems.
In general, SMEs need capital/fund to expanding and renewing the business activities.
SMEs often find it hard to get financing from banks/financial institutions.
Some reasons that SMEs could not access in financing: refusal of credit proposal, high interest rate, reluctant, lack of collateral, they don’t know the bank procedure, and they perceived that bank has complicated procedure.

13. Support to CGCs through Additional Government Shares
Target of Commercial Bank
SMEs clasification
Feasible & Bankable
Target of SMEs
Credit Guarantee
Increasing the
Guarantee Capacity
Feasible but not
Bankable
Additional
Government Shares
Not Feasible,
Not Bankable
Target of Government
Program
Feasible and not Bankable
>
Guarantee
Capacity

14. KUR GUARANTEE PROGRAM
KUR Program supported by Indonesian CGCs (Jamkrindo and Askrindo), in which the government induced Additional Government Shares (AGS), totally IDR 3.75 Trillion since 2007.
KUR Program targets 10x of Gearing Ratio, at least 10 times of the AGS (IDR 37.5 Trillion) to be lent as KUR Loan to the SMEs.
The guarantee for KUR is provided in “Conditional Automatic Cover” mechanism, the evaluation of the credit fully conducted by the banks.
KUR Program has been monitored by the Policy Board (interdepartmental committee).

15. Improving Regulation for CGCs
To support the growth of CGC industry, the Government through Capital Market Supervisory Body and Financial Institutions is improving the regulation for CGC: No. 222/2008 of Credit Guarantee Company and Credit Re- guarantee Company.
Points of Improvements:
Initial capital for CGCs establishment;
Reserved capital management of CGCs;
Investment management of CGCs;
Financial Ratios (liquidity, claim and gearing ratio, etc);
Credit Guarantee Products & Services;
Credit Guarantee Agency;
Etc.

16. CHALLENGES OF THE INDONESIAN CGCs
Challenges include :
1. CGCs financially sustainable
Generally, credit guarantee perceived as an unprofitable business and take insurance business market.
CGCs should find appropriate model of guarantee business to meet the expectation of the stakeholders (Govt, shareholders, SMEs, banks/FIs). 16

17. CHALLENGES OF THE INDONESIAN CGCs
ii) Credit Guarantee Culture
SMEs’ mindset of subsidized loan and rates if CGC plays the role and their moral hazard.
Financial institutions’ moral hazard if loans are guaranteed.
High interest rate and collateral requirement even though risk is mitigated by guarantee
Guarantee fees will result in higher borrowing cost for SMEs. 17

18. CHALLENGES OF THE INDONESIAN CGCs
iii) CGCs capacity and competency
Increasing capacity and capability to provide the initial
CGCs capital for establishment.
Finding appropriate business model for CGCs.
Increasing human resources competency
to provide excellent services and products improvement.
Increasing capacity in managing CGC’s financial and
investments. 18

19. Proper CGCs Business Model SUSTAINABLE & GROWING INDONESIAN CGCs
KEY SUCCESS FACTORS
Improvement
of CGCs’ Products &
Services
Government Support
Proper CGCs Business Model
Implicit support from shareholders & Government to facilitate growth and sustainability of Indonesian CGCs.
Improvement of CGC Regulation.
Appropriate guarantee business model that meets the needs of Shareholders, Government, Bank/FIs as well as SMEs.
Adequate CGCs’ capital and sound financial management.
Strategic business synergies with other corporations/ insurance.
Balance between financial sustainability and SMEs empowerment outreach. TO
SUSTAINABLE & GROWING INDONESIAN CGCs
The key Success Factors, in our opinion, may be categorised into 3:
The right suited guarantee model that meets the needs of the shareholders, the Government and SMEs.
The ability to raise funds from the capital market is another area of importance if the organisation does not want to depend on Government’s funds.
With regards the pricing of products and services, there should be a balance between FS and SO and the support from the Government to undertake developmental cost is essential.
And finally, we acknowledge that achieving sustainable growth does have its share of challenges but it is NOT entirely impossible. 19

20. Thank You 20