Jakarta | Jamkrindo
It must be acknowledged that the majority of micro, small, and medium enterprises and cooperatives (UMKMK) still face difficulties in accessing capital. Although they have feasible businesses, many UMKMK players are considered unbankable by banks. Generally, they struggle to meet credit requirements, such as collateral factors.
According to data from the Ministry of Cooperatives and SMEs in 2014, the number of UMKMK players in the first cluster—productive businesses that are not yet feasible and unbankable—reached 35.49 million business units. Meanwhile, the second cluster—productive businesses that are feasible but unbankable—accounted for 15.21 million business units. The unbankable category assigned by banks means that many UMKMK entrepreneurs have not been approached by banks due to being considered high-risk in terms of capital repayment.
According to Diding S. Anwar, Chairman of the Indonesian Association of Guarantee Companies (Asippindo), guarantee institutions are a solution for expanding credit access for UMKMK players, whose numbers are vast but are perceived as risky by banks.
"Guarantees are extremely helpful for those who have economically feasible and prospective businesses but are still unbankable or face obstacles in meeting collateral requirements," said Diding, who also serves as President Director of Perum Jamkrindo, at a seminar titled "Credit Guarantee for Great Indonesian UMKMK," organized by Asippindo and Infobank Magazine in Jakarta on May 12, 2015.
Asippindo seeks to broaden credit access for UMKMK and cooperatives by offering guarantees to debtors or third parties, whether material (mortgages, security rights, fiduciary, pawn) or non-material (personal/corporate guarantees), to ensure credit repayment if the debtor defaults. For banks, this guarantee role is crucial in supporting credit disbursement with gradual allocation, aiming for a minimum of 20% by 2018, as stipulated by the regulator.
In the same seminar, Toto Pranoto, Managing Director of the Management Institute of the Faculty of Economics at UI (LMFEUI), stated that to date, the total UMKMK credit guaranteed by guarantee companies is only about 5%. Yet, UMKMK's role in Indonesia's economy is relatively significant, contributing 59.08% to the GDP.
On the other hand, financial access for UMKMK to banking institutions remains challenging. Currently, credit for UMKMK accounts for about 18% of total credit. "This should represent an opportunity for guarantee companies to develop transnational guarantee institution models," said Toto.
The Importance of Guarantee Law
To help UMKMK entrepreneurs move up to a higher level, Bank Indonesia (BI) implemented regulations requiring banks to gradually allocate a minimum of 20% of their credit to UMKMK by 2018. In 2015, BI required banks to channel at least 5% of their credit to UMKMK, increasing to 10% in 2016, 15% in 2017, and reaching 20% by 2018.
The Financial Services Authority (OJK) noted that the demand for credit from UMKMK entrepreneurs continues to grow, yet banks have not been able to accommodate it entirely. OJK’s Chairman of the Board of Commissioners, Muliaman D. Hadad, even estimated that only around 25% of total UMKMK credit demand has been met by banks.
Unfortunately, there is still no legal framework governing guarantee businesses. Guarantee companies require legal reinforcement to act as a bridge for UMKMK to gain access to banking services. Although the matter has entered the 2015 national legislative program (Prolegnas) priority list, it remains a draft bill (RUU) and has not yet been passed into law (UU).
According to Diding S. Anwar, Indonesia urgently needs a law that can serve as a legal umbrella for small and medium enterprises. With such a law, these entrepreneurs would have the opportunity to access funding sources, enabling them to grow and expand further.
"A law is essential, considering the guarantee sector is needed by UMKMK players to ensure better access and reachability of government programs that favor the people," Diding stated after a meeting with the Indonesian House of Representatives (DPR RI) in April.
On that occasion, Ade Komarudin emphasized that the Guarantee Law is intended to ensure that the guarantee industry has a level playing field compared to other industries. Furthermore, the guarantee industry would be better positioned to increase financial inclusivity, given that Indonesia’s financial inclusivity level currently stands at only 20%.
"Guarantee activities have great potential to enhance financial inclusivity, literacy, and education. Through guarantee activities, the community will be better assisted in improving financial access, credit, and relationships with financial institutions," said Ade, Chairman of the Golkar Party faction in the DPR RI.
With the enactment of the Guarantee Law, Ade continued, there would be clearer definitions regarding the functions and contributions of guarantee companies, preventing overlaps with insurance companies that misuse the term "guarantee" in their business practices.
"The draft law also outlines the authority of guarantee companies, stipulating that guarantees can only be provided by guarantee companies," he said. Ade expressed confidence that with the Guarantee Law in place, UMKMK players would be better supported in owning productive and feasible businesses, enabling them to progress to become large and reliable entrepreneurs. This would allow them to participate actively, rather than merely being spectators, in the upcoming ASEAN Economic Community (MEA). (Team)