Wednesday, 3 July 2013

ELEVATING PEOPLE’S BUSINESS CREDIT TO THE UPSTREAM SECTOR



The development of People’s Business Credit (KUR) in the past few years was worthy of observation. Not just in terms of KUR value to be pipelined, but also two other aspects which were not less im­portant, i.e. stipulation of KUR interest and KUR al­location.

This year the Government sets target of KUR pipelining at Rp 36 trillion, increasing by 5.88% against realization of 2012 at Rp 34 trillion. The com­position being, BRI Rp 19 trillion, BNI Rp 4.7 trillion, Bank Mandiri Rp 3.6 trillion, Bank Bukopin Rp 450 bil­lion, Bank Syariah Mandiri Rp 1.5 trillion, BNI Syariah Rp 200 billion; Bank Tabungen Negera (BTN) Rp 1.2 trillion and 26 Regional Development Banks (BPD) Rp 5.25 trillion.

About the now SKIM interest, the banking industry did not feel disadvantaged by the Govern­ment in applying flat interest for KUR. Some bankers stated that, the stipulation of bank interest had been discussed in the working team and was still advanta­geous to banks.

The Government was applying new standard of bank interest calculation for KUR this year, i.e. flat interest to be imposed monthly. The size was 0.95% for micro business and 0.57% for retailers. On annual basis the KUR interest was only 11.4% and retail KUR 6.84%. This year the Government set effective interest for KUR at 20% - 21% per annum and retail credit effective at 12% - 13%.

Although seemingly low, interest calculation on flat basis had its plus and minus points. By applying flat interest, the. bank set fixed installment throughout the payment period. Interest calculation did not refer to the rest of debt unpaid. The scheme was very much like credit for automotive. On the con­trary, by applying effective scheme, installment and payment referred to remaining debt.

If directly multiplied, it was apparent that flat-based interest was lower than effective credit interest. But in reality afield the profit interest was not too far different. The scheme could over bank's cost and margin, the point was there was surely no bank who were willing to bear loss it the skim was not profitable to bank.

In stipulating installment, the bank would cal­culate all limit of customer’s credit multiplied by interest. Meanwhile in the effective system, interest was based on credit being liquidated not credit Limit. An example was a customer taking credit of Rp 300 million. In the flat system, if the liquidated credit was only Rp 200 million, the amount to be interest-imposed was only the amount used. The flat inter­est system was suitable for customers having stable need while the effective system was for customers whose need to fund was fluctuative.

According to barkers the flat interest system was suitable for customers who needed short term KUR; while long term credit was best to be based on effective interest. The policy was Only a matter of payment scheme.

Not less important was that KUR provider banks must be keen in allocating KUR credit to the upstream sector. As known, so far credit extension was more on the downstream sector, especially trading. Nearly 60 percent of KUR allocation was for the trad­ing sector. This was not prohibited, but if this were let to continue, without being realized KUR allocation for the trading sector would continue to soar high. This was indeed not healthy.

According to the spirit at people's economic financing, supposedly KUR allocation was driven to the upstream sector, especially agriculture. Only trou­ble was, this sector absorbed lower KUR.

It was understandable that the banking sector preferred to channel out KUR to the trading sector; while the risk was easily anticipated, the profit-and loss calculation was also easy to exercise. Meanwhile to finance the financing sector, while the risk was higher the profit and loss calculation was also more difficult.

Therefore the Government through the Coor­dinating Minister of Economy, the Coordinating Minister of People's Welfare and Minister of Cooperatives must persuade banks to channel out KUR Credit to the upstream sector. The Government was advised to monitor the execution of KUR credit by each respec­tive banks in terms of volume, number of debtors or the sector being financed. It was also important to prevent double gain: one KUR creditor receiv­ing KUR credit from one bank receiving again another KUR from another bank.

There were still many farmers, growers, fisherman and embankment operators who needed financial support from banks as they were having difficulty in developing their business. The KUR program was rated as suitable and appropriate to ful­fill their need. About the high risk, banks had no reason to make excuses because the Government had appointed the KUR Deposit Insurance, i.e. PT Jaminan Kredit Indonesia and PT Asuransi Kredit In­donesia (Askrindo).

The two credit insurance companies already had Government's mandate to guarantee in case of non performing loan to compensate the loss borne by banks. Thereby their should be no excuses for banks to refuse financing the upstream sector.

Even if the trading sector absorbed more KUR, it was still necessary to make sure that the commodities being traded were agriculture-based. Hence there was connectivity between the upstream sector and the downstream sector.

Indonesia being an agricultural and marina state, it seemed very appropriate if KUR credit were more upstream-oriented rather than downstream-ori­ented. The emergence of young entrepreneurs in Indonesia who craved for bank's financial support could be the target of KUR-provider banks. The KUR provid­er banks must have their concern and commitment to build the agree-based upstream sector in the broadest sense of the word as their finance resources.

Relocation of the KUR to the upstream sector created great impact. Creation of employment oppor­tunities could be realized. Equal distribution of devel­opment could be more feasible as financial institu­tions were more accessible. People's drive to migrate form rural areas to urban centers could be minimized as the regions had economic potentials of their own.

Regional economy would be mare vigorous as well so regional and national GDP would increase, which boiled down to prosperity of the local commu­nities. Again it was not for the Government to take pride in the successful pipelining of KUR, the Govern­ment should be proud if they could successfully drive KUR to the upstream sector.


Business News - February 13,2013



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