In keeping with developments on a national level, Perbanas Institute has published an article highlighting the government’s plans to lower the interest rate on its micro-financing programme,Kredit Usaha Rakyat or KUR. Written by Perbanas lecturer Mr Edy Sukarno, the article explains the mechanism behind government intervention in lowering interest rates and their implications.
The government’s KUR programme is aimed at providing new loans for small and medium enterprises (SMEs) and cooperatives. Initially launched in 2007, the financing is capped at 500 million IDR with a government guarantee of 70-80% of the bank’s credit limit. Previously, interest rates for the KUR stood at 12%, with a further reduction in 2016 having lowered it to 9%. Mr Sukarno’s article demonstrates that the latest policy by the government is a way to spur flagging growth in Indonesia; however, with the country’s fragmented banking system, the government needs to remain cautious in lowering interest rates. This is because Mr Sukarno highlights that a KUR rate below two-digits is seen as unhealthy and not prudent. Furthermore, there is also a potential for fraud as many funds can be directed to rural banks under the pretense that it will help the informal sector in those areas.
The article demonstrates Perbanas Institute’s continued efforts to address Indonesia’s current economic climate. As the country faces slowing growth, the government has initiated a series of policies aimed at reviving the economy. Businesses in Indonesia are dominated by the presence of SMEs, which account for some 99.9% of the market (The Jakarta Post), yet contribute to just 57.8% of GDP compared to large enterprises which make up only 0.1% but contribute to 42.2% of GDP. By implementing policies to assist SMEs, Indonesia hopes to ensure that a greater proportion of its businesses are able to compete on a global scale.