Bank Indonesia tells banks to provide financing to SMEs

As much as 30% of banks’ loan books will need to be directed to small businesses
Bank Indonesia
Photo: Christopher Jeffery

Bank Indonesia (BI) has told banks to provide at least 20% of their total financing to small businesses by next June, as part of a new policy of channelling funding to the vulnerable sector.  

Banks will have to increase the financing to micro, small and medium enterprises (MSMEs) to 25% of their portfolios by June of 2023, and 30% by June of 2024, according to a notice published by BI on September 1.

The measure, dubbed the Macro-prudential Inclusive Financing Ratio (RPIM) ratio, recognises not just loans granted to MSMEs and their suppliers, but also indirect lending as well as purchases of securities backed by such lending.

BI introduced the concept of the RPIM ratio in place of the MSME loan disbursement ratio in May, expanding the scope of what the central bank called “inclusive financing”.

The reform to the MSME lending rule was an attempt to tackle the problem on both the demand and supply sides of the credit market, said senior deputy governor Destry Damayanti, CNBC Indonesia reported.

BI will continue to foster macro-prudential policies in an innovative and measurable manner, Damayanti added in the press conference in May.  

The latest RPIM rules will apply to commercial banks, Islamic banks and the Indonesian branches of banks domiciled overseas.

Banks are required to include data on their RPIM ratio along with the formula for calculation in the monthly reports submitted to BI. The central bank will publish the RPIM ratios on its website after the rule takes effect.

Banks that failed to fulfil the RPIM ratio will pay a fine up to 5 billion rupiah ($350,238). The fine is calculated as 0.1% of the value of the inclusive financing shortfall.

The overall ratio of MSME credit to total bank credit was 19.62% in July, according to data released by BI on August 25.

Outstanding MSME credit stood at 1,102 trillion rupiah at the end of July. The amount of MSME credit grew by 1.86% from a year earlier.

BI kept the benchmark interest rate at a record low 3.5% in the August meeting, with the governor hinting at a potential tightening next year. The central bank has cut the rate four times from 5% since last year.

Indonesia’s economy grew sharply by 7.1% annually in the second quarter of 2021. BI projects the full-year growth of the economy to lie between 3.5% to 4.3%.

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