Indonesia Issues Regulation on Working Capital Incentives for MSMEs

Written by: Ayman Falak Medina, ASEAN Briefing, Dezan Shira & Associates

Posted: 14th July 2020 09:42

On June 23, 2020, Indonesia’s Ministry of Finance issued implementing Regulation 71/PMK.08/2020 (Reg 71/2020), which appointed state-owned insurance providers Askrindo and Jamkrindo, to provide guarantees for banks providing working capital loans for micro, small, and medium-sized businesses (MSMEs).

This incentive is part of the government’s National Economic Recovery (NER) program through which more than US$45 billion has been allocated to mitigate the economic impact caused by the virus. Askrindo and Jamkrindo, under the management of state-owned investment management company, Bahana Pembinaan Usaha Indonesia, received some 6 trillion rupiah (US$408 million) to carry out this incentive.

The government hopes this will provide MSMEs with short-medium term cashflow relief, and in turn, will encourage the economy to move forward. The pandemic has discouraged the demand for loans in the country since business activities have been disrupted. Loan growth slowed to 5.7 percent year-on-year in April 2020 from 7.9 percent in March 2020.

To further boost channeling loans to MSMEs, the government injected 30 trillion rupiah (US$2 billion) to state-owned banks and has allocated 35 trillion rupiah(US$2.4 billion) interest subsidies.

What are the eligibility criteria for MSMEs to access these loans?

To be eligible for working capital loans, businesses will need to adhere to the following conditions:

What are the eligibility criteria for banks to participate?

Banks must also adhere to the following conditions to join the program:

Why has there been a delay in the disbursement of funds?

The Ministry of Finance has acknowledged that the stimulus spending has been low as administrative and operational issues delay the disbursement of much-needed funds.

Only 22 percent of the 123 trillion rupiah (US$8.5 billion) allocated for MSMEs has been paid out whereas the government has only spent 10 percent of the 120 trillion rupiah (US$8.3 billion) dedicated for tax incentives.

This has been attributed to a large number of MSMEs being in the informal sector and thus do not possess a tax and business identification number. Having a tax identification number is just one of the requirements needed for businesses to benefit from the stimulus packages.

Despite MSMEs contributing to some 60 percent of Indonesia’s GDP in 2019, only 2.5 percent of the 70 million MSMEs pay and report their taxes.

Indonesia’s informal economy employs between 60 percent of the labor force and are not registered under the existing legal framework. The large percentage of informal workers in the country was one reason why the government did not implement a full nationwide lockdown.

To encourage more businesses to transition into the formal sector, the government is pushing MSMEs into the digital sector. This year, the Ministry of Small and Medium Enterprises is aiming to have 10 million MSMEs go online and integrate their business with cashless payment solutions and enable them to apply for loans. Currently, only eight million MSMEs in the country have an online presence. 

This article was first published by ASEAN Briefing, which is produced by Dezan Shira & Associates.

The firm assists foreign investors throughout Asia from offices across the world, including in in ChinaHong KongVietnam, Singapore, India, and Russia. Readers may write for more support.

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