Vai trò của quỹ bảo lãnh tín dụng đối với các doanh nghiệp nhỏ và vừa ASEAN: Nghiên cứu trường hợp điển hình của Việt Nam và Indonesia

Nội dung text: Vai trò của quỹ bảo lãnh tín dụng đối với các doanh nghiệp nhỏ và vừa ASEAN: Nghiên cứu trường hợp điển hình của Việt Nam và Indonesia

1. THE IMPORTANCE OF CREDIT GUARANTEE SCHEME AS A FINANCING ALTERNATIVE FOR MICRO, SMALL AND MEDIEM ENTERPRISES IN ASEAN: CASE STUDIES OF INDONESIA AND VIETNAM VAI TRÒ CỦA QUỸ BẢO LÃNH TÍN DỤNG ĐỐI VỚI CÁC DOANH NGHIỆP NHỎ VÀ VỪA ASEAN: NGHIÊN CỨU TRƯỜNG HỢP ĐIỂN HÌNH CỦA VIỆT NAM VÀ INDONESIA Pham Van Hong, PhD Vietnam National University Abstract Micro, small and medium enterprises (MSMEs) are facing many difficulties, especially in financial aspect in their development process. In dealing with this particular constraint, credit guarantee schemes (CGSs) are considered by many as a financing alternative. This article is based on a study examining the implementation of the CGSs in Indonesia and Vietnam. It shows that critical factors for successful CGSs are including dissemination of the scheme to have a widely coverage of MSMEs, simple application procedure, incentives mechanism for channeling banks and guaranteed borrowers Keywords: Micro, Small and Medium Enterprises, Credit Guarantee Scheme, Financial Access. Tóm tắt Các doanh nghiệp nhỏ, vừa và siêu nhỏ (MSMEs) đang phải đối mặt với rất nhiều khó khăn trong quá trình phát triển, đặc biệt là khó khăn về mặt tài chính. Thành lập Quỹ bảo lãnh tín dụng (CGSs) là một giải pháp quan trọng có thể giúp các MSMEs khắc phục những khó khăn này. Bài viết nghiên cứu chia sẻ kinh nghiệm xây dựng và phát triển thành công Quỹ bảo lãnh tín dụng của Việt Nam và Indonesia, trong đó nổi lên những nhân tố cơ bản góp phần thành công trong quá trình thực hiện các CGSs bao gồm tuyên truyền và kêu gọi các MSMEs hiểu rõ về CGSs; đơn giản hóa các thủ tục bảo lãnh; khơi thông các cơ chế cho các ngân hàng tham gia Từ khóa: Doanh nghiệp siêu nhỏ, nhỏ và vừa; quỹ bảo lãnh tín dụng; tiếp cận tài chính. Introduction Micro, small and medium enterprises (MSMEs) are the backbone of the national economies in the countries in Southeast Asia (ASEAN). Hence, in Indonesia and some other ASEAN member states (AMSs), it was obviously evident that MSMEs were very important for resilient national economies during the 1998/98 Asian financial crisis and the 2008/09 global financial crisis. Historically, MSMEs have always been the main players in domestic economic activities in the region, as the enterprises made up more than 90.0 per cent of all enterprises, generate between 50 to 95 per cent of total employment, and contribute between 30 to 53 per cent of gross domestic products (GDP) and between 19 to 31per cent of export to the economies of member states (Win, 2012). The role and importance of 887
2. MSMEs, however, vary by member states, depending on many factors including current level of economic development; poverty; size of the economy; domestic market size, structure and development; economic and social structure; business climate; and government policies or regulations affecting directly or indirectly operations of existing firms or establishment of new firms. However, despite their recognized importance and government supports through various programs, the enterprises (especially micro and small enterprises/MSEs) in the region are often hampered by many constraints to growth in size and to become more viable/efficient enterprises. Although, main constraints may differ by member state, or, within a member state, between rural and urban areas, between sectors and subsectors, or between individual enterprises within a sector, there are some common constraints to all MSMEs in all member states. They are including the lack of access to source of financing; shortage of human resource with high skills; lack of access to advanced technologies and up-date and comprehensive information; difficulties in procuring raw materials and other required inputs, marketing and distribution; high transportation costs; problems caused by cumbersome and costly bureaucratic procedures, especially in getting the required licenses; and policies and regulations that generate market distortions. These are often said in the literature as external constraints to MSMEs growth. Based on, though limited, information from e.g. government reports, national surveys and case studies, Tambunan (2009a,b) managed to make a list of main constraints common to MSMEs in AMSs (with sigh √ in Table 1), although the degree of the importance of each of the constraints varies by country, depending on differences in many aspects such as the level of MSMEs development; the nature and the degree of economic development; public policies and facilities; and of course also the nature and the intensity of government interventions towards MSMEs. The constraints include various problems in the procurement of raw materials and other required inputs such as price instability, unsustained supply (stocks are often not available), and inferior quality; difficulties in markting such as high costs of marketing, unfair competitions and monopoly practices by large enterprises, cheaper prices of imported competitive items; lack of capital; high costs of energy, particularly high prices of electricity and fuel; lack of information especially in regard to market, technology, and price information; lack of modern technologies and human resource with high skills; lack of infrastructures, especially for MSMEs located in rural areas; tax system and tariffs which are often in favour of large and modern businesses; inflation either originated from the demand-side (‘demand-pull’) or the supply- side (‘cost-push’); market distortions caused by regulations, restrictions, legal framework, and labour issues like minimum wage regulations, social securities, and other restrictive labour market regulations. 888
3. Table 1: Most Important Constraints Facing MSMEs in AMSs Main Constraints Country Tax Capital Energy Inflation Marketing Information Infrastructure Raw materials Labour issues Market distortions Technology & skill Indonesia √ √ √ √ √ Philippines √ √ √ Viet Nam √ √ √ √ Cambodia √ √ √ √ Lao PDR √ √ √ √ Thailand √ √ √ √ √ Malaysia √ √ √ √ Brunei √ √ √ Sources: Tambunan (2009a, b). It is obvious from the table that lack of capital by many MSMEs (if not all) in all AMS, and one reason for that is lack of access to finance, particularly borrowing from banks. In Indonesia, for instance, although the government has initiated many regulations to give more access to bank credit for MSMEs, only a small fraction of total MSMEs in the country ever borrowed money from banks and other non-banks formal financial institutions (Tambunan, 2015). It is often said that the problem is from both sides, i.e. MSMEs and banks. From the MSMEs-side, they lack of collateral, information about financial possibilities from formal sources (e.g. banks), and well-documented files about their daily business activities, and many often, also because their businesses are not promising. From the banks-side, even if they are interested in making loans to MSMEs, they find it difficult to significantly expand their lending while meeting lending criteria (OECD, 2015). It is generally agreed that adequate access to finance is crucial if MSMEs in the region are to survive and grow (ADB, 2014b). More importantly, access to finance is more crucial for local MSMEs in AMSs to be able to compete in the era of 'ASEAN single market' with the implementation of the ASEAN Economic Community 2015. Therefore, in the past few years, many AMSs have launched public supported CGS as an important tool for improving MSMEs access to finance, in line with their national MSMEs development. The schemes are provided by specialized institutions, either partially sponsored or fully owned by the government, and with MSMEs as the main clients. Various guarantee products have been developed in response to specific country needs, with risk-sharing arrangements between guarantee institutions and financial institutions being relatively well-established (ADB, 2014a). 889
4. Although there is no universal prescription for increasing MSMEs access to finance, CGS is believed to play an important role in filling the MSME financing gap in many parts of the world, including in Southeast Asian region. Based on literature on CGS, a CGS can be defined generally as any formal scheme whereby an independent third party provides an effective guarantee to lenders. Three parties are involved: a borrower who lacks collateral, a lender providing the loan or overdraft facility, and a guaranteeing agency (O’Bryan, 2010; Samujh, et al., 2012). 2. Research methodology Aim of the Study Based on this background, this study aims to examine the implementation of CGSs in Indonesia and Vietnam. More specifically, this study aims to answer the following two questions: 1) How CGSs in those two AMSs have been implemented and are they successful by looking at the number of MSMEs that have applied, been granted loans; range of sizes of the loans; default rates? 2) learning from these two countries' experiences, what are the critical factors for successful CGSs? Research Methodology Given the nature of the study, its research methodology is a combination of: (i) desk-based research/secondary data analysis; and (ii) in-depth /interviews with key officials of relevant government agencies and private organizations related to CGSs in Indonesia and Vietnam. In Indonesia, the agencies are Bank Rakyat Indonesia, a state- owned bank which is the leading bank in the implementation of KUR, a government sponsored CGS, the Ministry of Cooperative and Small Medium Enterprise, and Indonesian Chamber of Commerce and Industry. In Vietnam, the agencies/organizations are: Agency for Enterprise Development, Ministry of Planning and Investment (MPI). and Vietnam Chamber of Commerce and Industry (VCCI). 3. MSMEs and credit guarantee schemes in Vietnam Vietnam in the past few years has experienced a robust growth of Small and medium-sized enterprises (SMEs). SMEs are enterprises which meet a criterion on total capital or an average number of working employees, and can be classified into 3 categories: micro enterprises, small enterprises and medium enterprises. The definition of small and medium enterprises is stipulated in Government Decree No. 56/2009/ND-CP dated June 30, on assistance for development of small and medium-sized enterprises. As defined, SMEs that have business registration in accordance with law, is divided into three levels: micro, small and medium scale, basing on total capital (total capital equivalent to total assets determined in the balance sheet of enterprises) or number of employees per year, as follows: 890
5. Table 2: Criteria for NSME classification Scale Micro Small-sized enterprises Medium-sized enterprises enterprises Number of Total Number of Number of Total capital Sector laborers capital laborers laborers I. Agriculture, 10 persons VND 20 Between Between over Between over forestry and or fewer billion or over 10 VND 20 200 persons fishery less persons and billion and and 300 200 persons VND 100 bil persons II. Industry and 10 persons VND 20 Between Between over Between over construction or fewer billion or over 10 VND 20 200 persons less persons and billion and and 300 200 persons VND 100 bil persons III. Trade and 10 persons VND 10 Between Between over Between over service or fewer billion or over 10 VND 10 50 persons less persons and billion and and 100 50 persons VND 50 bil persons Source: Decree No. 56/2009/ND-CP In Viet Nam, in 2007 there were 143,622 MSMEs, or about 96.3 per cent of total enterprises in the country. The number increased every year which amounted to 393,928 units or almost 98.0 per cent in 2014 (Table 3). Their GDP contribution in that year was 40.0 per cent. The growth in the number of MSMEs has been slowing, with year-on-year growth of slightly above 5.0 per cent in 2014. MSMEs in Viet Nam consist of state-owned enterprises, or around 0.6 per cent of total MSMEs in 2011, non-state-owned enterprises (97.1%), and foreign invested enterprises (2.3%). Wholesale and retail trade is dominant in Viet Nam’s MSMEs in number, accounting for almost 40% of total MSMEs in 2012, followed by the service sector, including technology, accommodation, and food services (20.5%), and the manufacturing industry (15.7%) (ADB, 2014a; VCCI, 2015; Hung, at al., 2014). Table 3: MSMEs in Viet Nam, 2007-2014 Description 2007 2008 2009 2010 2011 2012 2014* Number of MSMEs 143,622 186,379 230,365 272,283 316,941 333,835 Percentage of total enterprises 393,928 96.3 97,0 97.4 97.5 97.6 97.7 Whole sale & retail (% of total 97.9 41.5 42.3 41.4 40.9 40.3 39.8 MSMEs) Services (% of total MSMEs) 16.1 16.8 17.9 18.6 20.4 20.5 Manufacturing (% of total 18.6 18.2 17.5 15.7 15.7 15.7 MSMEs) 5.4 Total employment in MSMEs 2.84 3.35 3.89 4.35 5.01 5.13 (million people) 47.0 39.2 42.1 44.7 44.2 46.0 46.8 Percentage of total employment 40.0 GDP Contribution (%) Sources: ADB (2014a, 2015); * VCCI (2015) and Hung, at al. (2014). 891
6. Viet Nam has MSME lending data but these are not publicly available. The State Bank of Vietnam (the Central bank) only produces total bank loans outstanding for all enterprises. As of September 2013, the bank loans outstanding totaled 3,303 trillion Vietnam dong (VND) with a gradual increase and a non-performing loan (NPL) ratio of 4.62 per cent. The manufacturing sector is the most active borrower and accounted for 29.0 per cent of total loans outstanding in September 2013, followed by the wholesale and retail trade sector 18.8 per cent. Given that the most active sector in MSMEs is wholesale and retail trade, it is considered that MSMEs access to bank credit is limited (ADB, 2014a) The Credit Information Center (CIC), as the only Credit Bureau existing in Vietnam, also does not cover MSMEs credit. It covers only a limited number of cases large corporate or important individual borrowers. Therefore, assessing MSMEs' repayment capability as well as other relevant information on their credit history might be a difficult and costly exercise ( 11&Itemid=35). At its Sixth Party Congress in 1986, the Vietnamese Communist Party launched the country's Economic Renovation (Doi Moi), marking the starting point of its reform and open-door era. In 1991, the private sector in Vietnam was legally recognized through the Law on Private Enterprises and the Law on Companies. Following that, the amended Constitution in 1992 allowed a "multi-sector economy in accordance with the market, based on state management and socialist orientations". The development of domestic enterprises has been promoted through the Law on Encouraging Domestic Investment adopted in 1994. In November 23, 2001, for the first time since 1986, the Vietnamese Government promulgated "Supporting Policies for MSMEs development" with Decree No 90/2001/ND- CP establishing an official framework for government support in the development of MSMEs in Vietnam (Do and Pham, 2007). The Vietnamese government's supporting policies on MSMEs consist of many programs, and to facilitate MSMEs’ access to finance, the government adopted various policies to support SMEs, including establishing credit guarantee funds (CGFs) for MSMEs; supporting financial institutions to increase credit for MSMEs; promoting financial consulting, investment management and other assistance services for MSMEs; assisting MSMEs in enhancing their capacity to prepare projects and business plans to meet the requirements of credit institutions; training for MSMEs; establishing MSME developmental fund financing by the state and other organizations within the country (Vo, et al.,2010). Followed in Decision No 90/CP-2001, the Vietnamese Prime Minister (PM) signed Decision No 193/2001/QD-TTg on issuing Regulation on the Setting up, Organization and Operation of Credit Guarantee Funds (CGFs), although they do not direct to MSMEs, in December 20, 2001. Later on, this PM Decision has been replaced by a new one, i.e. PM Decision No.58/2013/QD-TTg on issuing the Regulation on the establishment, organization and operation of local CGF for MSMEs (HCGF, 2016). In this Decision, CGFs should be set up at the local (provincial and city) level by local CGFs, and managed 892
7. by the local government, i.e. the Provincial People's Committees (Do and Pham, 2007; ADB, 2014a). Thus, based on this PM Decision, each province should have one CGF under the supervision of the Ministry of Finance, to whom the provincial People’s Committees must submit regular reports (Freeman and Ngoc, 2007; ADB, 2014a). Funding should come from five different sources: (i) the local government, i.e. provincial or municipal budgets through budget line with the Ministry of Finance (up to 30 per cent of total charter capital); (ii) banks/financial institutions; (iii) associations of MSMEs; (iv) foreign institutions, and (v) other institutions (Freeman and Ngoc, 2007; HCGF,2016). Credit guarantee criteria for local funds are the followings: (i) for MSMEs under current legal framework in all economic sectors, cooperatives and unions of cooperatives, individual business households as prescribed by the Government's Decree No.02/2000/ND-CP of February 3, 2000 on business registration, and farm owners, peasants' and fishermen's households' that carry out projects on aquaculture, offshore fishing, planting of industrial trees or husbandry; (ii) having feasible investment project/business plan, and being capable of repaying loan capital (the potential borrowers should be appraised and guarantee should be accepted by the local funds; (iii) minimum collateral: 15 per cent of the loan value; (iv) minimum 15 per cent capital owned by enterprises in the project; (v) the total value of the CGF's properties mortgaged or pledged at credit institutions is equal to at least 30 per cent of the loan value as prescribed by law; and (vi) owing no tax debts or overdue debts to credit institutions or other economic organizations (Do and Pham, 2007; HCGF, 2016). In this scheme, a credit guarantee may not exceed 80 per cent of the difference between a loan’s value and the value of the customer's properties mortgaged (collateral) pledged to credit institution(s). The value of a single guarantee may not exceed 15 per cent of the CGF’s capital base. The fees to be charged by the CGF are also set out in the regulation: (i) VND50,000 for each application, to cover evaluation; and ii) an annual fee equivalent to 0.8 per cent of the value of the guarantee (Freeman and Ngoc, 2007). By 2006, there were four (4) provincial CGFs. By 2011, 11 provinces have already established a CGF. In 2015 there are already 27 local CGF (Vo, et al, 2010; HCGF, 2016). In 2012, total credit guarantee fund was VND 2,976 billion, and increased to VND 3,796 billion in 2015 (HCGF, 2016). The central government requires that all 36 provinces in the country should have their own local CGF. But, many already established local CGFs have been found not active anymore. Based on conversations that Freeman and Ngoc (2007) had with some officials in Hanoi, they were told that most local CGFs have failed to genuinely commence meaningful operations. The Vietnamese CGF model suffers from a number of difficulties and limitations to sustain or to operate effectively and efficiently. As also stated in HCGF (2016), the difficulties and limitations are including (i) limited capital available, as many provincial governments lack the budget revenues to meet the requirement of charter capital; (ii) local commercial banks and credit institutions are generally not interested to participate and reluctant to commit funds for many reasons, including the procedure is too complex; (iii) small operation scale; (iv) low risk reserve 893
8. fund which is not enough to compensating the risk; (v) limited human and institutional capacity at the provincial level to establish and manage a CGF; (vi) enterprises and banks alike lack sufficient confidence in CGFs; (vi) unwelcome interference in the operations by local authorities; (vii) there is a somewhat ad hoc nature to the approach, with no appropriate and robust organization; (viii) the setting of a fixed (and relatively low) fee for CGF coverage will pose viability problems, and does not allow for differing degrees of risk associated with each borrower; (ix) some commercial banks, enterprises and local funds do not implement full responsibilities; (x) limited cooperation between parties involved in e.g. document appraisal, credit guarantee, capital disbursement, and loan supervision; (xi) guarantee fees are not enough for risk compensation; and many MSMEs do not meet criteria for credit guarantee (e.g. no or low profits, low enterprise competence). In addition to the CGFs, to support enterprises in the country affected by the global financial crisis in 2008-2009, since 2009 the government has assigned the Vietnam Development Bank (VDB) to provide guarantees to enterprises' loans nationwide which are subject to underwriting loans at commercial banks (up to 85 per cent of project's total investment), funded by the state budget and not subject to the State Bank of Vietnam (MPI, 2014). The VDB has signed guarantee contracts with 20 commercial banks to implement the scheme (Kinasih, 2014). By November 2009 the VDB has guaranteed a total amount of VND 6,686 billion (or about US$ 370 million based on current exchange rate), across 68 projects and 871 short-term business plans (Vo, et al., 2010). In the first two years of its operation, the VDB issued credit guarantees to enterprises implementing investment projects to develop business (on loans for fixed assets) and business plans (on loans for working capital), with the exception of the fields of consultancy, real estate, securities, services (excluding freight services, education, and health), and a loan to pay the debt of other credit contracts (Vo, et al., 2010). By 2011, the VDB had provided credit guarantee for medium- and long term loans to implement projects in all sectors, including agriculture, forestry, and fisheries businesses; manufacturing and processing industry; transportation; and warehousing. Overall, the VDB provides 85 per cent partial guarantee to total investment capital of the project, and total credit guarantee for enterprises if the maximum does not exceed five times the actual charter capital of the bank (Vo, et al., 2010; ADB, 2014a, b). At least by 2013, the VDB has issued more than 1,500 guarantee deeds for enterprises, of which nearly 100 per cent were MSMEs, with a value of around VND 11,000 billion. Whereas, commercial banks have granted loans to enterprises totaling nearly VND 9,000 billion. The total amount that the VDB has repaid debts for mostly MSMEs from its guarantee task until February 2012 was VND 112 billion. At the same period, enterprises repaid their debts to the VND 4,7 billion, of which VND 4,5 billion were principal (MPI, 2014). The VDB collects guarantee fees, 75 per cent of which are taken into credit guarantee risk provision and the remaining 25 per cent are considered as bank income. It has also issued letters of credit guarantee for MSMEs with loans at 39 commercial banks with a total value of VND9,975.23 billion ADB (2014a). 894
9. On October 31st, 2014, Lang Son Branch of the VDB launched the Lang Son credit guarantee Fund for MSME. The Fund, as a bridge connecting business to credit institutions, will provide MSMEs credit guarantee and thus help them to access to funding sources. Its operations are not-for-profit, ensuring self-reliance, capital safety and development. The Fund has initial charter capital of VND 38 billion, funded from Lang Son province local budget (VND 30 billion) and the rest from local enterprises. Applicants eligible to credit guarantee are local MSMEs meeting the following conditions: having project with minimum investment VND 2 billion or business plan cost up to VND 500 million. Project or business plan shall be efficient and bankable; their mortgage value at commercial bank represents at least 15 per cent of loan value; contribution from project owner at least 15 per cent equity of total investment; there are no overdue debt to state budget as well as no non-performing loans at commercial banks at the time of guarantee application submission. To each project and business plan, the maximum guarantee coverage does not exceed 70 per cent of the total investment; and for each client, 15 per cent of the Fund equity; total guaranteed outstanding does not exceed five times the actual charter capital of the Fund ( entrusted-to-manage-credit-guarantee-activities-from-local-credit-guarantee-fund). Table 4 provides information on credit guarantee performances through VDB until 2015. Total loan requested for guarantee until 2015 amounted to VND 15,316.5 billion. Total guarantee agreed under contracts reached VND 10,765.8 billion, and total valid guarantee value VND 1,734.8 billion. Ratio of credit guarantee letter issued between the two institutions until 2015 is: VDB 70.30 per cent - local CGFs 29.70 per cent (HCGF, 2016). Table 4: Credit Guarantee Performances through VDB until 2015 No of credit guarantee requested 1951 No of credit guarantee letter issued 1536 No of valid credit guarantee letter 69 No of credit guarantee letter paid 78 Source: HCGF (2016). So, since 2009 the CGF in Vietnam has two channels, i.e. provincial CGFs and VDB (HCGF, 2016). However, according to Mrs Bui Thu Thuy, Deputy Director General, Agency for Enterprise Development (EDA), Ministry of Planning and Investment (MPI), and with Mr Le Van Khuong, MBA, Head of SME Development Division, EDA from the same ministry, who were interviewed during the visit to Hanoi in June 2016, in recent years no new credit guarantee has been issued by the VDB due to a number of difficulties and limitations, including many commercial banks are not enthusiastic to participate, and state budget's finding for VDB as guarantee reserve fund is small, inexperienced employees in VDB in operating credit guarantee fund, and many disputes between commercial banks and the guarantor which unfortunately must be settled in courts. This actual condition was also confirmed by Mrs Hang from the Vietnam Chamber of Commerce and Industry (VCCI) during the same visit. Even, according to her, in Vietnam 895
10. now commercial loans, particularly venture capital, are much more popular than CGF. Many seminars have been organized and many articles in newspapers have been written about venture capital; while CGF has rarely been talked publicly. With respect to the default rate, although no official data are available, according to Mrs Bui Thu Thuy, the NPL of CGF in Vietnam is very low. Most likely lower than 4.62 percent of NPL of total bank loan in the country. In other words, the most problem of the implementation of CGF in Vietnam is from the supply-side (credit guarantee providers); not from the demand-side (such as moral hazard or financial mismanagement by the borrowers). As explained further by Mrs Bui Thu Thuy, in an effort to promote CGF, currently, VDB is drafting, for the first time, a national law on MSMEs, which will be officially issued in 5 October 2016. The Law has a special chapter to promote CGF for MSMEs165. 4. MSMEs and credit guarantee schemes in Indonesia MSMEs in Indonesia are very numerous, amounting to almost 58 million in 2013 (Table 5). They have always been the main drivers of domestic economic activity in Indonesia, accounting for more than 99 per cent of all existing firms across sectors. Especially micro and small enterprises (MSEs), they generate a significant amount of not only primary but also in many cases, secondary income sources for low-income households. For instance, in many small or poor farm households, men (husband) work in the field while women (their wives) own small businesses at home making simple handicraft items or food products, or running small shops selling basic need items. Table 5: Total enterprises by size category in all economic sectors in Indonesia, 2009-2013 Size category 2009 2010 2011 2012 2013 Micro enterprises 52,176,795 53,207,500 54,559,969 55,856,176 57,189,393 (MIEs) Small enterprises 546,675 573,601 602,195 629,418 654,222 (SEs) Medium enterprises 41,133 42,631 44,280 48,997 52,106 (MEs) Large enterprises 4,677 4,838 4,952 4,968 5,066 (LEs) Total 52,769, 280 53,828,570 55,211,396 56,539,559 57,900,787 MSMEs to total (%) 99.9 99.9 99.9 99.9 99.9 MSMEs growth (%) 2.6 2.0 2.6 2.4 2.4 Sources: Menegkop & UKM (www.depkop.go.id) and BPS (www.bps.go.id). 165 However, Vietnam National Assembly has finally delayed and not yet voted for MSMEs law by Nov 2016, because of belated of preparation of this law from Government. It would be examining and discussed by next meeting of National Assembly next year, 2017. 896
11. MSMEs' share of gross domestic product (GDP) has always been higher that that of LEs. In 2006, at constant market price, MSMEs contributed 58.49 per cent to the formation of Indonesian GDP, and the latest data which are available show that their share has increased slightly to 60.34 per cent. But this figure does not mean that the performance of this category of enterprises is much better than that of LEs. It is simply because the number of units of MSMEs is very huge. As in other countries, they are the majority of enterprises in Indonesia. This suggests thus that the level of labor productivity in MLSEs is much lower as compared to that in LEs. Although not shown in this figure, within the MSMEs themselves, the GDP share of MSEs are always higher than that of MEs. Again, this is mainly because MSEs dominate MSMEs in term of number of units The majority of MSMEs in Indonesia are engaged in the agricultural sector, including animal husbandry, forestry, and fisheries. The second important sector for MSMEs is trade, hotel and restaurants, and within this sector, women as business owners are dominant in retail trade and restaurants (Table 6). In the manufacturing industry, Indonesian MSMEs are traditionally not as strong compared to LEs or to MSMEs in Asian developed economies like Japan, Taiwan, and South Korea (where traditionally they are well presented in production linkages with LEs as suppliers or vendors, especially in the automotive, electronics, and machineries industries). This Indonesian structure of MSMEs by sector is, however, not unique to Indonesia. It is a key feature of this category of enterprises in developing countries, especially in countries where the level of industrialization and income per capita are relatively low. Within the industry manufacturing, units owned or managed by women are mainly found in food processing and handicraft industries. Table 6: Distribution of MSMEs GDP by Key Sectors in Indonesia, 2007-2011 (%) Sector 2007 2008 2009 2010 2011 -Agriculture 24.4 26.1 27.4 27.8 23.5 -Trade 27.1 25.5 24.2 24.4 26.7 -Services 17.9 17.0 16.5 16.4 16.8 -Transportation 6.4 5.9 5.5 5.5 5.1 -Manufacturing industry 16.2 16.7 16.4 16.4 18.3 -Others 8.0 8.8 9.9 9.6 9.6 Sources: Menegkop & UKM (www.depkop.go.id), BPS (www.bps.go.id). As total number of MSME increases annually, total workers in the enterprises also grow every year. In 2013, MSMEs comprised 114.1 million employees or 97 per cent of the total workforce in the country, with 6 per cent growth from 2012 (Table 7). Of total employees in these enterprises, about 42.4 per cent worked in primary industry while 21.7 per cent worked in the trade sector, 11.7 per cent worked in manufacturing, and 10.5 per cent worked in the service sector in 2011. This sector composition of MSMEs in Indonesia has also not changed for a long time. 897
12. Table 7: Total Employment in MSMEs in Indonesia, 2007-2013 Description 2007 2008 2009 2010 2011 2012 2013 MSME employees 90,491.9 90,024.3 96,211.3 99,401.8 101,722.5 107,657.5 114,144.1 (million people) MSME employees to total 97.3 97.2 97.3 97.2 97.2 97.2 97.0 employees (%) MSME employee’s 2.9 3.9 2.3 3.3 2.3 5.8 6.0 growth rate (%) Sources: Menegkop & UKM (www.depkop.go.id), BPS (www.bps.go.id), ADB (2015) In Indonesia, banks are roughly classified into two types: commercial banks, and rural banks (BPRs). There are five types of commercial banks: (i) state-owned banks, (ii) private commercial banks, (iii) regional development banks (BPDs), (iv) joint-venture banks, and (v) foreign bank branches. In particular, large commercial banks have developed microfinance windows and programs; e.g., BRI Units Bank Rakyat Indonesia), Danamon Simpan Pinjam (DSP; Bank Danamon), Unit Mikro Mandiri (UMM; Bank Mandiri), and Swamitra (Bank Bukopin). BPRs are generally regarded as formal microfinance providers. Microfinance has a long history of development in the national poverty reduction context, and is closely linked to local economies (ADB, 2014a). There are three types of credit from financial institutions in the country, namely for investment, working capital and consumption; the first two types are categorized as credit for businesses, and the third one as household credits. In Indonesia, of all banks that provide both business and household credits in various schemes, i.e. commercial banks, state-owned banks, rural banks, and regional development banks, BPR, BPD, and BRI, are the key financial institutions providing loans. BPR is also known as a rural bank, people’s credit bank, smallholder credit bank, or second-tier bank to serve MSMEs, low income groups, and/or poor households. BPD is a regional or provincial development bank owned by provincial governments, and has a legal form that is now the same as that of a commercial bank. BRI has various credit schemes, including micro credit known as Kredit Umum Pedesaan (KUPEDES), or village/rural general credit, allocated through all BRI Unit Desa (village branches of BRI). KUPEDES is a general-purpose rural loan scheme with competitive interest rates. It offers loans (working capital and investment) to those who fulfill the requirements in all economic sectors, from businesses in agriculture, trade, industry, and services, to individual borrowers who require loans for education, house renovation, purchase of vehicles, etc. Table 8 shows total outstanding loans of commercial banks for businesses and households in the past few years. 898
13. Table 8: Total Outstanding Loans from Commercial Banks in Indonesia, 2011-2016 (bil rupiah/Rp) Types of Credit 2011 2012 2013 2014 Dec 2015 Jan 2016 Working capital 1,068,676 1,316,689 1,585,659 1,757,449 1,916,256 1,839,577 Investment 464,262 591,425 798,157 903,194 1,035,889 1,036,399 Consumption 667,155 799,748 909,058 1,013,666 105,759 1,107,059 Total 2,200,094 2,707,862 3,292,874 3,674,308 4,057,904 3,983,035 Source: OJK statistik perbankan indonesia, January 2016 indonesia/Pages/Statistik-Perbankan-Indonesia-Januari-2016.aspx). Since January 2011, MSME credits have been calculated based on fair value in accordance with the MSME definition under the MSME Law No.20, 2008. The previous MSME credit data included unidentified financing for consumption purposes, and were based on the credit limit of banks. Since April 2013, only the fair-value-based MSME credit data are available (ADB, 2014a). As can be seen in Table 9, in 2011 with the old calculation system, total loans outstanding of MSMEs was approximately Rp1,151 trillion, compared to Rp479 trillion with the new system. By January 2016, MSME loans outstanding totaled around Rp719.2 trillion and accounted for 18.07 per cent of total commercial bank loans. Next Table 10 shows NPLs of MSMEs during the period 2008- 2016 (January). Table 9: MSMEs Outstanding Loans from Commercial Banks in Indonesia, 2010-2016 Description 2010 2011 2012 2013 2014 2015 2016 MSMEs loans (Rp bil.) 926,782 1,151,392 1,350,606 MSMEs loans (Rp.bil) * 479,887 552,226 639,472 671,721 739,801 719,199 Percentage of total loans (%) 52.48 50.95 39.91 Percentage of total loans (%)* 21.24 16.32 19.42 18.28 18.23 18.07 Total loans (Rp bil.) 1,765,845 2,259,862 3,384,230 3,292,874 3,674,308 4,057,904 3,983,035 Note: * based on fair value since 2011; January Sources: ADB (2014a) and OJK (statistik perbankan Indonesia), January 2016 indonesia/Pages/Statistik-Perbankan-Indonesia-Januari-2016.aspx). 899
14. Table 10: MSME NPLs in Indonesia, 2008-2016 NPL 2008 2009 2010 2011 2012 2013 2014 2015 2016 MSME NPLs (Rp 20,712 22,720 24,045 26,115 31,714 bil.) MSME NPLs (Rp 15,674 17,011 19,515 29,040 29,792 32.389 bil.) * MSME NPLs to 3.3 3.1 2.6 2.3 2.3 MSME loans (%) MSME NPLs to 3.4 3.2 3.6 4.0 4.0 4.5 MSME loans (%)* Note: * based on fair value since 2011; January Sources: ADB (2014a, 2015) and OJK (statistik perbankan Indonesia), January 2016 indonesia/Pages/Statistik-Perbankan-Indonesia-Januari-2016.aspx). Credit guarantees are a popular instrument for credit enhancement in Indonesia, started in the early 1970s when two most important government-sponsored guarantee institutions, i.e. PT Asuransi Kredit Indonesia (Askrindo), and Perum Jamkrindo were established. Askrindo is owned 55 per cent by Bank Indonesia (BI) and the Ministry of Finance (45 per cent).They have been coping with MSME loan guarantees nationwide. The guarantee coverage ratio, which measures the share of qualifying loans guaranteed by an institution, is between 70 and 80 per cent (ADB, 2014b; Shim, 2006). In addition, another government-sponsored guarantee agency was established in 2000, i.e. Perum Sarana Pengembangan Usaha (Perum Sarana), and is 100 per cent government-owned. Its guarantee coverage is maximum 75 per cent (Shim, 2006). At the regional level, there are PT Jamkrida Jatim in the province of East Java, established in 2010 and PT Jamkrida in the province of Bali, established in 2011. Their target clients are only MSEs (ADB, 2014b). Besides government backed credit guarantees for MSMEs, Indonesia has also a private credit guarantee corporation, namely PT. Penjamin Kredit Pengusaha Indonesia (PKPI), which has been operating nationwide since its establishment in 1995 (ADB, 2014a, b). In 2008, the Indonesian government issued Presidential Decree No.2/2008 on guarantee institutions and the Ministerial Regulations (the Ministry of Finance) No.222/2008 and No.99/2011 on guarantee institutions and re-guarantee institutions. These regulations are a legal basis for the guarantee business in Indonesia. Based on those regulations, licensed regional credit guarantee corporations, mainly owned by local governments, have been established in many provinces, including East Java, West Java, Bali, Riau, West Nusa Tenggara, and West Sumatra. In addition to these, a syariah based (Islamic) guarantee corporation, i.e. Penjaminan Pembiayaan Askrindo Syariah, owned by Askrindo, was also established on 28 December 2012 (ADB, 2014a). Probably the most popular government initiated credit guarantee scheme for MSMEs is People Business Credit or known as KUR, launched in November 2007, by Presidential Instruction Number 6/ 2007 The main aim of KUR is to help finance feasible, but not 900
15. bankable, MSMEs, particularly MSEs, and cooperatives (Tambunan, 2015). Like the KIK/ KMKP, two very popular subsidized credits for MSMEs in the New Order regime, KUR is intended to provide working capital and investment credit with concessional lending rates and in principally free of collateral as normally required by commercial banks. Even for up to Rp 25 million, categorized as "KUR micro", business license or known in Indonesia as SIUP is not required; only an identity card (i.e. KTP) of the applicant and an official letter from the village leader (lurah) (Machmud and Ainul, 2010). The source for KUR is 100 per cent from commercial banks assigned by the government. KUR guarantees between 70 per cent and 80 per cent of the credit applied while the remaining 20 to 30 per cent risk is taken by participating banks (Tambunan, 2015). Three main groups (pillars) are involved in the implementation of the KUR program. The first is government, through Bank Indonesia (BI) and technical departments (e.g. Ministry of Finance, Ministry of Agriculture, Ministry of Forestry, Ministry of Maritime Affairs and Fisheries, Ministry of Industry, and State Ministry for Cooperatives and Small and Medium Enterprises). The program is coordinated by the Coordinating Ministry for Economic Affairs. The function of the government is to assist and support with the implementation of credit provisions and guarantees. The second pillar is the guarantor institutions that guarantees the credit distributed by the banks, namely PT. (Persero) Asuransi Kredit Indonesia (PT. Askrindo) and Perusahaan Umum Jaminan Kredit Indonesia (Perum Jamkrindo); although there are some other private companies which have voluntary joined the program. PT Asuransi Kredit Indonesia provides two types of services: (i) credit guarantees: bank and nonbank credit guarantees, counter bank guarantees, and regional credit guarantees; and (ii) credit insurance: trade credit insurance, surety bonds, customs bonds, and reinsurance. The main aim of PT Jamkrindo is to provide credit guarantee services, including government programs and commercial credit, to MSMEs. It has various MSMEs credit guarantee products: microcredit. KUR guarantor companies provide part of the guarantee to participating banks for KUR credit given to MSMEs. Nevertheless, MSME debtors are still obliged to repay the KUR credit received from the participating bank. The government acts as the underwriter (IJP) for KUR compensation ( asked-questions-faqs/cluster-iii-2/credit-for-businesses-programme-kur/). Third pillar are banks, as recipients of the guarantees that function as credit distributors to MSMEs. It started in 2007 with only six state-owned commercial banks: Bank BRI, Bank Mandiri, Bank BNI, Bank BTN, Bank Syariah Mandiri and Bank Bukopin, and 13 regional development banks (BPD): Bank Nagari, Bank DKI, Bank Jatim, Bank Jateng, BPD DIY, Bank Jabar Banten, Bank NTB, Bank Kalbar, Bank Kalteng, Bank Kalsel, Bank Sulut, Bank Maluku and Bank Papua. Currently, the group of BPD expanded to 26 units (ADB, 2014a). Normally, KUR has two types of channeling. KUR could be obtained either individually or collectively. If it is taken collectively through cooperatives, banks could channel the credit either to the cooperatives (i.e. the executing model) or to focal point/persons in the cooperatives (the channeling model). So far, based on Bank 901
16. Mandiri assessment, cited by Kinasih (2014), the executing model is more effective in terms of credit utilization and performance of payment rather than the channeling model. The Indonesian government does put efforts to continuously improve the implementation of KUR, with various steps with the aim to (i) improve coordination among key, related ministries and other agencies, including regional government; (ii) encourage all key stakeholders, especially regional and local government, to be more active in supporting and promoting local MSMEs to make them ready as potential receivers of KUR; (iii) be more aggressive in publicizing and disseminating information about the scheme, including the application procedure and potential benefits. During the series of FGDs in the three cities, both the bank (i.e. BRI); Kantor Dinas of Cooperative and SME, and Industry; business association; and other participants all agree that efforts to socialize KUR until now are still not yet optimal; and (iv) facilitate coordination between the implementing banks and KUR companies which provide guarantees (Tambunan, 2015). Also, the government has a plan to reduce the interest rate for KUR micro from currently 9 per cent to 7 per cent; probably next year (2017) (Kompas, 2016). Many people have assessed KUR as a successful microfinance program, especially for MSEs. In October 2012, President Susilo Bambang Yudhoyono was awarded “Letter of Recognition” by the International Micro Finance Community for his successful implementation of KUR and microfinance in general, in Indonesia. The success of KUR is indeed not unrelated to the internationally-recognized success of Indonesia, and BRI in implementing microfinance. Therefore, Indonesia has been mentioned as a potential “world laboratory” for microfinance (Tambunan, 2014). 5. Conclusion From reviewing Vietnam and Indonesia in implementing their CGSs, some critical factors for successful CGSs are the followings: a) Dissemination to have a widely coverage of MSME. In Indonesia, for instance, in the past few years BRI has adopted a digital online system in the process of KUR application. With this system, a potential borrower does not need to find or to go to a local BRI office; she/he simply uses hand phone to apply. So, now it becomes more easy for MSMEs in many remote or rather isolated rural areas including in the eastern part of the country, especially in Papua, where the numbers of local offices of BRI are still relatively limited (mostly in cities) to apply for KUR. BRI only needs to disseminate this new system more actively in these areas; b) Simple application procedure. Especially for MSEs' owners who in general are low educated, they are more difficult to understand the banking procedures. Moreover, as a key characteristic of MSEs, especially in developing countries, owners of MSEs in general do all day-to-day tasks of their businesses (e.g. marketing, procurement of raw materials, production, and financing) that makes them difficult to leave their factories or workshops; c) Incentives mechanism for guaranteed borrowers should be put in place to mitigate or to prevent them from 'moral hazard'. Possible incentives are such as easier 902
17. procedure for the next application or longer debt repayment period. In addition, from interviews with resource persons in some member states, it was commonly stated that collateral requirement, i.e. percentage stake each borrower puts at risk, should not be set to zero, as it may also serve as a tool to mitigate moral hazard problem at the borrower level. It could also help screen safe from risky borrowers; d) Incentives mechanism for the channeling banks (e.g. tax deductible) should also be put in place not only to maintain their vigorous credit assessment, monitoring credit quality of guaranteed borrowers and collection of debt repayment, but also to provide full assistance to guaranteed borrowers in managing their finance. With respect to bank assistance, according to an official from BRI, one key to the success in maintaining the NPL remains low is the full assistance provided by BRI to their guaranteed MSMEs in running their businesses, especially with respect to their financial management; e) Structure and institutional arrangements that take account of both adverse selection and moral hazard. This is crucial because a CGS does not reallocate risk between borrowers and banks, but to the guarantee agent instead so that the CGS reduces the overall risk faced by the two parties and it does not alleviate 'moral hazard'. This may explain, among other factors, why loans backed by credit guarantees in some member states have high NPLs; f) Credit guarantee mechanism. Because of information asymmetry, not well- designed credit guarantee mechanism might cause the moral hazard. Borrowers may have high incentive to default since part of collateral, fulfilled by a credit guarantee agent, is not belonged to them (the loss because of their default will be covered by the guarantee agents). A good well-designed credit guarantee mechanism includes how incentives and sanctions are set, how the fund is governed, risk-based pricing, and risk management mechanisms; h) Willingness and readiness to participate. As banks to participate in a CGS are voluntary, their willingness to participate is thus highly dependent on their trust to the scheme. In Indonesia, no problems with the participation of banks have been found. Differently, in Vietnam, from interviews with the resource persons, it reveals that low trust from local banks seemed to be among various constraints in launching the scheme; i) Spread evenly to the entire country that all MSMEs in all parts of the country have the same opportunity to be granted by the scheme. In Indonesia, although all banks owned by both the state and regional governments are channeling KUR, BRI is the leading bank because of its advantages over the other state-owned banks, including having local offices in all over the country not only at the district but also at the village level; especially in the western part of the country; j) Data on MSMEs financial condition. In many countries, MSMEs’ financial statements are generally not audited or even do not exist in most MSMEs, especially MSEs. So, it is difficult for banks to conduct risk assessment for MSME borrowers due to the availability and limited reliability of data. Thus, the centralized data of MSME are also crucial for the successful of a CGS implementation; 903
18. k) Economic condition which greatly affects banking condition (or vice versa as happened in Indonesia during the Asian financial crisis in 1997/98) and government financial condition. Adverse economic conditions affecting both the ability of banks to extend credit and guarantee agents, as well as guaranteed MSMEs to repay their loans and interest. During the Asian financial crisis, many companies were failed to pay off their debts to the bank; REFERENCES ADB (2014a), Asia SME Finance Monitor 2013, Manila: Asian Development Bank ( files/pub/2014/asia-sme-finance-monitor-2013.pdf). ADB (2014b), ADB-OECD Study on Enhancing Financial Accessibility for SMEs. Lessons from Recent Crises, Manila; Asian Development Bank ( smes.pdf). ADB (2015), Asia SME Finance Monitor 2014, Manila: Asian Development Bank ( files/pub/2015/asia-sme-finance-monitor-2014.pdf). CMEA (2016), "Program Kredit Usaha Rakyat", 3 March 2016, Surabaya: Coordinating Ministry for Economic Affairs, Republic of Indonesia ( Do, Sam and Thach Pham (2007), "Policies for Developing Small and Medium Enterprises in Vietnam", Policies on Developing Small and Medium Enterprises in Vietnam ( Policies_for_Developing_Small_and_Medium_Enterprises_in_Vietnam-Do- Pham.pdf). Freeman, Nick J. and Le Bich Ngoc (2007), "Assistance to Establish the National and Provincial SME Support Infrastructure SME Finance in Vietnam: Reviewing Past Progress and Scoping Future Developments", Working Draft of Technical Report, 12th May 2007, UNIDO_TF/VIE/04/001/11-5X_v3_NJF & LBN, Vienna: United Nations Industrial Development Organization ( user_media/UNIDO _Worldwide/Offices/UNIDO_Offices/Viet_Nam/Annex_- _Working_Draft_Technical_ Report.pdf). HCGF (2016), "Credit Guarantee Performances Through CGF and VDB", People's Committee of Ho Chi Minh City, January, Ho Chi Minh City: Hochiminh City Credit Guarantee Fund. Hung, PGS.TS. Ho Sy; Th.s. Nguyen Hoa Curong;Th.s,Nguyen Hong Lien, Th.s. Trinh Thi Hurong; Th.s. Nguyen Thanh Le; and Th.s. Pham Thai Son (2014), "Small and Medium Enterprises in Vietnam 2014", SACH TRANG White Paper, Hanoi: NHA XUAT BAN THONG KE. Kinasih, Herjuno Ndaru (2014), "Innovations in Small and Medium Enterprises’access to Finance in Southeast Asia: The Case of Indonesia and Vietnam" ( _Access_to_Finance_in_Southeast_Asia_The_Case_of_Indonesia_and_Vietnam). 904
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