Indonesia tells banks to give 30% of loans to small firms

Jakarta

INDONESIA'S central bank will require lenders to disburse at least 30 per cent of their loans to small companies, part of a broader effort to revive slow credit growth that's stalled the nation's economic recovery.

Banks must allocate at least 20 per cent of their total loans to micro, small and medium enterprises (MSMEs) next year, with the proportion gradually increasing to 25 per cent in 2023 and to 30 per cent in 2024, Bank Indonesia said in a statement on Wednesday.

The rules apply to both Islamic and non-Islamic lenders, with those failing to meet the threshold facing a maximum penalty of five billion rupiah (S$471,000).

The central bank will also broaden the types of loans that lenders can disburse to small companies, including direct lending, supply-chain financing or securities purchases. They can also meet the threshold by lending to non-MSMEs and non-financial institutions that will channel the funds to their MSME partners. The new rules became effective on Aug 31.

A protracted Covid-19 outbreak and the stop-start reopening of the economy has dealt a blow to Indonesia's 64 million MSMEs. The monetary authority has long been exploring ways to boost credit to such companies, many of which still lack access to formal financing.

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Meanwhile, risk-averse lenders have kept loan growth at only 0.5 per cent year-on-year in July despite the central bank maintaining record-low interest rates. BLOOMBERG