Indonesian regional development and rural banks strengthen their financial support to SMEs

PENGALENGAN AND EAST SUMBA, West Java and East Nusa Tenggara, Indonesia (ILO News) - Indonesia’s small and medium enterprises (SMEs) are an essential driver of the country’s future development. They are also an important source of employment and contribute significantly to the national output.

Despite their importance, SMEs still often find it difficult to access finance from banks and other formal financial institutions. Many of them are unable to provide collateral to secure loans, procedures are too complex for them, or the administrative cost of serving them is too high for banks to consider them as a profitable market.

We have supported BPD and BPR in improving their digital capabilities so that they can provide fast and affordable financial services to their SMEs’ clients. Our support ranging from upgrading of core banking to developing a loan assignment system or creating a dashboard monitoring for loan portfolios.

Djauhari Sitorus, Programme Manager of ILO’s Promise II Impact 

To improve greater access for SMEs to finance and digitalization, the ILO’s Promoting Small and Medium Enterprises through Entrepreneurs’ Access to Financial Services Programme Phase 2 (Promise II Impact), funded by the Swiss State Secretariat for Economic Affairs (SECO), has collaborated with 10 regional development banks (BPD) and rural banks (BPR) in several provinces of Aceh, West Java, Central Java, East Java and East Nusa Tenggara (NTT).

“In addition to the SME’s financial empowerment, we also closely work with BPD and BPR to strengthen their services to SMEs leveraging the use of digital technology. We have supported BPD and BPR in improving their digital capabilities so that they can provide fast and affordable financial services to their SMEs’ clients. Our support ranging from upgrading of core banking to developing a loan assignment system or creating a dashboard monitoring for loan portfolios,” said Djauhari Sitorus, Programme Manager of ILO’s Promise II Impact.

This collaboration was also aimed at strengthening the roles of BPD and BPR as major lenders in their respective regions amidst stiffer competition from other institutions. “We cannot deny that BPD and BPR know the local context better and shall take a greater share in supporting local SMEs with affordable and easy-to-access loans,” Djauhari added.

Digital transformation for dairy farmers in West Java

One of the BPRs that has closely worked with the Promise II Impact is BPR Bandung Kidul in West Java. The main challenge faced by BPR Bandung Kidul to provide loans for dairy farmers under the South Bandung Livestock Cooperative (KPBS) was the lack of business visibility, balance sheets and business management. As a result, BPR Bandung Kidul could not provide the farmers with loans that they need to improve their dairy business.

We greatly appreciate the support given by the ILO that allows our members to benefit more from the use of digital technology and gained new skills that enhance their productivity, knowledge and financial access.

H. Aun Gunawan, Head of KPBS 

Leveraging on the availability of open source software, Promise II Impact is supporting the digital transformation of KPBS by enhancing Enterprise Resource Planning (ERP) in its value chain ecosystem to support the scale of business, productivity, expansion of business, and better access to finance. Going forward, KPBS' ERP will be equipped with various user-friendly features on logistics, membership data, and animal health modules, which have benefited all current 2,050 KPBS members in its dairy cattle value chain ecosystem.

“With the new fast-approval loans facility launched last March, 140 members have received loans through this facility. We greatly appreciate the support given by the ILO that allows our members to benefit more from the use of digital technology and gained new skills that enhance their productivity, knowledge and financial access,” said H. Aun Gunawan, Head of KPBS.

The loan recipients have already appraised the effectiveness of using the application. They now receive the loan within a day of approval, which benefits their productivity as they no longer have to miss their essential working hours to tend to their cattle and dairy production. Dairy farmers can now apply for loans easily and fast, anytime and from anywhere.

Easier access to loan for seaweed farmers in East Sumba

© Gita Lingga/ILO

A similar easier access has been provided by Bank NTT to local seaweed farmers in East Sumba. The agriculture sector is considered as vulnerable business. Due to farmers’ high risk of harvest failure, income uncertainty and lack of business management, the financial service institutions like Bank NTT are still reluctant to give loans.

To help improving seaweed farmers’ business visibility and management, the Promise II Impact has developed a digital application in collaboration with Agree of PT Telkom Indonesia through its agrobusiness platform named Agree. The application was introduced and socialized to 200 seaweed farmers last May who also had undertaken ILO’s Promise II Impact’s financial literacy and entrepreneurship training programmes.

The application also connects the farmers with PT Algae Sumba Timur Lestari (PT ASTIL), regional-owned enterprise of East Sumba and the application’s Upstream-Downstream Traceability system has provided an assistance in monitoring and recording every stage of seaweed cultivation, such as maintenance, processing and product distribution.

“The application has opened the opportunity to connect between farmers, farmers and regulators and farmers with buyers. It has also opened a greater access to the loan as the digital traceability has provided the banking institutions with historical information on productivity and the potential production risk,” said Djauhari.

One of Bank NTT's missions is to explore the potential of regional sources to become more productive by channelling funds in the form of micro credit with an interest rate of 0 percent for the welfare of the society. We hope that this collaboration can be enhanced in order to improve financial services for seaweed farmers.

Stefanus Ngongo Mesa, SP, Head of Bank NTT Waingapu Branch, East Sumba 

As a result, 20 seaweed farmers received a Kredit Merdeka programme from Bank NTT amounting to Rp. 5 million per person with zero percent interest and no collateral. The greater access to loans also helps farmers avoid a high-risk loan from loan sharks. Additional farmers are in the process of accessing this programme.

"One of Bank NTT's missions is to explore the potential of regional sources to become more productive by channelling funds in the form of micro credit with an interest rate of 0 percent for the welfare of the society. We hope that this collaboration can be enhanced in order to improve financial services for seaweed farmers," said Stefanus Ngongo Mesa, SP, Head of Bank NTT Waingapu Branch, East Sumba.

Meanwhile, for Diana Mahalebu, a-38-year-old mother of five, one of the micro credit recipients said: “I am now more motivated with the new digital application and with the micro credit that helps me farming better. My future plan is to continue expanding my farm to not only increase my harvest production but also my income to support my family,” she stated.