Report No. 6917-IND Indonesia Rural Credit Sector Review (In Two Volumes) Volume II: Statistical Annexes April 29, 1988 Asia Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This report has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EUIVALENTS Before November 15, 1978 US$1.00 = Rp !i15 Annual Averages 1979-85 1979 US$1.00 Rp 623 1980 US$1.00 f Rp 627 1981 US$1.00 = Rp 632 1982 US$1.00 - Rp 661 1983 US$1.00 = Rp 909 /a 1984 US$1.00 a Rp 1,026 1985 US$1.00 = Rp 1,125 September 12, 1986 US$1.00 = Rp 1,644 /b FISCAL YEAR Government - April 1 to March 31 Bank Indonesia - April 1 to March 31 State Banks - January 1 to December 31 PRINCIPAL ABBREVIATIONS, ACRONYMS AND LOCAL TERMS Adat - customary ASKRINDO - PT Asuransi Kredit Indonesia (Credit Insurance Company of Indonesia) Bank Pasar - Market bank/petty trader bank BAPINDO - Bank Pembangunan Indonesia (Development Bank of Indonesia) BBD - Bank Bumi Daya BDB - Bank Dagang Bali BDN - Bank Dagang Negara BEII - Bank Export Import Indonesia BI - Bank Indonesia BIMAS - Bimbingan Hassal: "mass guidance" BKD - Badan Kredit Desa: village credit body BKK - Badan Kredit Kecamatan: subdistrict credit unit BKPD - Bank Karya Produksi Desa: village production bank BNI '46 - Bank Negara Indonesia 1946 BPD - Bank Pembangunan Daerah: regional development bank BPR - Bank Perkreditan Rakyat: secondary bank BRI - Bank Rakyat Indonesia /a On March 1, 1983, the Rupiah was devalued from US$1.00 = Rp 703 to US$1.00 = Rp 970. /b On September 12, 1986, the Rupiah was devalued from US$1.00 = Rp 1,125 to US$1.00 = Rp 1,644. FOR OFFICIUL USE ONLY INDONESIA statistical Annexes Annex 1: Financial System in Indonesia Table 1. Growth in Sectoral Value Added, 1981-86 2. Real Rates of Interest of Deposits 3. Total Bank Deposits in Nominal and Real Terms 4. Bank Indonesia Liquidity and Direct Credits 5. Changes in Factors Affecting Money Supply and Liquidity, 1983-86 6. Interest Rate of Commercial Banks, 1983-86 7. Priority Lending Programs: Bank Indonesia 8. Agricultural Credit Subsidies 9. Subsidies Inherent in BI Liquidity Credits to Agriculture 10. Sources and Uses of Funds of Various Financial Institutions 11. Share of Groups of Banks in Total Assets, Funds and Outstandiuig Loans 12. Total Loans Outstanding of the Financial System 13. Rural and Agricultural Loans Outstanding 14. Population per Bank/Office for Selected Countries 15. Institutional Structure of the Credit Market 16. Loans Outstanding of Rural Financial Institutions 17. Number of Financial Institutions (1980-86) 18. Assets of Secondary Banks and Pawnshops 19. Badan Kredit Kecamatans - Capital Accumulation 20. Outstanding Bank Credits in Rupiah and Foreign Exchange by Sector 21. Bank Credits as Proportion of Sectoral GDPs 22. Regional Distribution of Total and Agricultural Lending 23. Bank Indonesia Liquidity Credits for Rural Credit Programs 24. Bank Indonesia Liquidity Credits to Agricultural Lending 25. Rural Savings Deposits, 1983-85 26. Ratio of Quasi-Money to GNP in Selected Countries 27. Sources and Uses of Funds in Rural Credit Sector 28. Combined Balance Sheet of National Foreign Exchange Banks Annex 2: Scope for Development of Rural Financial Institutions Table 1. Balance Sheet: Bank Bumi Daya and Bank Rakyat Indonesia 2. Composition of Bank Bumi Daya Loan Portfolio 3. Comparative Performance of Bank Rakyat Indonesia and Bank Bumi Daya (1985) 4. Condensed Income Statements: Bank Rakyat Indonesia and Bank Bumi Daya 5. Performance Indicators of Rural Financial Insitutions This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Annex 3: Assessment of Selected Special Credit Programs Table 1. Externally-Assisted Tree Crops ProjectsS Loan Amount, Project Cost and Smallholder Credit Component 2. Loan Approvals, Outstanding and Arrears - KIK/RMKP 3. KUPEDES Lending Program 4. Badan Kredit Kecamatan Loan Types, Maturity and Interest Rates 5. Badan Kredit Kecamatan Lending Program 6. Credit Program Outreach 7. Analysis of KIK Arrears - January 1985 8. BRI KIK/KMKP Arrears of (August 1986) 9. Claims on ASKRINDO Insurance 10. KUPEDES Default Ratios 11. Badan Kredit Kecamatan Loss Ratios 12. Sources of Funds of Selected Credit Schemes 13. Cost of Financial Intermediation Annex 4: Financial Resource Mobilization Table 1. Financial Assets Available to Savers in Indonesia 2. Indonesian Bank Deposits, by Type, 1981-86 3. Distribution of BI Liquidity Credits by Bank Annex 5: Women in the Rural Financial Sector Table 1. Women's Participation in Specific Lending Programs and Institutions 2. Characteristics of Loans by Economic Class and Sex of Borrowers: West Java Study of Three Villages 3. Self-Employed and Employers in Rural Areas by Sex and Industry Group Annex 6: Financial Institutions in Indonesia Annex 7: Selected Credit Programs Annex 8: Savings Instruments in Indonesia ANNEX 1 Table 1 INDONESIA RURAL CREDIT SECTOR REVIEW Growth in Sectoral Value Added, 1981-86 (X p.a. at 1983 prices) Sectoral shares Average in 19S6 1981-83 1984 1985 1986/a (% of GDP) Agriculture 1.5 5.9 3.2 2.0 24.2 Mining and quarrying -7.5 7.0 -9.4 2.7 17.1 oil and gas (-8.0) (7.3) (-10.0) (2.8) (16.3) Non-oil (4.2) (0.9) (3.7) (1.5) (0.8) Manufacturing 2.1 16.3 5.4 3.8 13.0 LNG and refined oil (4.6) (44.8) (3.4) (3.5) (3.9) Other (1.4) (5.6) (6.2) (3.8) (9.1) Construction 2.6 -1.5 -1.3 0.2 5.5 Services 6.3 5.6 3.8 2.6 40.2 Gross Domestic Product (GDP) 1.4 6.6 1.1 2.5 100.0 of which: Oil/LNG sectors -6.7 12.2 -7.4 2.9 20.2 Non-oil sectors 3.9 5.1 3.5 2.4 79.8 Memo Items Gross national product (GNP) 0.5 6.1 1.7 4.3 95.8 Groas national income (GNY) -1.1 6.0 0.5 -4.6 86.5 /a Preliminary. Source: Central Bureau of Statistics (CBS) and World Bank staff estimates. -2- ANNEX I Table 2 INDONESIA RURAL CREDIT SECTOR REVIEW Real Rates of Interest of Deposits Real rates of interest Inflation savings rate /a deposits /b Time deposits /c 1975 19.7 -10.7 to -1.7 -13.7 to 4.3 1976 14.2 -5.2 to 3.8 -8.2 to 9.8 1977 11.8 -5.8 to 3.2 -8.8 to 6.2 1978 6.7 -0.7 to 8.3 -0.7 to 8.3 1979 21.8 -15.8 to -6.8 -18.7 to -6.8 1980 16.0 -10.0 to -1.0 -13.0 to -1.0 1981 7.1 -1.1 to 7.9 -4.1 to 7.9 1982 9.7 -3.7 to 5.3 -6.7 to 5.3 1983 11.5 0.5 to 3.5 3.3 to -6.8 1984 8.8 3.2 to 6.2 6.2 to 12.2 1985 4.3 7.7 to 10.7 9.7 to 16.7 1986 8.8 3.2 to 8.8 1.2 to 8.2 /a CPI figures based on a weighted basket of 115 to 150 goods and services. /b Based on the low and high interest rates for TABANAS savings accounts less CPI change. tc Based on the range of commercial bank time deposit rates less CPI change. Source: Bank Indonesia, 1987. ANNEX 1 Table 3 INDONESIA RURAL CREDIT SECTOR REVIEW Total Bank Deposits in Nominal and Real Terms (Rp billion) % growth % growth Nominal bank of nominal Real bank of real deposits /a deposits deposits /b deposits 1981 3,127 - 4,061 1982 3,897 24.6 4,667 14.9 1983 6,983 79.2 6,893 47.7 1984 9,331 33.6 8,250 19.7 1985 12,985 39.2 11,004 33.3 1986/c 13,933 7.3 11,439 4.0 /a Sum of deposit money bank time and savings deposits, and foreign currency deposits. /b Using WPI deflator (excluding oil) end 1983 base year. /c Figures for June 1986. Source: Bank Indonesia, October 1986. INDONESIA RURAL CREDIT SECTOR REVIEW Bank Indonesia Liquidity and Direct Credits (Amounts in Rp billion) 1983 1984 1985 1986 Annual x dis- Z dis- X dis- % dis- growth (x) Amount tribution Amount tribution Amount tribution Amount tribution Nominal Real Liquidity credit 4,442 68.2 4,759 72.5 7,590 97.2 8,583 99.4 24.6 16.6 Priority 1,996 30.7 2,579 39.3 3,224 41.3 4,199 48.6 28.1 20.0 Nonpriority 2,446 37.5 2,180 33.2 4,366 55.9 4,384 50.8 21.5 13.7 Direct credit 2,073 31.8 1,805 27.5 218 2.8 52 0.6 -70.7 -72.5 Total 6,515 100.0 6,564 100.0 7,808 100.0 8,635 100.0 9.8 2.9 Percentage of liquidity credit to total private credit (X) 42 - 33 - 43 - 44 - - - Source: BI Research and Development Division. -5- ANNEX I Table 5 INDONESIA RURAL CREDIT SECTOR REVIEW Changes in Pactors Affecting Money Supply and Liquidity, 1983-86 (Rp blllion) Annual growth (%) Changes in 1983/a 1984 1985 1986/a/b 1984 1985 1986/b 1986/c Net foreign assets 2,824 3,553 2,181 4,702 42.3 18.3 33.3 -10.0 Net government deposits '1,087 -3,255 -626 96 58.8 7.1 -1.0 -21.2 Credit to public enter- prises 61 t89 513 186 3.8 9.8 3.2 3.2 Credit to private sector 2,371 3,646 3,333 2,843 34.1 23.2 16.1 14.1 Net other assets -581 -859 -185 -3,710 21.9 3.9 74.4 11.8 Domestic liquidity (M2) 3,588 3,274 5,216 4,117 22.3 29.1 17.8 11.5 Money supply (MI) 448 1,012 1,523 1,157 13.4 17.7 11.5 11.5 Currency (399) (379) (728) (915) (11.4) (19.6) (20.6) (20.6) Demand deposits (49) (633) (795) (242) (14.9) (16.3) (4.3) (4.3) Time and savings deposits (QM) /d 3,140 2,262 3,693 2,960 31.9 39.5 22.7 11.6 tlemo Items M2/GDP ratio 19.9 21.0 25.7 27.3 QM/GDP ratio 9.6 10.9 14.5 16.0 /a Includes effect of the exch2nge rate changes on March 30, 1983 and September 12, 1986 /b Provisional data for October 1986. /c Excludes valuation changes resulting from the Seatember 12 devaluation. /d Includes foreign-currency deposits. Source: Bank Indonesia. -6- ANNEX 1 Tabl'e"6 INDONESIA RURAL CREDIT SECTOR REVIEW Interest Rates of Commercial Banks, 1983-86 (% p.a.) December December December September December 1983 1984 1985 1986/a 1986 Nominal Deposit Rates /b State banks 14.8 17.1 14.6 14.3 13.9 Private banks 17.4 20.7 15.9 15.1 14.8 Real Deposit Rates /c State banks 2.5 7.3 9.8 10.8 4.4 Private banks 4.8 10.6 11.0 11.6 5.2 Nominal Lending Rates _d State banks 17-24 17-24 17-24 16-24 16-24 Private banks 18-28 24-30 18-27 17-36 16-33 Real Lending Rates /c State banks 4-10 8-14 12-17 12-23 6-14 Private banks 5-14 14-19 13-22 13-32 6-22 Memo Items 1983 1984 1985 1986 LIBP-Le 9.7 10.9 8.4 6.8 Inflation differential between Indonesia & USA 8.6 6.1 1.3 7.2 /a Rates prior to the devaluation of September 12, 1986. 7W Nominal rates on three-month time deposits. 77 Deflated by the Consumer Price Index for the relevant year. 7T Nominal rates on working capital and term loans; the amount of lending undertaken by banks at the maximum interest rates is generally quite small. /e London Interbank Offer Rate on three-month US dollar deposits. Source: Bank Indonesia and World Bank staff estimates. INDONESIA RURAL CREDIT SECTOR REVIW Priority Lendiai1 Progras: fank Indonesia (Septeme 30, 1986) Program Progra Date Loan cell- Interest Uquidity Max. term Bforover fanks Collateral am objectives started tus (Itp) rate *bare A cost of loan share Involved Share rlsks awint/form A. Workint Capital KREDIT ESPO8R: Exporters 01/82 - 92 BI 702 0 31 I yr ISS All banks ASKRTNDO 851 dities co (Export Credit) credit Si 7.5S cerned us 7.51 KPt KCredit Small eanter- 01/74 15 m 12X 8I 52 e 3 5 yrs 01 All national ASIUINDO 751 At least IOS Modal Kerja prises W.B. 25X 0 10.11 He 251 lowm Permane (Work- iug Capital Credlt) Production. die- - 11/69 Open 122 St 751 e 31 I yr 25S 8RI: import & RB 100C Commodities con- tribution and distribution erned Import credits for fertilizers a checals for PS:s Kredit Palm oil. tea, 071/78 Open 12X BE 752 Q 31 Open 30 0EtI, 0BD, 12t He 1001 At least IO0 Perkebunan coffee. rubber, BDN. SAPINDO loan Swasta Hawsonal cocoa, coSonut (Private tr e Estates) Kits: Credit Naedium nter- 05/84 75 a 15S at 7O1 0 3X 1 yr g01 All national ASKRINDO 701 At least 1001 Modal Kerja prises H8 301 loan (Working Capital Credit) KIMt: tEPPBES State Enter- 05/84 75 a 15X 81 701 Q 3Z I yr 302 All nattional ASKRINDO 702 At least IOO1 29/1984 (Working prises H8 302 loan Capital Credit) CKi: Kredit $=1t traders 04/76 2,000 121 - S days- 02 KODs CO0 1001 Candak Kulak 15,000 7 months KUPEDESs (Vil- Small borrawers 02/84 1 a taX at 75X 0 15S 2 yrs O0 SRI BaR 1001 At least 100I lage Credit) flat lo*n KUt: (Kredit Farm production 06/85 80,000 122 GOI 1OOZ e 32 7 months O B81 a cha nnel Penn PKtK 952 Assets created Usdha: Tani) 100,000/ba for ItUO SRI S (armer Groups) 00/ o s UEDItT I/P a. Priortty goods 09181 Open 122 8I 902 e 31 3 yrs OX National banks Peru pxK 902 At least 1o00 COPESASI (Co- purchase CODslly BSt 881 loan ops Credit) BI 51 Ooa St Credit Program (continuation) Program Program Date Loan cell- interest Llquloity Has. term Borower Banks Collateral nnmm objectives started ings (Op) rate share & cost of loan share Involved Sh. . rtsks amount/form B. Investment Loans 21P19RS Small borrowers 02/84 1 m 12S BI 1002 0 32 3 yrs 02 BRI BRI 100 At least 100I flat loan tIt: tredit In- Small entre- 01/74 1I a 121 BI 552 e 32 8Byrs ox All ASKRIX O 751 At Icast 1001 vestast (Small preneurs We 251 e 10.11 HB 251 luan Investment Credit) KR130T PZRUK- BUNAN: (Tree Crope) a. PIR Nacleus estatess 08/t0 Open 122 t aos o 31 20 srs 0O SRI, BBD 8B 1005 COt guarantee tea, rubber 6 811 Small farmer oil palm plots are at 00t risk b. PRPTE As above plus 1979 Open 121 SI 801 e 31 20 yrs O SRI, BBD 8B 100 001 guarantee cocoa, coffee. _ B111 Small farmer pepper 6 coconut plots are at 1GO1 rk CD c. PSN Large private 06/78 Open t21 BI 851 e 31 10 yrs 1O0 BAPINDO HUB IOS At least 1001 estates: tea, IOan oil palm, cocoa. coconut, coffee, rubber Paddy Field For- 1. Construction 09/79 pen 32 BI b0010 32 1-2 yrs - firect creEdl CO0 001 mation riee fields to ini. Agri. 2. AS above and - - 10.5S ST too1 e 3S 10 yrs - SRI cOt 601 0O0 becomes lIK at 2t.5S type loan tn bIt 12.5S farmer's name 3. An above - - 121 RI 80X e 31 10 yrs - BBI G0 602 GOX for 2 BI 27.5S SRI 12.5S XI: Investast Nedimi size 06/83 73 122 B M801 31 10 yrs 101 All us 1001 At least 1001 (Investment enterprIses IOaD Credit) Iredit loperast: (Investment Credit Cooper - tives) a. Prtority our- 09/81 - 12S St 9010 31 10 yrs O0 All state Perum PX1 90S chase priority banks SRI SS goods SI 5X b. Other activities I_ _ . . . w Fh~~~~~~~~~~~~~~~~~~~~~ -9- ANNEX 1 Table 8 INDONESIA RURAL CREDIT SECTOR REVIEW Agricultural Credit Subsidies (Rp billion) Dec Dec Dec Jun 1983 1984 1985 1986 Total State banks 70.9 75.4 94.5 113.9 354.7 National private banks 1.2 2.0 2.6 3.8 9.6 Regional devel- opment banks 1.5 1.7 2.1 2.3 7.6 Foreign banks - 0.1 - 0.1 0.2 Total 73.6 79.2 99.2 120.1 372.1 Source: Estimated from BI statistics using a market reference rate of 18%. ANNEX 1 - 10 - Table 9 INDONESIA RURAL CREDIT SECTOR REVIEW Subsidies Inherent in BI Liquidity Credits to Agriculture (Rp billion) Agriculture liquidity credits Subsidies Mar Mar Mar Mar Mar Mar Mar Mar Mar 1983 1984 1985 1986 1983 1984 1985 1986 1983-86 BIMAS 139 136 110 29 12.51 12.24 9.90 2.61 37.26 KUDs 209 208 164 193 '8.81 18.72 14.76 17.37 69.66 Sugar nurseries 0 8 13 13 0.00 0.72 1.17 1.17 3.06 Import/Distn. fert. 35 130 184 171 3.15 11.70 16.56 15.39 46.80 KMKP 56 5E 56 57 5.04 5.04 5.04 5.13 20.25 KIK 101 96 90 86 9.09 8.64 8.10 7.74 33.57 Tree crops 134 225 324 513 12.06 20.25 29.16 46.17 107.64 KKK/KI/Kelayakan 6 4 9 63 0.54 0.36 0.81 5.67 7.38 Paddy formation 22 23 24 24 1.98 2.07 2.16 2.16 8.37 Total 710 901 994 1,191 63.18 79.74 87.66 103.41 333.99 Note: Reference rate is 12%. INDONESIA RURAL CREDIT SECTOR REVIEW Sources and Uses of Punds of Varsous Vamcial Institutions (Rp billionk) National foreign Other cor- Development Secondary Sedan kredlt e chanie baziksa Forelon banks/b mercial banks banks Savings banks banks lc kecanatan A2nunt X Anount X AmmAAount 2 Amount X AAount 2 Sources Deposits 16,204.0 S8.39 2,090.0 87.16 2,165.0 77.77 1.101.0 37.77 153.0 9.80 113.0 65.32 2.2 18.33 Borrowings 9.439,0 34.01 238.0 9.92 335.0 12.03 1.330.0 45.63 1,086.0 69.57 16.0 9.25 3.5 29.17 Equity 2,107.0 7.59 70.0 2.92 284.0 10.20 484.0 16.60 322.0 20.63 44.0 25.43 6.3 52.50 Total 27,750*0 100.00 2,398.0 100.00 2,784.0 100.00 2,915.0 100.00 1,561.0 100.00 173.0 100.00 12.0 100.00 Uses Loans 18,817.0 67.81 1,173.0 48.92 2,3S7.0 84.66 2,397.0 82.23 1,282.0 82.13 143.0 82.66 12.0 100.00 Investments 6,547.0 23.59 1,093.0 45.58 223.0 8.01 334.0 11.46 207.0 13.26 0.0 0.00 0.0 0.00 Others 2,386.0 8.60 132.0 S5S0 204.0 7.33 184.0 6.31 72.0 4.61 30.0 17.34 0.0 0.00 Total 27,750.0 100.00 2.398.0 100.00 2.284.0 100.00 2.915.0 100l.0 10 561.0 100.00 173.0 100.00 12.0 100.00 Consist of five state and tea prtvate banks. [3! Consist of ten foreign banks and one joint bank. / Consist of bank pasar, village and production banks. - 12 - ANNEX 1 Table Tl INDONESIA RURAL CREDIT SECTOR REVIEW Share of Groups of Banks in Total Assets, Funds and Outstanding Loans (Percentage) Assets Loans Funds 1983 1984 1985 1983 1984 1985 1983 1984 1985 State banks 77 74.8 73.4 78.4 74.4 73.9 70.7 69.5 66.6 National private banks 11.2 13.9 15.3 11.9 15.5 17.5 13.2 16.5 18.5 Local development banks 3.2 3.5 3.5 3.2 3.1 2.9 3.5 3.6 3.9 Foreign banks 8.6 7.8 7.8 6.5 7.0 5.7 12.6 10.6 11.0 Source: Bank Indonesia. - 13 - ANNEX 1 Table 12 INDONESIA RURAL CREDIT SECTOR REVIEW Total Loans Outstanding of the Financial System (Rp billion) Loans outstanding 1985 June 1986 Amount % Amount % Banks /a Bank Indonesia (direct credits) 964.0 4.07 1,103.0 4.36 State banks 15,145.0 63.95 15,586.9 61.61 Other commercial banks 4,106.0 17.34 4,715.0 18.64 Foreign banks 1,073.0 4.53 1,060.0 4.19 Development banks 640.0 2.70 666.0 2.63 Savings banks 1,005.0 4.24 1,325.0 5.24 Subtotal 22,933 96.83 24,455.0 96.67 Nonbank financial institutions 162.0 0.68 182.6 0.72 Rural Financial Institutions (RFIs) BRI Unit Desa 229.0 0.97 285.1 1.13 Secondary banks 214.3 0.90 233.0 0.92 Bank Pasar 193.0 0.81 209.8 0.83 Village banks 19.0 0.08 20.7 0.08 Paddy banks 2.3 0.01 2.5 0.01 Pawnshop 64.8 0.27 61.4 0.24 Other rural nonbank financial institutions 81.0 0.34 81.0 0.32 BKKs, KURKs, etc. 31.0 0.13 31.0 0.12 KUDs 50.0 0.21 50.0 0.20 Subtotal RFIs 589.1 2.49 660.5 2.61 Total Credit Outstanding 23,684.1 100.00 25,298.1 100.00 /a BI statistics. INDONESIA RURAL CREDIT StCTOR REVIEW Rural and Agricultural Loans Outstandlng (In Rp billions) 1981 1982 1983 1984 1985 June 1986 Loans S Loans S Loss I Loans Loa-s Loans x Agrleultural Credit by Comaer- ci-l and Development BanksLa State banks 784.0'1 41.57 986.00 41.75 1,181.00 44.19 1,256.00 43.52 1,575.00 44.32 1,899.00 46.93 National private banks 12.00 0.64 14.00 0.59 20.00 0.75 34.00 1.18 45.00 1.27 63.00 1.56 Regional development banks 17.00 0.90 25.00 1.06 25.00 0.94 28.00 0.97 35.00 0.98 38.00 0.94 Foreign banks - - - - - - 2.00 0.07 1.00 0.03 2.00 0.05 BBD rural nonagricultural credit 208.00 11.03 279.00 l1.8k 302.80 11.30 275.90 9.56 393.40 1L.0? 467.20 11.55 EfK/RNgp nonagricultural credit 778.00 41.25 942.00 39.88 918.00 34.35 994.00 34.45 960.00 27.01 960.00 23.72 Subtotal 1,799.00 95.40 2,246,00 95.10 2.446.00 91.53 2,589.90 89.75 3.009.40 84.68 3.429.20 84.75 Rural Financial Institutions BRI unlt disa lb 50.00 2.65 75.00 3.18 93.00 3.48 89.00 3.08 229.00 6.44 285.10 7.05 Bank Pasars n.a. n.a. n.e. n.a. 63.00 2.36 121.00 4.19 193.00 5.43 210.00 5.19 Village banks 9.10 0.48 11.60 0.49 13.60 0.51 16.10 0.56 19.00 0.53 20.60 0.51 Paddy banks 0.40 0.02 0.70 0.03 1.30 0.05 1.80 0.06 2.30 0.06 2.50 0.06 KUDs / cu aa s n.a. n.a. n.a. 20.00 0.75 27.60 0.96 28.20 0.79 28.00 0.69 Pawnshops Ic 27.40 1.45 28.50 1.21 35.40 1.32 40.30 1.40 42.10 .18 39.90 0.99 l Us, KURKs, etc. U.&. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 31.00 0.87 31.00 0.77 Subtotal (RFIs) 86.90 4.61 1154.0 4.90 226.30 8.47 295.80 10.25 544.60 15.32 617.10 15.2S Total Rural Credlt 1.885.90 1OP.00 2,361.80 100.00 2.672.30 100.00 2,885.70 100.00 3.SS4,00 100.00 4.046.30 100.00 In constant 1983 Pdees /d 2,449.23 2,828.50 2,672.30 2,551.46 3,011.86 3,322.08 la B1 statistics. lb Consisted of llinl and Nidl Credits before January 1984 and thereafter KUPEDES loans. /c BL statistics and Ministry of Finance estimates of the distribution of credit. /d Using WPI deflator (excluding o11): 1981 - 77.0; 1982 - 83.5; 1983 - 100.0; 1984 - 113.1; 1985 - 118.0; and 1986 - 121.8. ANNEX 1 - 15 - Table 14 INDONESIA RURAL CREDIT SECTOR REVIEW Population per Bank/Office for Selected Countries Population per bank office Urban Rural Indonesia 18,287 40,220/a Philippines 5,900 18,100 Thailand 9,826 20,278 India 6,910 23,449 Pakistan - 22,497 /a Outside Java. Note: 1983 data from M.H. Agabin, "Rural Savings Mobilization, Asian Perspective and Prospects," September 1985, Technical Board for Agricultural Credit, Manila, Staff Paper 2-85. ANNEX - 16- TabJle M*St CuSSlt )V,tW nstltatien l Steetutei of tbe Cdilt "Mrket L1wl/ toa siz ifettati Stbur of loea saotoi type of tosttua etios _ets o p stop opstloi (3'000) tetotlyt Coll.t@tI) 10t55 t lM typ 0t bertat boitowtr. to 1"S V( V11las. UKs. VLS, etc. Ptow. Sow ots Sten otuteoeplw- 100o Short-tax, not lo 26.In30 p.. mtlb rtowl troders62 oxty w"top *My As. *S7 sucsdt I it 520, 510. tJI Los toermtu UIbt bank; calloty 20 mu. alums of ole.t In tor 10- Mwetly te tedtr 7)0 sewlap Ae. * 30 10 was" VAs posIeS ot KlOs cotelwen Crndt 6 s o 0.. son-tore lb" 13t p.&. CoopotI"s esebetr U3 b SubdIStrict 811 cut de" ste-amse Ureca itwu oIle eO- I O10 000 up to S tr 1r05. build- 2t-2 p.s. etly sotel oatre 991 "rp 0esUg Awf. - 460 og. oip- prosre" sod treder mmt with tollat4tel tak Pses priets* sn 7 de best wooary I0 MO_O. bAir_ of I It ?teIe is- MeuiWA32 Pet t*" tI*ndorT 262 omnweat *3 sawlp Awe. * 735 VeStnr0. wombh a _omee- Coerptstive ox fid seetm sits dosit of St of 1loss aff*ctti* . 48.402 paw. p!a_shop State Uit beki so neip 2.-300 up to I 1ntre Coerm malmall per Pilon * 362 4.00 dussbls". ot" looe P_.htm_o * 62 jlx1"v eds^ this Intel ctade eX Up 20.,01 -a (bet - 34t Wpea"ot lI"" ffsfe*r this ft 20.000; District end ProvInce sm fte rw.soiarnust Stescb unetwos voles- 5W30-470, fott-. modive- Lend. fluid WM24 p.s. lmll- 6 wdie-$c*I* tory ewvisg 6 other, loneg-term sial sotrpreour _ 4*WM* s tW ervi*etrP|s Iracwl, of com_r- is I ptiwtte Wench etork; volun- lb lund Shont-, sidi- lead. flzed lKl bak * tblic ettptle. clil 6 de. beak sary dilgp 6 ethet eIltlg & long-tsrs Sssets 5-24 p.s. 0 t* - 6 litge-stle OVIten Ptivate M at*pi ftttoos) M2ftta sd Ste 6 PrIvet grsm% utoxkg full Me t(ud Shout-. rnlm load, tflud State beak - twhlt 55151p1is5. breec of s_oe- bea 6 Itsi"el eiiugt 12t2 p.s ltrs.-.cel, lePrt- dcal A d5w. banks. servites Psvetse ars" 6 torsig enebeak I itiecUl lSS Jeitituttfoes ts Jkiorts lTt" to t e.2U9. 4-b Istloste of sumber of cooperstiwe wen - 17 - ANNEX 1 Table 16 INDONESIA RURAL CREDIT SECTOR REVIEW Loans Outstanding of Rural Financial Institutions (Rp billion) December 1985 June 1986 Amount % Amount % BRI unit desas 229.0 42.0 285.1 46.2 Bank Pasars 193.0 35.4 210.0 34.0 Village banks 19.0 3.5 20.6 3.3 Paddy banks 2.3 0.4 2.5 0.4 Pawnshops 42.1 7.7 39.9 6.5 BKKe, KURKs, etc. 31.0 5.7 31.0 5.0 KUDs 28.2 5.2 28.0 4.5 Total 544.6 100.0 617.1 100.0 - 18 - TAe 17 I INDONESIA RURAL CREDIT SECTOR REVIEW Number of Rural Financial Institutions (1980-86) BRI unit Secondary Pawn- Growth desas banks shops BKKs KUDs Total rate (%) 1980 3,432 5,833 N/A 486 4,752 14,503 - 1981 3,610 5,792 463 486 5,254 15,605 7.6 1982 3,617 5,808 471 486 5,254 15,636 0.2 1983 3,626 5,811 473 491 6,141 16,542 5.8 1984 3,626 5,825 474 496 6,579 17,000 2.8 1985 3,626 5,835 479 496 N/A N/A - 1986 2,272 5,820 479 497 6,786 15,854 - - 19 - ANNEX 1 Table 18 INDONESIA RURAL CREDIT SECTOR REVIEW Assets of Secondary Banks and Pawnshops (Rp billion) 1981 1982 1983 1984 1985 Secondary Banka Total assets In current prices - Value 60.3 79.9 103.5 177.3 292.4 % growth - 32.5 29.5 71.3 64.9 In constant prices - Value 78.3 95.7 103.5 156.8 247.8 % growth - 22.2 8.2 51.5 58.1 2 of assets to total assets of financial institutions 0.23 0.24 0.24 0.32 0.44 Pawnshops Total assets In current prices - Value 59.2 78.6 81.4 90.9 105.2 % growth - 32.8 3.6 11.7 15.7 In constant prices - Value 76.9 94.1 81.4 80.4 89.2 X growth - 22.4 -13.5 -1.3 10.9 % of assets to total assets of financial institutions 0.22 0.24 0.19 0.16 0.16 Note: Secondary banks include Bank Pasar, village banks and paddy banks. Source: Bank Indonesia Economic and Statistics Division. - 20 - ANNE I INDONESIA RVRAL CREDIT SECTOR REVIEW 8adan Kredit Keeamatans - Capital Accumulation tKIp)- Loans outstanding End of minus payment over- Borrowed Equity (retalned year due-current assets capital Savings earninse) (1) (2) (3) (1-2-. 1972 213,428,597 -31,469,685 T1G13,5$V1z 152,263,500 38,389,316 (-8,694,086) 1973 498,256,179 -89,787 971 408,468,208 306,012,388 110,699,534 (-8,243,714) 1974 857,929,870 -181.271 941 -a7.b37,!2 446,091,673 220,101,512 10,464,744 1975 1,096,294,184 -245.349 134 GDU,94.3#U3U 463,616,242 285,392,121 101,936,687 1976 1,305,824,896 -326.514 564 79,31U,332 462,236,249 338,350,749 178,715,334 1977 1,420,097,129 -361.566 528 1,058,:30,601 422,038,972 356,273,056 280,218,573 1978 1,581,211,393 -374 974 308 1,206;Z37,n 394,354,418 385,466,791 426,415,876 1979 1,886,175,896 -454 046 228 i,43Z,T s9,668 397,568,712 435,743,355 598,817,601 1980 2,507,736,077 -560 964 914 T77T~T~ 500,336,759 565,943,347 880,491,057 1981 3,319,535,051 -675,666 066 z,643,868,985 572,179,840 733,837,997 1,337,851,148 1982 4,817,822,677 -808,176 519 4,009,T 46.TW 1,001,204,979 1,002,394,497 2,006,046,082 1983 6,598,388,679 -1.000.930 309 393V7,4377 1,325,447,710 1,372,403,983 2,899,606,677 1984 9,421,244,181 -1.359 965 022 1,982,926,325 1,794,062,852 4,884,289,982 1985 11,943,055,206 -1 904 443 023 10 038 612 183 2,478,087,461 2,156,831,874 5,403,692,848 1986 14,097,265,491 (Sep) -2.073.838 225 1z,2Z3,4z/!7, 3,465,895,051 2,246,781,275 6,310,750,940 -21 - ANNEX 1 Table 20 INDONESIA RURAL CREDIT SECTOR REVIEW Outstanding Bank Credits In Ruplah and Foreign Exchange By Sector (Rp billion) Annual Sector 1980 1981 1982 1983 1984 1985 1986 change X Current Prices Agriculture 526 813 1,025 1,226 1,318 1,656 2,071 26.9 Mining 1,866 1,693 1,472 807 384 258 357 -25.0 Industry 2,563 2,763 3,923 5,207 6,667 7,592 8,022 21.9 Trade 1,977 3,062 4,129 5,132 6,344 7,255 8,277 28.3 Services 482 1,385 1,867 2,276 3,169 4,183 3,834 43.4 other 466 444 606 651 931 1,213 1,985 28.7 Total 7,880 10.159 13.022 15,299 18,813 22,157 24,546 21.8 Annual Change 7 n) - 28.9 28.2 17.5 23.0 17.8 14.6 1983 Constant Prices /a Agriculture 750 1,056 1,228 1,226 1,165 1,403 1,700 15.3 Mining 2,662 2,199 1,763 807 340 219 293 -31.9 Industry 3,656 3,588 4,698 5,207 5,895 6,434 6,586 10.8 Trade 2,820 3,977 4,945 5,132 5,609 6,148 6,796 16.5 Servtices 688 1,799 2,236 2,276 2,802 3,545 3,148 30.3 Other 665 577 726 651 823 1,028 1,630 16.9 Total 11,241 13,196 15,596 15,299 16,634 18,777 20,153 10.7 Annual Change 17.4 18.2 -2.0 8.7 12.9 9.9 Percentage Distributioa Agriculture 6.7 8.0 7.9 8.0 7.0 7.5 8.4 Mining 23.7 16.7 11.3 5.3 2.0 1.2 1.5 Industry 32.5 27.2 30.1 34.0 35.4 34.3 32.7 Trade 25.1 30.1 31.7 33.5 33.7 32.7 33.7 Services 6.1 13.6 14.3 14.9 16.8 18.9 15.6 Other 5.9 4.4 4.7 4.3 4.9 5.5 8.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 /a Using WPI deflator (excluding oil): 1980 - 70.1; 1981 - 77.0; 1982 - 83.5; 1983 - 100.0; 1984 - 113.1; 1985 - 118.0; and 1986 - 121.8. Source: BI Statistics, December years except 1986 which is in September, World Bank Base Data. - 22 - ANNEX I Ta-b 2 INDONESIA RURAL CREDIT SECTOR REVIEW Bank Credits as Proportion of Sectoral GDPs Sector 1980 1981 1982 1983 1984 1985 Current Prices Agriculture 4.5 6.0 6.8 6.9 6.4 7.3 Mining 16.6 12.8 12.1 5.8 2.4 1.7 Industry 40.3 39.1 52.4 63.4 58*8 58.5 Trade 27.0 34.2 40.6 42.7 45*4 49.0 All sectors 16.1, 17.4 20.8 20.7 21.5 23.1 1983 Constant Prices Agriculture 4.6 6.1 7.1 6.9 6.2 7.3 Mining 16.6 13.5 12.7 5.8 2.3 1.6 Industry 50.0 45.5 58.9 63.4 62.1 64.0 Trade 27.9 36.3 42.1 42.7 45.6 50.0 All sectors 16.9 18.4 21.9 20.7 21.3 23.6 - 23 - Table 22 INDONESIA RURAL CREDIT SECTOR REVIEW Reglunal Distrlbution of Total and Agricultural Lendins (March 1986) Per I dis- Per capital tribution capita S dis- Total Agric. agric. total Total total tribution Agric. population lending lending agric. lending lending total lending Province (1000) (Rp bln) (tRP) lending (Rp bln) (Rp) lending I total Aceh 2,999.9 17.5 5,834 1.0 166.9 55,635 0.8 10 North Sumatra 9,452.0 672.6 71,160 36.9 1,431.5 151,449 6.8 47 West Sumatra 3,779.6 19*4 5,133 1.1 307.0 81,226 1.5 6 Riau 2,513.4 38.8 15,437 2.1 246.6 98,114 1.2 16 Jambi 1,755.3 5.2 2,962 0*3 98.9 56,344 0.5 5 Banxkulu 946.9 1.4 1,479 0.1 34.9 36,857 0.2 4 South Sumatra 5,423.1 12.0 2,213 0*7 349.9 64,520 1.7 3 Lmpung 6,089.7 49.2 8,079 2.7 315.1 51,743 1.5 16 West Java 31,142.0 140.6 4,515 7.7 1,618.3 51,965 7.7 9 DKI Jakarta 7,873.2 182.7 23,205 10.0 10,644.4 1,351,979 50.4 2 Yogya 2,891.1 15.2 5,258 0.8 167.2 57,833 0.8 9 Central Java 27,387.2 177.0 6,463 9.7 1,249.1 45,609 5.9 14 East Java 31,266.7 325.5 10,410 17.8 2,309.1 73,852 10.9 14 Bali 2,672.0 16.0 5,988 0.9 180.0 67,365 0.9 9 West Kalimantan 2,771.5 34.3 12,376 1.9 350.0 126,285 1.7 10 Central Kalimantan 1,123.9 1.3 1,157 0.1 56.6 50,360 0.3 2 South Kalilantan 2,285.5 30.3 13,257 1.7 288.3 126,143 1.4 11 East Kalimantan 1,603.0 33.0 20,586 1.8 352.7 220,025 1.7 9 North Sulawesi 2,359.0 12.0 5,087 0.7 131.7 55,829 0.6 9 Central Sulawesi 1,549.8 3.6 2,323 0.2 66.5 42,909 0.3 5 East Sulawesi 1,091.9 1.1 1,007 0.1 33.1 30,314 0.2 3 South Sulawesi 6,574.7 22.2 3,377 1*2 341.6 51,957 1.6 6 Maluku 1,617.4 4.6 2,844 0.3 245.1 151,540 1.2 2 NTB 3,045.1 6.7 2,200 0.4 67.6 22,200 0.3 10 NTT 2,999.3 2.3 767 0.1 41.2 13,737 0.2 6 Timor Timur 608.4 0.1 164 0.0 3.8 6,246 0.0 3 Irian Jaya 1,332.0 0.6 450 0.0 39.2 29,429 0.2 2 Total 165;153.6 1.825.2 11.052 100.0 21,136.3 127.980 100.0 9 /a Outstanding of all banking credits, excluding Interbank and foreign residents loans. Source: Bank Indonesia Economics and Statistices Department. - 24 - eX I Tab le 23 INDONESIA RURAL CREDIT SECTOR REVIEW Bank Indonesia Liquidity Credits for Rural Credit Programs (Rp billion) 1983 1984 1985 1986 Rural and Small Loans Working Capital BIMAS 139 136 109 29 MIDI/KUPEDES 32 56 70 142 KMKP 620 621 621 634 PSN - - 3 2 Cooperatives 136 157 165 204 Total 927 970 968 1,011 Term Investments MIDI/I KUP%ES- 6 12 23 51 KIK 360 343 323 307 PIR 43 73 119 211 PRPTE 75 112 122 124 PSN 15 40 80 176 Cooperatives 30 43 41 29 Total 529 623 708 898 Total Rural 1,456 1,593 1,676 1,909 Share of total (X) 73 62 52 45 Nonrural and Large Loans Other Prog rams import, procuction of fertilizers 35 130 184 171 Export credits 172 389 635 981 KMK/KEPPRES - - 53 122 Investment credits (KI) 30 6 31 63 National contractors - - 13 41 House purchase 245 398 558 764 Teachers, student credit 58 63 74 148 Total Nonrural 540 986 1,548 2,290 Share of total 27 38 48 55 Total BI Prioritz Program LEIUld ty uredith 1,996 2,579 3,224 4,199 Source: BI, Division of General Credits. INDONESIA RURAL CRFDtT SECTOR REVIEW Bank Indonesia Liquidity Credits to Agticultutal Lending (Rp billion) Estimated Program totals Estimated totals for agriculture Annual agriculture March March March Mar March March March March change (1) 1983 1984 1985 1986 1983 1984 1985 1986 (O *. Current Market Prices BDIMAS 100 139 136 110 29 139 136 110 29 -40 KUDs /a 70-90 306 212 205 241 209 208 164 193 -3 Sugar e-rseries lb 100 0 8 13 13 0 8 13 13 18 Midi/Kupedes /c 22 37 68 93 193 8 15 20 42 74 Import/distn.lFertilizer 100 35 130 184 171 35 130 184 171 70 KHKP /d 9 620 621 621 634 56 56 56 57 1 KIK /7- 28 360 343 323 307 101 96 90 8S -5 Tree crops 100 134 225 324 513 134 225 324 513 56 KK/ I/KtELAYAKAN /a 10-15 40 29 58 658 6 4 9 63 219 Paddy formation 100 22 23 24 24 22 23 24 24 3 Total 1.693 1.795 1.955 2.783 710 901 995 1.191 19 8I Agricultural Llquldity Credits as y or total Agrncultnral Credlts 62 69 72 65 II. 1983 Constant Values BIMAS 100 139 120 93 24 139 120 93 24 -44 KUDa /a 70-90 306 187 174 198 209 184 139 158 -9 Sugar nurseries /b 100 0 7 11 11 n 7 It 11 25 Midi/Kupedes /c 22 37 60 79 158 8 13 17 35 64 Import/distn.7-Fertilizer 100 35 115 156 140 35 115 156 140 158 KMKP /d 9 620 549 526 52t 56 49 47 47 -6 KIK tr 2R 360 303 274 252 101 85 77 71 -11 Tree-crops 100 134 199 275 421 134 199 275 421 46 KMK/KI/KELAYAKAN /a 10-15 40 26 49 540 6 4 8 52 205 Paddy formation 100 22 20 20 20 22 20 20 20 -3 Total 1.6V3 1.587 1.657 2.285 710 797 843 978 11 /a Share estimated from BRI statistics. 7-b From BRI statistics for December years. 77 Based on BRI loans outstanding proportions December 1985. 7R Based on national data August 1986. 7e From Bank Indonesia Weekly Statistics Report. Source: RI Research and Development Division. -26 - ANNEX 1 Tab'le 25 INDONESIA RURAL CREDIT SECTOR REVIEW Rural Savings Deposits, 1983-85 1983 1984 1985 Rp bln % Rp bln % Rp bln z BRI Demand deposits 602.4 58.8 1*004.4 59.2 910.5 41.2 Time dztosits 194.4 19.0 364.1 21.5 705.2 31.9 Savings 148.8 14.5 147.7 8.7 256.4 11.6 Subtotal 945.6 92.2 1,516.2 89.4 1,872.1 84.7 Rural Financial Institutions 79.7 7.8 180.0 10.6 337.5 15.3 Unit Desas Demand deposits - - 2.0 0.1 13.8 0.6 Time deposits - - 0.7 0.04 2.0 0.1 Savings deposits TABANAS - 38.6 2.3 63.6 2.9 SIMPEDES - - - 5.04 5.1 0.2 Certificates of deposit - - 0.8 0.05 0.1 - other - - 0.8 0.05 0.2 0.01 Subtotal unit desas _ - 42.9 2.5 86.8 3.8 Secondary banks 59.7 5.8 113.5 6.7 212.3 9.6 KUDs 20.0 2.0 23.6 1.4 28.2 1.3 BKK-type institutions n.a. - n.a. - 5.1 0.2 Savings and loan associations n.a. - n.a. - 7.1 0.3 Total 1,025.3 100.0 1,696.2 100.0 2,209.6 100.0 % total bank deposits 8.5 10.8 10.8 ANNEX I - 27 - Table 26 INDONESIA RURAL CREDIT SECTOR REVIEW Ratio of Quasi-Money to GNP in Selected Countries Indonesia Malaysia Philippines Thailand 1980 0.07 0.34 0.12 0.27 1981 0.07 0.38 0.14 0.29 1982 0.09 0.42 0.16 0.35 1983 0.10 0.43 0.17 0.41 1984 0.13 0.44 0.15 0.47 1985 0.14 0.48 0.15 0.50 Source: International Financial Statistics, December 1986. ANNEX I - 28 - Tbe2 INDONESIA RURAL CREDIT SECTOR REVIEW Sources and Use of Funds in Rural Credit Sector 1983 1984 1985 Rp bln % Rp bln % Rp bln % Sources BI rural liquidity credit /a 1,456.0 56.7 1,593.0 46.8 1,676.0 41.4 Internally generated funds 1,112.0 43.3 1,814.0 53.2 2,373.0 58.6 Rural savings deposits /b 1,025.0 39.9 1,696.0 49.8 2,210.0 54.6 Equity 87.0 3.4 118.0 3.5 163.0 4.0 BRI Unit Desas 59.0 - 85.0 - 117.0 - Secondary banks 26.0 - 31.0 - 44.0 - BKKs 2.0 - 3.0 - 2.0 - Total Rural Funds 2,568.0 100.0 3,049.0 100.0 4 0 1.0 Uses Rural credit /c 2,672.3 2,885.7 3,554.0 Surplus (deficit) (104.3) 1,521.3 495.0 Ratio of rural credit to rural funds (%) 104 85 88 /a Annex 1, Table 22. /b Annex 1, Table 24. /c Annex 1, Table 12. ANNEX 1 - 29 - Table 28 INDONESIA RURAL CREDIT SECTOR REVIEW Combined Balance Sheet of National Foreign Exchange Banks /a Percentage Rp Distribution billion (Z) Assets Reserves Cash 430 1.6 Demand deposits with BI 1,901 6.9 Foreign assets 5,442 19.8 Claims on public sector Central government 638 2.3 Official entities and public enterprises 4,232 15.4 Claims on private enterprises and individuals 13,495 49.1 Other assets 1,331 4.9 Total 27,469 100.0 Liabilities Demand deposits 3,906 14.2 Time and savings deposits 7,904 28.8 Foreign-currency deposits 2,392 8.7 Foreign liabilities 272 1.0 Government deposits 1,743 6.3 Import deposits 281 1.0 Borrowings from BI 6,293 22.9 Capital accounts 2,018 7.4 Other liabilities 2,660 9.7 Total 27,469 1.00 /aNet foreign exchange position is estimated by subtracting the sum of foreign-currency deposits and foreign liabilities from the amount of foreign assets. -30 - ANNEX 2 Table 1 INDONESIA RURAL CREDIT SECTOR REVIEW Balance Sheets: Bank Bumi Daya and Bank Rakyat Indonesia (in Rp billion) 1982 1985 Bank X dis- Bank X dis- Bank X dis- Bank % dis- Bumi tribu- Rakyat tribu- Bumi tribu- Rakyat tribu- Daya tion Indonesia tion Daya tion Indonesia tion Assets Current assets 322 11.35 349 14.68 477 8.22 697 12.33 Term deposits 2 0.88 - 0.00 127 55.95 - 0.00 Loans 1,978 69.70 1,945 81.79 3,783 65.20 4,199 74.29 Foreign assets 459 16.17 52 2.19 1,259 21.70 363 6.42 Other assets 76 2*68 32 1.35 156 2.69 393 6.95 Total Assets 2,838 100.00 2,378 100.00 5,802 100.00 5,652 100.00 Liabilities Current liabilities 25 0.88 69 2.90 140 2.41 169 2.99 Demand deposits 747 26.32 426 17.71 912 15.72 942 16.67 Savings/time deposits 328 11.56 257 10.81 1,521 26.22 974 17.23 Borrowings 1,064 37.49 1,391 58.49 2,033 35.04 3,053 54.02 Foreign liabilities 476 16.77 101 4.25 852 14.68 87 1.54 Other liabilities 16 0.56 78 3.28 76 1.31 310 5.48 Capital 162 5.71 56 2.35 268 4.62 117 2.07 Total Liabilities 2,838 100.00 2,378 100.00 5,802 100.00 5,652 100.00 - 31 - ANNEX 2 Table 2 INDONESIA RURAL CREDIT SECTOR REVIEW Composition of Bank Bumi Daya Loan Portfolio 1983 1984 1985 Rp bln Z Rp bln z Rp bln % Estate 818.80 34.25 937.90 29.93 1,305.40 34.30 Agricultural 516.00 21.58 662.00 21.12 912.00 23.70 Other 302.80 12.66 275.90 8.80 393.40 10.60 Production (manufacturing) 453.80 18.98 572.20 18.26 609.50 16.00 Services 678.60 28.38 1,145.20 36.54 1,369.50 36.00 Trade 255.80 10.70 271.30 8.66 242.70 6.40 Working Capital & Investment 121.60 5.09 117.40 3.75 132.90 3.50 Credit Agriculture 11.30 0.30 Other sectors 121.60 3.20 Large investment and 62.40 2.61 89.90 2.87 139.10 3.70 working capital Total Loans Outstanding 2,391.00 100.00 3,133.90 100.00 3,799.40 100.00 - 32 - ANNEX 2 Table 3 INDONESIA RURAL CREDIT SECTOR REVIEW Comparative Performance of Bank Rakyat Indonesia and Bank Bumi Daya (Amounts in Rp billion and ratios in percentage) 1982 1985 BRI BBD BRI BBD Average total assets 2,216 2,431 5,417 5,159 Average loans outstanding 1,831 1,727 4,205 3,458 Average borrowings 1,913 932 4,832 1,803 Loans outstanding/total assets 81.8 69.7 74.3 67.8 Total assets/net worth 42.5 17.5 48.3 22.1 Borrowings/total assets 58.5 37.5 54.0 35.5 Deposits/total assets 28.7 37.9 33.9 41.9 As a % of loans outstanding Arrears 10.8 19.3 Provision for bad debts 3.5 5.0 Cost of bad debts/average 1*6 0.43 loans outstanding Profitability As a % of average loan outstanding Interest income and fees 10.7 13.9 13.0 10.1 Interest expenses 3.4 7.6 7.3 8.4 Interest margin 7.3 6.3 5.7 1.7 Personnel expenses 4.0 1.6 3.4 1.3 Other expenses 4.0 5.4 2.9 1.8 As % of average assots Interest income and fees 8.8 9.9 10.1 6.8 Gross income 9.8 11.2 11.4 9.4 Interest expenses 2.8 5.4 5.6 5.6 Personnel expenses 3.3 1.2 2.6 0.9 Other expenses 3.3 3.9 2.3 1.2 Profit before taxes 0.3 0.8 0.8 0.4 Profit after taxes 0.1 0.45 0.43 0.26 ANNEX 2 Table 4 INDONESIA RURAL CREDIT SECTOR REVIEY Condensed Income Statements: Bank Rakyat Indontoia and Bank Bumi DaYa (Current Rp billion) 1982 1985 Bank X dis- Bank I dis- Bank I dis- Bank I dis- Rakyat tribu- Bumi tribu- Rakyat tribu- Bumi tribu- Indonesia tion Daya tion Indonesia tion Daya tion Rievenue Interest, commissions 196 90.7 240 87.9 549 89.3 349 72.4 ,Foreign exchange transaction 6 2.8 18 6.6 38 6.2 122 25.3 Other 14 6.5 1S 5.5 28 4.5 11 2.3 Total 216 100.0 273 100.0 615 100.0 483 100.0 expenses Interest 63 30.0 131 51.8 306 53.4 289 62.4 Forelgn exchange transaction 0 - - - 0 - 67 14.5 Personnel 74 35.2 28 11.1 143 25.0 46 9.9 Other 73 34.8 94 37.1 124 21.6 61 13.2 Total 210 100.0 253 100.0 573 100.0 463 100.0 Net Profit Before Taxes 6 20 43 20 Sources: Annual Reports, Bank Bumi Daya "The Development of State Commercial Banks in Indonesia." INDONESIA RURAL C0DIT SECTOR REVIEW Performance Indicators of Rural Financial Institutions BRI Bank Secondary banks Nonbank R1ns Unit Dagang Bank Pasars Vll-age Banks m URK LPN LPK Desa Bali Total Private banks BKD W KPi Pawn- 1985 1986 1985 1986 Kw//& 1986 1986 1986 1986 /c 1984 W. Java shops C. Java e. Java W. Sam. V. Java 198V Loans outstanding (Rp billion) 313 25.3 193 _ 20.6 4.96 42 11.9 0.95 2.5 1.2 0.36 lumber of loans outstanding/ guaranteed ('DM) 1,198 - - I6 6R 62 16,500 398 38 14 4 Percentage of villages serviced (S) - - - - 14.0 - - 31.0 13.0 32.0 - - Arrears/loans outstanding (2) 4.3 0.4 7.0Lb 5.1 18.0 - - 16.0 20.0 2.8 - 37.0 to. of debtors In arrears/debtors (X) 10.5 - - - - - 34.0 41.0 _ - - Ratio of interest income/loans outstanding (2) 28.0 33.5 23.4/b 22.5 34.3/t 30.0 42.0 26.0 26.0/f 26.0 29.0 21.1 Savings/outstanding loans 0.29 1.47 1.07b 1.11 MMS970 0.27 - 0.18 0.29 0.45 0.17 0.26 Operattonal expenses/ 16.2/a 4.8 3.67-; 2.9 13.007dw - 33.7 10.4 15.0 - - 23.00 loans outstanding (2) Net profits/net worth (2) 15.7 26.7 25.2/b 21.8 37.01 23-7 8.3 30.0/ - - V0.O - Net savings/net worth 1.35 9.6 7.47E 8.9 ~-:6 0.82 - 0.35 - - 0.69 1.02 Number of units 2,272 t 175 122 3.S64 217 479 497 1.067 250 90 - /a Does not tnclude proviston for bad loans. 7n BRI sa ple of 26 Bank Pasar for First Quarter 1986. C9 BRI sample of 10 private Bank Pasar. 7d Sample of 10 BKD for year 1984. to After deducting net subsidy of BPD (BPO operational income from BKK sinus operational expenses) wbich amaounts to 1.72 of the net worth. gF Estimated from BoR Statisttes since loan conditions are the same. Based on 11 model KUD under Dutch Government aegls. I.! 35 - ANNEX 3 Table 1 INDONESIA RURAL CREDIT SECTOR REVIEW Externally Assisted Tree Crop Projects: Loan Amount, Project Cost and Smallholder Credit Component (US$ million) Loan % distri- Total proj- Smallholder Source/project amount bution ect cost credit component IBRD NES I 65.00 134.00 35.5 NES II 50.50 79.60 81.5 NES III 92.00 152.50 50.2 NES IV 30.00 64.50 35.0 NES V 134.00 268.00 159.7 NES VI 55.50 118.70 77.8 NES VII 138.90 244.00 198.0 SRDP I 27.00 70.50 69.1 SCDP 25.00 95.20 93.8 NES Sugar 79.20 130.20 5.2 SRDP II 131.00 221.00 190.9 Subtotal 828.10 73.11 1,578.20 996.7 CDC Cofinanced with IBRD CDC-NES VI 28.00 CDC-NES VII 30.00 CDC-SRDP II 20.00 Subtotal 78.00 6.89 SFD Cofinanced with IBRD NEs sugar 9.35 Subtotal 9.35 0.33 ADB "-MS Besitang 21.00 38.70 7.9 NES Cotton 23.00 37.70 19.9 NECPP 63*00 105.60 105.6 NES Oil palm 57.00 95.00 31.2 Subtotal 164.00 14.88 277.0 164.6 KFW "--1FRSB 22.00 29.30 29.3 NES Ophir 31.30 63.00 32.6 Subtotal 53.30 4.71 92.30 61.9 Total 1,132.75 100.00 1,947.50 1,223.2 - 36 - ANNEX 3 Table 2 INDONESIA Rl'RAL CREDIT SECTOR REVIEW Loan Approvals, Arrears and Outstanding - KIK/KMKP (No. in thousands, Rp in billions) Growth rate in amount of loan Approvals Outstandings approvals KIK KMKP KIK KMKP RIK KMKP No. Rp No. Rp Rp % growth Rp Z growth - (X) - 1974 9.6 15.3 14.5 15.5 13.0 - 13.0 - - - 1975 7.1 12.8 9.6 13*2 22.0 69.2 19.0 46.2 -16.3 -14.8 1976 11.2 21.5 142.0 38.4 36.0 63.6 41.0 115.8 68.0 190.9 1977 11.9 24.6 156.2 47.9 50.0 38.9 62.0 51.2 14.4 24.7 1978 15.2 31.6 98.1 62.2 65.0 30.0 84.0 35.5 28.5 29.9 1979 17.1 57.3 223.5 127.3 99.0 32.3 154.0 83.3 81.3 104.7 1980 42.4 150.9 245.8 264.6 210.0 112.1 321.0 108.4 163.4 107.9 1981 35.0 147.0 277.0 351.0 353.0 68.0 647.0 100.5 -2.6 32.7 1982 26.6 130.1 97.5 303.2 405.0 14.7 803.0 24.1 -11.5 -14.0 1983 16.0 84.7 78.7 259.9 393.3 -3.0 856.0 6.6 -35.0 -14.0 1984 8.5 57.4 39.5 169.9 336.~ -14.0 928.0 8.4 -32.0 -35.0 1985 12.5 90.9 83.0 398.9 337.6 0.5 885.0 -4.6 58.4 134.8 1986 4.7 36.3 24.1 124.5 - - - - - - ANNEX 3 ~~ 37 ~~~~~~ ~Table 3 INDONESIA RURAL CREDIT SECTOR REVIEW KUPEDES Lending Program (Amounts In Kp 31111on) No. of Amount loaned Average Total loans No. of borrowers with loans during period loan size outstanding loans outstanding 1984: Jan 11,848 2,905 0.245189 2,917 13,104 Feb 33,795 10,425 0.308478 13,472 57,447 Mar 65,400 16,501 0.252309 29,621 161,406 Apr 66,331 16,803 0.253320 44,492 224,519 May 60,645 16,443 0.271135 57,817 296,783 Jun 64,300 18,009 0.280078 71,584 359,981 -Jul 34,516 9,577 0.277546 75,369 398,974 Aug 49,728 13,720 0.275901 82,645 450,553 Sep 52,913 14,352 0.271238 88,957 498,277 Oct 68,032 15,900 0.233714 95,526 533,971 Nov *75,429 18,592 0.246483 103,960 598,521 DeC 56,476 18,036 0.319357 111,063 640,746 Total 1984 639.403 171,263 0.267848 1985: Jan 67,978 19,337 0.284460 118,772 676,646 - Feb 78,656 24,348 0.309550 131,129 709,395 Mar 76,693 25,449 0.331830 142,769 743,722 Apr 85,284 28,956 0.339524 157,076 773,909 may 94,116 32,086 0.340920 171,906 819,346 Jun 71,636 25,932 0.361997 180,140 854,029 Jul 70,577 25,465 0.360812 186,215 883,584 Aug 81,518 28,271 0.346807 194,058 909,064 Sep 83,247 28,966 0.347952 200,281 931,510 Oct 95,422 32,142 0.336841 209,028 959,545 Nov 99,945 35,929 0.359488 219,658 1,000,705 DeC 86,891 31,956 0.367771 228,964 1,034,532 Total 1985 991,963 338,837 0.341582 1986: Jan 94,149 33,136 0.351953 237,414 1,059,729 Feb 102,899 38,329 0.372491 250,196 1,095,161 Mar 93,362 37,818 0.405068 260,071 1,116,112 Apr 101,251 41,165 0.406564 270,407 1,129,054 May 112,644 46,734 0.414882 285,978 1,150,775 Jun 67,804 28,549 0.421052 284,944 1,163,891 Jul 93,385 37,641 0.403073 290,356 1,176,839 Aug 91,037 38,836 0.426596 297,071 1,183,037 Sep 97,827 43,168 0.441269 302,517 1,191,722 Oct 99,596 45,764 0.459496 312,823 1,198,455 Total 1986 953.954 391,140 0.410020 GRAND TOTAL 2,585,320 901,240 0.348599 -38- ANNEX 3 Table 4 INDONESIA RURAL CREDIT SECTOR REVIEW Badan Kredit Kecamatan Loan Types, Maturity and In#-erest Rates Nominal Comr- Total Effective Interest monthly pulsory interest monthly rate for interest savings & savings interest Loan type Maturity period rate rate rate rate Hlarian (daily) 22 days 3.5 4.8 6.5 10.0 10.8 Pasaran (every 5 days) 60 days 8.0 4.0 12.0 20.0 6.9 Minguan (weekly) 12 weeks 10.0 3.6 10.0 20.0 6.9 Bulanan (monthly) 3 months 10.0 3.3 10.0 20.0 5.3 Lapanan (every 35 days) 175 days 20.0 3.4 20.0 40.0 5.6 Musiman (seasonal) 6 months 12.0 2.0 10.0 22.0 2.2 Source: BPD, Central Java. 39 - ~~~~~~~ANNEx 3 Table 5 INDONESIA RURAL CREDIT SECTOR REVIEW Badan Kredlt Kecamatan Lending Program No. of Growth Cumu- Cumu- Total loans in no. Growth Average lative lative loans No. of during of loans Amount in amount size no. of amount out- units year annually loaned loaned of loan loans loaned standing (X) (Rp mln) (%) (Rp) - (Rp million) - 1972 200 119,870 - 443 - 3,692 119,870 443 213 1973 350 277,860 131.80 1,179 166.14 4,241 397,730 1,622 498 1974 432 377,059 35.70 2,032 72.35 5,390 774,789 3,654 858 1975 465 360,352 -4.43 2,480 22.05 6,881 1,135,141 6,134 1,096 1976 486 304,909 -15.39 2,632 6.13 8,632 1,440,050 8,766 1,306 1977 486 232,044 -23.90 2,726 3.57 11,748 1,672,094 11,492 1,420 1978 486 212,988 -8.21 2,994 9.83 14,059 1,885,082 14,486 1,581 1979 486 213,746 0.36 3,597 20.14 16,829 2,098,828 18,083 1,886 1980 486 212,391 -0.63 5,437 51.15 25,598 2,311,219 23,520 2,508 1981 486 267,933 26.15 7,70, 41.71 28,758 2,579,152 31,225 3,320 1982 486 311,455 16.24 10,893 41.38 34,973 2,890,607 42,118 4,818 1983 491 385,196 23.68 15,630 43.49 40,576 3,275,803 57,748 6,598 1984 496 475,468 23.44 22,115 41.49 46,512 3,751,271 79,863 9,421 1985 496 533,578 12.22 26,993 22.06 50,590 4,284,849 106,856 11,943 1986 497 398,584 -25.30 22,642 -16.12 56,A06 4,683,433 129,498 14,097 ANNEX 3 Table 6 INDONESIA RURAL CREDIT SECTOR REVIEW Credit Program Outreach No. of loans/borrowers/ participants ('000) Cumulative since inception 1985 Average loan size (Rp) Bank-assisted tree crop projects /a 105 - 553,000 - 4.5 million KIK/KMKP 1,707 96 5.2 - 7.7 million KUPEDES 2,585 942 459,496 BKK 4,683 534 56,806 Total 9,080 /a Number of participating smallholders. 41- ANNEX 3 Table 7 INDONESIA RURAL CREDIT SECTOR REVIEW Analysis of KIK Arrears - January 1985 (Amounts in Rp million) Loans affected by arrears Arrears Amount X Amount Over 3-6 months 22,487 11.8 2,008 2 Over 6-12 months 33,543 17.5 7,513 7.6 Over 12-24 months 58,919 30.8 28,885 29.2 More than 2 years 76,406 39.9 60,464 61.2 Total 191,355 100.0 98,870 100.0 - 42 - ANNEX 3 Table 8 INDONESIA RURAL CREDIT SECTOR REVIEW BRI KIK/KMKP Arrears - August 1986 (Amounts in Rp million) Loans outstanding Arrears Arrears ratio (Z) Number Amount Number Amount On number On amount KIK 53,961 113,290 43,516 57,230 80.64 50.52 KMKP 227,311 442,402 137,024 133,258 60.28 30.12 Total 281,272 555,692 180,540 190,488 64.19 34.28 Source: BRI. - 43 - ANNEX 3 Table 9 INDONESIA RURAL CREDIT SECTOR REVIEW Claims on ASKRINDO Insurance (Amount in Rp million) Year Number of claims Amount of claims 1973 and 1974 69 27.4 1975 166 15.3 1976 12,064 894.9 1977 6,403 2,062.5 1978 6,183 2,445.8 1979 8,030 4,682.1 1980 14,644 6,316.4 1981 15,614 8,599.7 1982 18,173 20,412.3 1983 40,523 58,966.7 1984 70,874 99,288.9 1985 72,816 101,432.6 Total 265,659 305,144.7 Source: ASKRINDO* - 44 - ANNEX 3 Table 10 INDONESIA RURAL CREDIT SECTOR REVIEW KUPEDES Default Ratios (Rp million) Loss ratio Amount Amount Amount Loans out- Long- Short- Default loaned repaid overdue standing term /a term /b ratio /c 1984 171,263 60,200 597 111,063 0.98 1.36 0.54 1985 510,100 281,136 4,856 228,964 1.70 3.02 2.12 1986 948,196 623,291 14,042 324,905 2.20 2.94 4.32 /a Total overdue payments to total payments due. /b Payments missed in a month to payments due in that month. ,c Overdue payments to total loans outstanding. INDONESIA RURAL CREDIT SECTOR REVIEW Badan Kredit Kec*aatan Loss Ratios Long Short Cum. Repay- Cum. Incr. Total Incr. Total term/ term/ Amount amount ment Amount amount amount amount amount loans bad bad Default loaned loaned due repaid repaid overdue overdue outst. outst. debt debt rate -…- (Rp million) --- --- - (%)- 1972 443 443 261 230 230 31 31 213 213 11.88 11.88 14.55 1973 1,179 1,622 953 894 1,124 59 90 285 498 7.41 6.19 18.07 1974 2,032 3,654 1,763 1,672 2,796 91 181 360 858 6.08 5.16 21.10 1975 2,480 6,134 2,306 2,242 5,038 64 245 238 1,096 4.64 2.78 22.35 1976 2,632 8,766 2,504 2,422 7,460 82 327 210 1,306 4.20 3.27 25.04 1977 2,726 11,492 2,647 2,612 10,072 35 362 114 1,420 3.47 1.32 25.49 1978 2,994 14,486 2,846 2,833 12,905 13 375 161 1,581 2.82 0.46 23.72 1979 3,597 18,083 3,371 3,292 16,197 79 454 305 1,886 2.73 2.34 24.07 1980 5,437 23,520 4,922 4,815 21,012 107 561 622 2,508 2.60 2.17 22.37 1981 7,705 31,225 7,008 6,893 27,905 115 676 812 3,320 2.37 1.64 20.36 1982 10,893 42,118 9,527 9,395 37,300 132 808 1,498 4,818 2.12 1.39 16.77 1983 15,630 57,748 14,043 13,850 51,150 193 1,001 1,780 6,598 1.92 1.37 15.17 1984 22,115 79,863 19,651 19,292 70,442 359 1,360 2,823 9,421 1.89 1.83 14.44 1985 26,993 106,856 25,015 24,471 94,913 544 1,904 2,522 11,943 1.97 2.17 15.94 1986 22,642 129,498 20,658 20,488 115,401 170 2,074 2,154 14,097 1.77 0.82 14.71 941 - 46 - ANNEX 3 Table 12 INDONESIA RURAL CREDIT SECTOR REVIEW Sources of Funds of Selected Credit Schemes (%) External Internal sources sources Equity and Total Total World retained Savings external internal GOI/BI Bank earnings deposits sources sources Tree Crops NES projects 100 - - - 100 0 SRDP I and SCDP 24 70 6 94 6 SRDP II 28 65 7 93 7 KIK/KMKP 55 25 20 80 20 KUPEDES 53 - 19 28 53 47 BKK 22/a - 64 14 22 78 .a Borrowings from BPD. - 47 - ANNEX 3 Table 13 INDONESIA RURAL CREDIT SECTOR REVIEW Cost of Financial Intermediation Operating Effective expensest lending Cost of loans Nominal lending rates funtds Intermediation outstand- Intsirest rate subsidy rates (2 p.a.) (2 p.a.) (X) margin (X) ing (2) to borrower (2 p.a.) NES I-VI Phase I 0.0 6.4 0.no Handling fee n.e. 0 Phase II 10.5 12 of loans outstanding Phase III 10.5 6 2.52 of loans under repayment NES VII Phase I 0.0 7.7 0.no n.a. 0 Phase II 12.0 Phase III 12.0 SRDP I -Phae I 0.0 6.5 1.42 5.08 n.a. Phase I - 14.5 Phase II 12.0 Phases II & III - 3.5 Phase III 12.0 SCDP Phase I & II 0.0 3.02/b 1.62 1.38 n.a. Phase I - 3.85 Phase III 6.0 Phase II - 7.35 Phase III - 1.35 8RDP II Phase I 0.0 6.5 8.30 -1.8 n.a. Phase I a 14.5 Phase II 12.0 Phases II & III - 3.5 Phase III 12.0 RIK/KMKP K1K 12X for 8 years., 12.0 7.20 6.3jd n.a. 0 4-year grace period KMKP 12X for 4 years, 12.0 7.20 6.31/d n.a. 0 1-year grace period RUPEDES Based on orig. ant. Investment 12 per month 22.0 5.80 14.2 1f.2 0 Working capital 1.5Z per month 32.0 12.20 19.8 BRK /a 26.0 c 12.20 13.8 DaT1Ty 57.6 129.6 117.4 10.4 0 Every 5 days 48.0 82.8 70.6 Weekly 43.2 82.8 70.6 Monthly 39.6 63.6 51.4 Every 35 days 40.8 67.2 55.0 Seasonal 24.0 26.4 14.2 /a Includes forced savings festure in the estimation of effective rate. /b 20 years with 8-year grace period. /c Ratios of actual interest income to loans outstanding In 1985. /d Including 1.52 p.a. GOI subsidy to the banks. INDONESIA RURAL CREDIT SECTOR REVIEW Financial Assets Available to Savers in Indonesia Rp minimum Maturity Rates of Return 'taxability Withdrawal Availability Other features Demand deposits 500,000 on demand 0 to St p.a. Taxable anytime All banks Cheque writing TABANAS general 250 on demand 12 to 15% p.a. Exempt per no. { State banks { Lottery TABANAS special 50 on demand 12 to 151 p.a. Exempt I per mo. B BRI unlt desas ( eI guaranteed TASKA 250 12 months 9% p.a. Exempt penaltv Post offices { No tax investigation SINFEDES 1,000 on demand 0 to 12% p.a. Exempt anytime aRI unit desas Lottery Gov't bank protected Contractual savings 1,000 1 to 20 yrs 12 to 15% p.a. Exempt emergencies Some banks Some lotteries Compulsory savings /a loan period 0 to 10% p.a. Exempt /a Rural lenders Condition of loan Other savings 1,1M on demand 12 to 212 p.a. Exempt anytime Some banks Some lotteries Secondary banks Time deposits 100,000 I to 24 no 10 to 17% p.a. Exempt emergencies All banks Secondary banks Cert. of deposits 100,000 I to 24 no. 10 to 17.4% p.a. Exempt resalable Some banks 8I guaranteed No tax investigatlon Bonds (b) 1 million 5 years 15.75 to 16.52 Varles Ac resalable - Interest A capital risk Danareksa Income (b) 1 million n.a. 15.75 to 16.5% Taxahle resalable - Interest & capital risk Danareksa general (b) I million n.a. 17% p.a. Taxable resalable - Dividend & capital risk Shares (b) I million n.a. 13 to 14% p.a. Taxable resalable - Dividend & cavital risk /a The minimum a'-ount depends on the size of the borrower's loan. Most require 10% of the initial loan amount be wetd on deposit until the loan Is repaid in full. In some cases, mainly cooperatives, not all the funds are then withdrawable. Interest may o may not be paid on these deposits. @ X /b The minimum amount varies with each Investment. Figures based on an average security price of Rp 10,000 and a minimum trading lot size of 100 shares or certificates. It could be possible to purchase one share but it would not be easy to resell. Tc The first bond issue was fully tax exempt, and the second and third issues were subject only to a flat 10% Interest withholding tax. Interest paid on all subsequent issues have been fully taxable. INDONESIA RURAL CREDIT SECTOR REVIEW Indonesian Rsak Deposits. by Type. 1981-86 'I81 1982 1983 1984 18 98la Is Growth rate Rp bln X Rpbln Rp bMn I Rp bln J Rpbln I Rp bHn Xg982 1983 1984 1985 19A6 Demand deposits /b 3,847.00 48.49 4,134.00 47.11 4,177.00 34.77 4,817.00 30.79 5.560.00 27.04 5,406.00 25.30 7.00 1.00 15.00 15.00 -3.00 TAANAS /c 384.20 4.84 445.90 3.08 540.70 4.50 669.60 4.28 935.60 4.55 1,044.90 4.89 16.00 21.00 24.00 40.00 12.00 TASA /c 0.20 - 0.30 - 0.40 - 0.50 - 0.40 - 0.40 - 50.00 33.00 25.00 -20.00 - SIIPROES /d - - - - - - 0.30 - 5.13 0.02 15.54 0.07 - - - 1,600.00 203.00 Other savings /e 693.10 6.74 994.50 11.33 1,641.70 13.67 2,602.00 16.63 3,691.77 17.95 4.174.56 19.54 43.00 65.00 58.00 42.00 13.00 1 Time deposits If 1,001.10 12.62 1,104.40 12.58 2,586.40 21.53 3,212.80 20.52 5,107.80 24.84 5,507.30 25.78 20.00 134.00 24.00 59.00 7.82 4P Foreign currency deposits 1,094.00 13.79 1,406.00 16.02 2,289.00 19.05 2,944.00 18.82 3,378.00 16.43 3,369.00 15.77 29.00 63.00 29.00 15.00 -1.00 Government deposits 914.00 11.52 691.00 7.87 778.00 6.48 t,397.00 8.93 1,884.00 9.16 1,849.00 8.65 -24.00 13.00 80.00 35.00 -2.00 Total Deposits 7.933.60 100.00 8.776.10 100.00 12.013.20 100.00 15,643.20 100.00 20.562.70 100.00 21,366.70 100.00 11.00 37.00 30.00 31.00 4.00 /a Figures are for end of June 1986. b Demand deposits with deposit money banks. e Inetudes all commercial and savings bank deposits. /d Deposits with SRI Unit Deaes. Net of TASANAS, TASKA. SINPEDES and state bank time deposits subtracted from deposit money bank time and savings deposits plus savisgs banks savings. tf Time deposits n state banks only leas government and nonresident deposits. Sources Sank Indonesisa, Indonesia Ftnancial Statistics, October 1986. II!9 - 50 - ANNEX 4 Table 3 INDONESIA RURAL CREDIT SECTOR REVIEW Distribution of BI Liquidity Credits by Bank March 1983 March 1984 March 1985 March 1986 % dis- % dis- % dis- % dis- tribu- tribu- tribu- tribu- Rp bln tion Rp bln tion Rp bln tion Rp bln tion State commercial banks 3,550 80.0 3,565 75.0 5,916 78.0 6,640 77.4 BAPINDO 326 7.3 445 9.4 510 6.7 564 6.6 National Savings Bank 245 5.5 398 8.4 561 7.4 767 8.9 Regional devel- opment banks 110 2.5 117 2.7 138 1.8 158 1.8 other banks 208 4.7 232 4.8 463 6.1 455 5.3 Total 4,439 100.0 4,757 100.0 7,588 100.0 8,584 100.0 INDOlISIA RURAL CUEDIT StCTOR REVw Iboen's Participation in Credit Proaram and institutions Effecttve 2 of Approximate ave. monthly Level Progr*m or . loans to noavI loan size Collateral Interest of lnstitution (by no. of loans) (in Rp) required rate operation Sources Pawn shop 80X 5.000 Y 3-42 Kabupaten Observatlons at one Gomernment Pawn Shop, Pandaan, E. Java; Ministry of L Finganc MMK (Sadan Kredit Keeanatan) 602 55,000 N 2.G-4.8S Kecamatanl Goldmark and Rosegard, Credit to Central Java vlllage Indonesian Entrepre euiTlAITsess- went of cue aaan HreMPt leeauatan lypgrcpu. wasnington, D.C. Develop- 3iietAlternatives. 1983; BMM records. KUMI (Kredit Usaha takyat Kecil) 571 n.a. N 3.31 Village Dirk van Book, 1USE and Iadura East Java Evaluation. 14; IUSEIsPD Java Timor records. Bank Pasar (Denpasar) /a 291 736.000 Y 2.5-3.0S Provincial Limted sauple from Dank Pasar books city KUPEDES (SRI Unlt Desas) 251 loans to woen 330,000 Y 1.7-2.62 Keeaatan CPIS (Center for Policy and 75 of coseineus women Iuplemetation Studles), Jakarta KEI/UlKP (state and private 23.41 5,000 Y 3-4S Kabupaten CPHU "Economic Impact of UIKRW banks) lb (transport 30.RX) (SEOP I and II)" Jakarta: Bank (other services 30.51) Indonesia. 1966. /a Largely urban clientele (Denpasar population approximately 150,000). 7t Much of KIK/IWCP lending is not In rural areas. - 52 - ANNEX 5 Table 2 INDONESIA RURAL CREDIT SECTOR REVIEW Characteristics of Loans by Economic Class and Sex of Borrowers: West Java Study of Three Villages Average Average annual % of loans % of loan effective rate No. of used for loans in amount (Weighted by loans consumption cash (Rp) no. of loans) Women Low 11 63.6 27.2 39,555 281 Medium 20 60 15 32,325 136.5 High 0 - - - All 31 61.2 19.4 34,510 187.8 Men Low 25 64 68/a 24,788 34.7 Medium 35 31.4 65.7/a 110,616 151.5 High 5 0 80 840,000 58.8 All 65 41.5 67.7 161,989 99.6 /a Includes one loan in gold. Source: Jensen, Karl F. "Rural Credit in Banten, W. Java: A. Shapshot, "1986, mimeo. - 53 ANNEX 5 Table 3 INDONESIA RURAL CREDIT SECTOR REVIEW Self-Employed and Employers in Rural Areas by Sex and Industry L-ruX --- 00-0)- Agriculture Secondary Tertiary Total Men 12,566 1,317 3,054 16,937 Women 3,648 842 2,196 6,686 Total 16,214 2,159 5,250 23,623 Women as % of total 72.5 39.0 41.8 28.3 Source: 1980 Census of Population, Biro Pusat Statistik, Jakarta. -54 ANNEX 6 Page 1 FINANCIAL INSTITUTIONS IN INDONESIA 1. Bank of Indonesia (BI). The financial system in Indonesia operates under the supervision of BI, the central bank. BI however is not exclusively a central bank; it also operates as a government bank, receiving funds from central government, and deposits from state banks, and other government or private nonbank depositors and lends these resources through its liquidity loans to banks. At the end of 1985, BI funds amounted to 39% of all bank credit. 2. State Commercial Banks. There are five large banks that control about 73% of the assets of commercial and development banks. Although all five banks operate as commercial banks, they have specific areas of responsibility: Bank Bumi Daya - estate financing; Bank Dagang Negara - trade financing; Bank Expor Impor Indonesia - export credits; Bank Negara Indonesia 1946 - industrial financing; and Bank Rakyat Indonesia - credit for agricul- ture, fisheries and cooperatives. The government (BI) subsidized credit programs flow through the state banks according to their areas of specialization. In addition the government operates a National Savings Bank that collects deposits through 14 branch offices and approximately 2,700 of Indonesia's 3,000 post offices. 3. Private Banks. Private banks account for 23Z of all commercial and development bank assets. There are 10 national banks authorized for foreign exchange transactions, and 11 foreign banks. Additionally there are 59 small and medium-sized banks that operate at the local provincial level. BI restricts their expansion depending on their ability or willingness to merge with other banks. No bank licenses are being granted under the present banking law. With few exceptions, private banks operate in urban centers at the provincial level, although there is some bank activity at the district level. 4. Development Banks. These are 27 regional development banks (BPDs) owned by the provincial governments, one public national development bank, and one private national development bank. These banks specialize in project financing. In some regions they operate as coordinators and supervisors of BKK-type credit networks. 5. Non-bank Financial Institutions. Of the 14 non-bank financial institutions, three deal with development finance, 9 with investment finance and two with other activities. Their assets, which weve over Rp 2,000 billion in June 1986, are comparable to those of the foreign banks (7% of bank assets). Most operate in Jakarta and are not involved in rural lending. 6. Pawnshop. There are 479 government-run pawnshops which operate at the district level. They lend amounts ranging from Rp 2,500 to Rp 300,000, against the security of household goods such as bicycles and TVs or valuables such as gold and jewelry. For loans under Rp 20,000 the interest in 3% p.a. with maturities up to six months; larger loans are given at 4% with up to seven months. Loan amounts are 84% and 89% of the value of the collateral. The borrowers are farmers (36%), fishermen (6%), rural traders (24%) and - 55 ~ ANNEX 6 Page 2 others (34Z). Although pawnshops are very active (in FY85/86 they processed 16.5 million loans), their total assets were only Rp 61.4 billion in June 1986, barely 0.2X of total assets of the money banks. Pawnshops are managed directly by the Department of Domestic Monetary Affairs of the Ministry of Finance and funded by BI and the central government budget. They do not mobilize savings. 7. Petty-Trader Banks (Bank Pasar). These are market banks, specializ- ing in trade loans. Of the 175 Bank Pasars, about 56% are private (99) mostly owned by commercial banks, 10% are cooperatives (17) and the remaining 34X are public (59). They are limited to one branch and may receive demand or time deposits, with a maximum period of three months. Lending interest rates are subject to a ceiling of 5% per month and loans are bound to a 12 month maximum maturity. However, the current market rate for Bank Pasar lending is only 3.3-4% per month. The three-month limit on deposits is not honored, and the bankers enter agreements to extend deposits to periods up to one year. Borrowers must make a compensation deposit of 5% of the loan which is placed in a special savings account and receives no interest. Despite the 12-month maximum maturity, Bank Pasar may lend for longer terms by rolling over the facility. Loans are based on collateral with a minimum value of 150% of the loan amount. This collateral may be trading inventory, fixed assets, such as a market stall, or even durable consumer goods. The Bank Pasars are supervised and audited once a year by BRI under delegation from BI. This supervision usually concentrates on the accounting system and procedures of the Bank Pasar. 8. Village and Paddy Banks. There are 3,338 village credit institu- tions (BKD - Badan Kredit Desa), an institution inherited from the Dutch government, with surviving healthy remnants in some regions (East Java) but ailing in others. There are also 2,065 paddy banks (lumbung desa), 26 village banks (Bank Desa) of which 23 are private, and 217 production banks (BKPD-Bank Karya Produksi Desa). With the exception of the BKPD, these institutions are located at the village (desa) level and are supervised by BRI on behalf of BI. The BKPD are based at the subdistrict (kecamatan) level, and operate weekly posts at the desa level to conduct credit transactions. The BKDs, at the end of 1985, had outstanding loans amounting to Rp 19 billion, only 0.08Z of the total credit market. They are operated by the village chief, and have two staff members (komisi), a cashier and an accountant who earn salaries amounting to 2.5% of the value of the loans disbursed. The resources of the BKD are kept with BRI in a giro (demand deposit) account that earns 1.6% interest per year. Loans are granted for trader's working capital up to 10-week periods, at 23% for the 10-week period (which implies a 194% p.a. effective interest rate). BKDs operate out of the village public building one day per week and are owned by the local governments. They report monthly to the BRI branches. Paddy banks are similar but are also authorized to lend rice in kind. 9. BRI-Unit Desa. At the end of December 1986 there were 2,272 unit desas and 1,226 village posts operated by BRI. This system originated under the subsidized rural credit program (BIMAS). When these programs were phased out, BRI undertook the pioneering step to offer more standard banking services at the kecamatan level. Through the unit desa system, BRI operates programs - 56 - ANNEX 6 Page 3 for rural credit (KUPEDES) and mobilization of savings (SIMPEDES) aimed at a segment of the market that is not being served by the large financial institu- tions. At end 1986, loans outstanding of the unit desa system were Rp 325.0 billion, and savings were Rp 165 billion. Given the broad coverage of the unit desa network and the institutional strength derived from its dependence on a large nation-wide bank, it will undoubtedly have a crucial role in the development of rural financial markets, and serve as a model for the expansion of the banking system to the rural sectors. 10. BKK-type institution. Since 1972, the provincial government has been operating subdistrict credit institutions (BKK-Badan Krtdit Kecamatan) in Central Java through the regional development banks (BPDs-Bank Pembangunan Daerah). Similar institutions have been established in East Java (KURK-Kredit Urusahan Rakyat Kecil), West Sumatra (LPN-Lumbang Pitih Negara), Bali (LPD- Lumbang Perkreditan Desa), and in West Java (LPK-Lumbang Perkreditan Kecamatan). USAID has provided technical assistance to the BPD for the development and expansion of this program. Under these programs, the loan types are usually based on the maturity of the loan and has a forced savings provision. Effective interest rates ranged from 29% p.a. for a 48-week KURK loan and 1302 p.a. for a 12-week BKK loan. The provincial government usually provide the capital for these institutions and additional funds are secured from government funds or soft loans from the Ministry of Finance, through BI, or the BPDs. The BKK-type institution are supervised by a representatives of the provincial government, and at the technical level, by the BPD.. In general, local people identify with these institution and their loyalty is seen as a factor that may help contain bad debts and increase savings, given proper management scheme. 11. Rural Credit Cooperative (KUDs). The KUD (Koperasi Unit Desa) is the basic unit of the rural cooperative system. Over 6,000 KUDs operate at the subdistrict level under a provincial cooperative (PUSKUD-Pusat Koperasi Unit Desa) that offers technical services through centers (PKK-Pusat Kelayanah Koperasi). The purposes of KUD are: (a) to organize members for financial self-help through savings and loan (Simpam-pinjam); (b) to provide commercial markets to member's products; and (c) to buy inputs and materials for members. The Department of Cooperatives stated that 36.7% of rural families were affiliated in 1983 while the Central Bureau of Statistics places the coverage at 13.3%. In either case, KUDs have large memberships organized into groups of 30-50 members. The services of the cooperative are primarily offered to its members. The usual staff is five people but may go as high as ten. Most of the staff are employed by the government. 12. BRI provides the resources for the credit funds of KUDs and is also responsible for supervision and auditing. The loans of BRI to KUDs are funded with BI resources (100% for food procurement loans to KUDs) and other government sources (90% of the loans to KUDs for other programs). Loans from BRI to KUDs are insured by the Cooperative Development Fund Corporation (PPKK) for about 90% of their value. Most of the credit programs run by the KUDs are conceived at the central government and imposed on the KUDs, as is the case of food procurement for BULOG or cooperative credit for buying of dairy cattle. These programs have very high arrears. In October 1986 BRI estimated that Rp 72.2 billion of their Rp 289.2 billion outstanding loans to KUDs are bad - 57 - ANNEX 6 Page 4 debts that must be covered by PPKK. Funds obtained from BI at 3% p.a. are lent by BRI to KUDs at 9X p.a.. which are then onlent at 12% p.a. to KUD members. 13. There are three classes of cooperatives based on performance. Class "A" KUDs which are self-sufficient and financially sound number only 922. Class "B" KUDs, which are considered solvent, but are deficient in terms of profitability or management, and are dependent on government funds number 2,930. Also, there are 1,272 class C KUDs, which cannot be considered solvent, but are not entirely hopeless, and 1,658 unclassified KUDs, which may be considered candidates for dissolution or liquidation. The savings and loan programs of the KUDs (simpam-pinjam) had loans outstanding at the end of 1985 of Rp 28.2 billion. Their government sponsored credit program for very small borrowers (KCK-Kredit Candak Kulak) had loans outstanding of Rp 14.3 billion in September 1986 and arrears were 291 of loans outstanding. The total loans of KUDs funded by BRI except the simpan-pinjam, amounted to Rp 266 billion at the end of 1985, and arrears were 22%. Informal Credit Markets 14. Informal private credit mechanisms operating in Indonesia include: (a) money lenders, (b) savings and loans associations; (c) trade-linked lending; (d) land related credit; and (e) labor related credit. Institutions and associations of particular interest are briefly described below: 15. Arisan (rotating saving and credit associations). A number of individuals regularly contribute a fixed amount to a common fund which is then allocated as credit to each member in a rotation determined by drawing lots. In Indonesia the arisan arrangement is commonly composed of women who use part of their household savings to contribute to an arisan. The amount can vary from a few thousand rupiahs total to Rp 100,000 each, depending on the economic status of the participants. Arisans are important element in the village social life in Indonesia where self-help (gotong-royong) traditions are deeply seated. They are indigenous in origin, flexible and simple in operation, and capable of evolving into valuable links with formal banking institutions. 16. Simpan-Pinjams (savings and loan associations). Simpan-pinjams are arisans that have taken on lending functions but credit is given at explicit interest rates and vary according to demand at a point in time. Furthermore, lenders and borrowers do not coincide as in the arisan. Simpan-pinjams can be for a particular purpose depending upon the activities of the village. Thus farmers, tradesmen and cottage industry operators form simpan-pinjams. One variant of the simpan-pinjams is for emergencies (for example, to defray funeral expenses). A committee of village elders or other economic leaders administer the association, in contrast to formal institutions that depend on the village headman appointed by the government (lurah). The most significant attribute of these associations is that group pressure and community spirit ensure a degree of success not found in the formal arrangements. They are therefore indigenous, close at hand and run by the villages themselves. The available evidence indicates that most villages do not have simpan-pinjams, since they require sophistication, discipline and organization beyond that of - 58 - ANNEX 6 Page 5 an arisan. Yet, simpan-pinjams offer good prospects for future growth of financial intermediation, given the increasing monetization of the rural economy, and the need to hold savings and to apply them profitably. The fast turnover of funds is an important source of liquid resources. 17. An advanced simpan-pinjam is the veterans loan fund, Koperasi simpan-pinjam (KOSIPA), found in Java. It lends in the village, but the savings are generated in both urban and rural areas. Loans vary in maturity from 4 to 30 days and carry interest rates up to 4-52 a month. KOSIPA agents operate in many locations, thus diversifying the risk by village. One distinguishing feature is that it is external to the village, but the army's influence in the village (from which the KOSIPA cadre is ultimately drawn) ensures good organization and ease of collection. 18. Usaha Bersama (self-reliance group). The usaha bersama arrangement is a step above the simpan-pinjam in the ladder of informal rural financial arrangements. About 300 usaha bersamas are known to exist in Java. In addition to saving and lending activities, these arrangements function as a joint entrepreneurs for production, processing and marketing of products. A unique attribute is that credit limits are set at a multiple of the savings held by the borrower. Repayments rates are high among the usaha bersamas, well above 90%. Loans are made only to members and guaranteed by another member, and group pressure is brought to bear for prompt repayment. 19. The usaha bersama and sinpim-pinjam have come under pressure from the Department of Cooperatives to register as Koperasi Unit resas (KUD) but many of these associations are resisting in order to keep the voluntary association from becoming a bureaucracy and to avoid the regulations which govern KUDs. To date they have resisted inspite of some benefits of KUD status such as an automatic credit guarantee. 20. Grumpjungan (labor related credit). Found in Central and West Java, grumpjungans are groups of landless laborers who had primarily joined to negotiate collective labor contracts with landowners. Usually each grumpjungan consists of about 15 households. Out of the earnings of group activities, at least 15% is saved in a common fund. These funds are then used to finance off-farm activities such as trade, the production of household goods, and purchases of animals for improving the productivity of joint labor leasing operations. Grumpjungan are voluntary saving associations that permit the use of funds for financing working capital of off-farm activities and investments in animals. In this function, they substitute for both formal and informal financial intermediaries. While as individuals they are not eligible for formal credit, they combine a labor market operation with a savings function, which is the basis of the group saving and investment activity. This could be extended to collective or joint liability. At present, land is the most important collateral; therefore the landless have little access to credit. Substitution of joint or group liability for land collateral could improve access to credit for the landless poor. - 59 - ANNEX 7 Page 1 SELECTED SPECIAL CREDIT PROGRAMS A. WORLD BANK ASSISTED TREE CROP PROJECTS Background 1. Many of the GOX special credit programs involve tree crops as part of the Government's overall tree crop planting/rehabilitation program. Some tree crop projects have been externally assisted with loans amounting to US$1.1 billion. World Bank loans, totaling US$828 million, represent over 73Z of the total while the Asian Development Bank provides US$164 million or 14X. The Commonwealth Development Corporation and the Saudi Fund (SFD), cofinancing with the World Bank, and KfW (German bilateral agency) are the other external financiers. 2. The Bank projects fall under two major schemes, the nucleus estate and smallholder (NES) and project man4igement unit (PMU) systems of implementa- tion. While the smallholder credit camponents of both schemes have been implemented through BRI, under the NES scheme BRI acts as a channeling bank and as an executing bank in the PMU projects (SRDP I, SCDP, and SRDP II). The channeling versus executing arrangements have differences in the source of local (nonbank) funds and risk sharing. These differences affect the incen- tives for BRI participation and effectiveness in achieving the goals of the project. Objectives 3. The main objectives of the GOI tree crop projects involving small- holders have been to increase Indonesia's foreign exchange earnings from tree crops and to raise the income and welfare of the srallholders, many of whom are poor. GOI uses a handling bank, BRI, to deliver and collect the credit through its extensive presence in the rural areas but also to use some of its own resources especially when GOI's resources are constrained. It has also been argued that the credit is more efficient for cost recovery than taxes or cesses. Credit Features 4. The implementation of the tree crop projects are broken into three phases: Phase I is the construction or planting period (about 3 years); Phase II is the loan conversion period (2-4 years); and Phase III, the repayment period. NES 5. Under the NES schemes, the public enterprise (PTP/PNP) plants an area in blocks, with the smallholders employed as laborers for Phase I. At the beginning of Phase II (after 3 years) the smallholders enter into a credit agreement with BRI after they have provisional title to their two hectare farms. The agreement includes all credit expenditures by the PTP/PNP during - 60 - ANNEX 7 Page 2 Phase I, and provisional estimates during year four after planting, for oil palm and coconut establishment and during years four and five for rubber establishment. The agreements are amended between year 5 and 6 to include the actual credit expenditures to bring the trees to maturity. 6. As a channeling bank, BRI does not have any of its resources in these loans. The funds are from the Bank (and cofinancing institutions, when applicable), and OI counterpart funds from the budget. Until early 1984 these funds were channelled through BRI to the PTP/PNPs, but since then they have been given ("dropped") directly to the PTP/PNPS by GOI. As mentioned above, BRI's activities begin after conversion, at which time it is paid a 1% fee of the loan converted. BRI also receives 2-1/2Z of the loans actually collected. The Ministry of Finance bears 100X of the repayment risk. 7. The smallholder loan term and conditions vary with type of crop and/or project. The maturity of the loans for rubber varies from 20 years (NES VIII) to 23 years (NES VI); most of the other orojects are for 21 years. The rubbeV/loan; have a grace period of six years, except under NES VII with 5 years .- Oil palm loans (NES IV and NES V) are for 17 years with 5 years of grace, except fcr those under NES VII which are 20 years with 5 years grace. 8. The interest charged to the smallholders is 0% for the first three years (Phase I) and 10.51 from year 4 (after conversion) to maturity except for loans under NES VII which bear 12% (Table 2). The interest charged between conversion and the repayment period is capitalized and added to the principal and is paid during the repayment period. 9. In contrast loans under projects financed without external assistance (PIR) had shorter maturities for oil palm and coconuts (10 years with 3 years grace). Rubber under PIR has 10 years with 7 years' grace. The smallholder interest rates under the PIR projects are higher at 121, but under the old scheme the grace period interest was paid by government who also shouldered 4.51 during the repayment period. The smallholder paid no interest for the first 3 years (non-rubber) or 7 years (rubber) and thereafter paid 7.51 for 7 years (non-rubber) or 13 years (rubber). Under the new scheme the smallholder pays the total 121 after conversion with interest capitalized between the conversion and repayment period, as in NES projects, except that the interest charge is higher (apart from those under NES VII). 10. BRI activities under the NES projects have been minimal to date because of the lk of the physical and, therefore, financial conversion under almost projects._ As of November 1986, only two of the projects were shown on BRI's books. They were 387 loans for about Rp 1.4 billion under NES I, and 224 loans for Rp 1 billion under NES V. None of these loans were due for 1/ Grace from payment of interest and principal. 2/ The conversion issues are detailed in a separate paper, Credit Conversion Issues in NES Projects, AEPA4. - 61 - ANNEX 7 Page 3 repayment since they had been recently converted. About Rp 7 million in handling fees was due BRI from MOF on NES, but had not been paid. PMU 11. BRI acts as an executing Bank under the PMU schemes (SRDP I, SCDP and SRDP I1) with its own resources being part of the smallholder loans, and bearing part of the default risk. Funds for the smallholder credit are provided to BRI through financing arrangements between GOI and BRI. Under SRDP I and SCDP, 70% of these loans are from the World Bank at 0. cost, 24% from liquidity credits at 3%, and only 6X from BRI's own resources. Under SRDP II, however, the ratios between the Bank, BI, and BRI, respectively, were 65% at 9.9%, 28% at 3X and 7%. 12. During Phase I, the credit for the tree crop development is technically in the form of a loan from BRI to the Directorate General of Estates (DGE), the government agency responsible for tree crops. At the end of the three years, the loan to DGE is supposed to be converted to individual smallholder loan accounts with 8RI. 13. The interest charged on the smallholder loans and the portion borne by the smallholder vary. Under SRDP I and SRDP II, the interest rate to the smallholder is 12% p.a. for 20 years with seven years of grace. The interest is waived for the first three years, compounded in years 4-7 (Phase II) and capitalized at the end of the grace period. MOP pays BRI an interest subsidy (on behalf of the smallholders) of 14.5% from year 1-3 and 3.5% from years 4- 20, which brings total interest paid to BRI of 14.5% in years 1-3 and 15.5% until maturity. Under SCDP, however, the smallholder interest rate is 6X p.a. for 10 to f0 years with a grace period of 3 to 8 years depending upon type of activity.3 The lower interest rate is waived for Phase I and II, during which GOI pays an interest subsidy of 3.85% (Phase I) to 7.35% (Phase II). The GOI subsidy is reduced to 1.35% during the repayment period. Total interest paV to BRI under SCDP then is 3.85% in Phase 1, and 7.35% for Phases II and III.Z' GOI (MOF) bears 100% of the risk on loan principal default during Phase I, and 75% (split equally between MOF and BI) for Phases II and III. BRI's risk is 0% for Phase I, 25% for Phase II and III on principal and 100% on interest throughout the life of the loan. The risk sharing arrangement is the same for SRDP I and II, except that under those projects, the 75% share for Phases I and II are borne disappropriately by MOF (70%) and BI (5%). 3/ Planting talls: 20 years with 8 years grace; developing talls and planting/replanting with hybrids: 15 years with 6 years grace; and rehabilitation: 10 years with 3 years grace. 4/ MOF on September 6, 1985 changed terms of SRDP I to the same as unde- SRDP II, with effect from April 1, 1986. Until then SRDP I terms were the same as SCDP terms. - 62- ANN-X7 Page 4 14. There is quite an elaborate set of procedures for the flow of funds from the different sources through BRI to DOE and finally to the PMUs. The procedures under SRDP II bear this out. For a particular year's activities, on the World Bank's 65X of the smallholder borrowings: (a) DGE applies to MOP; (b) MOP gives World Bank share to DGE (Prefinances); (c) DGE "drops" to PMU; (d) PMU reports to DOE after use of funds; (e) DOE reports to MOP; (f) MOF applies to World Bank for reimbursement; (g) World Bank "drops" to MOF; (h) MOP debits BRI account at BI; and (i) BRI debits DOE account. For the BI and BRI portion of 35%: (a) DOE applies to BEI for the 35Z; (b) BRI applies to BI for its 28% share; (c) 8I drops its 28X to BRI; (d) BRI adds its 7Z and drops the 35X to DCE and debits DOE; and (e) DOE drops to PHU. The dropping to the PMU from DOE from all sources are supposed to happen simultaneously; however, the Project Completion Report (PCR) of SRDP I by the government reports that under that project, "the release of BI/BRI funds to the project have generally been much delayed." 15. The PCR also reports that due to some technical problems, there has been no account conversion and, since conversion is a precondition for farmer repayment, the cost recovery function of BRI has not yet begun. As of November 1986, only SCDP (under the BRI executing arrangement) shows loans outstanding to 94 smallholders of Rp 52 million. These loans are not yet in the repayment period. Of the COI interest subsidies due of Rp 348 million and Rp 93 million for SRDP I and SCDP respectively about Rp 302 million and Rp 52 million have been paid. Interest subsidy and handling fee payments to BRI were reported to be not as prompt as BRI would want. B. KIK/KMKP CREDIT PROGRAMS Background 16. BI, in 1969, established a Kredit Investasi Biasa (KIB) to provide investment credit of up to 10 years maturity (15 years in the case of BAPINDO) at interest rates of between 10.5% and 13.5% (depending on loan size) through all the commercial and development banks. The loans under the program carried a BI rediscounting facility of 65% to 80% at 4% p.a. The KIB program was originally intended to cover small, medium, and large scale enterprises. The state commercial banks were, however, reluctant to lend to small-scale enterprises due to the higher risk and administration costs, and the lack of collateral requirements and required operational/financial data. Consequently, BI introduced two new credit programs--KIK and KHKP--in 1974 specifically designed for small-scale enterprises. - 63 - ANEX 7 Page 5 Objectives 17. The objective of KIK (Kredit Investasi Kecil - Small-Scale Investment Credit) and KMKP (Kredit Modal Keria Permanen - Permanent Working Capital Credit) was to provide term financing to indigenous small-scale enterprises in any sector engaged in labor-intensive activities, but incapable of raising their own funds. As their names imply, KMKP provides short-term financing, while KIK provides longer term financing. Specific objectives include: (a) creation and sustenance of employment; (b) geographic dispersion of productive investment, development of entrepreneurial opportunities and technical skills; and (c) provision of markets for local small scale enterprise products and raw materials. Participating Banks and Sources of Funds 18. The implementation of the two programs is handled by the five state- owned commercial banks, BAPINDO, selected regional development banks (who enter into co-financing arrangements with BAPINDO), and certain private national commercial banks (which enter into cofinancing arrangements with the state commercial banks). Banks are allocated sectors for program lending operations, but these allocations are flexible to take into account particular local conditions. 19. The participating banks were required to finance from their own resources 20% of KIK loans and 25% of KMKP loans. The remaining funds come from BI liquidity credits at 3% p.a. These arrangements have been revised since 1979 under the World Bank funded Small Enterprise Development Projects (SEDP I to III). Under SEDP I and II the World Bank loans and credits financed part of only KIK loans, while it covered both KIK and KMKP under SEDP III. Under SEDP I World Bank funds were used to replace part of the BI 80% of KIK loans. Under SEDP II (1981-1984), however, the World Bank loan was to finance the 20% participating banks' contribution at 9.6% p.a., while BI continued to provide liquidity credits for 80% of the KIK loans at 3% p.a. This meant 100% financing by GOI at a blended cost of funds Lo the banks at 4.32%. Under SEDP III (since 1984) World Bank funds cover both KIK and KMKP. It replaces 25% of the BI liquidity credits at 10.1%. Therefore, the current sources of funds for KIK and KMKP are: BI, 55% at 3% p.a.; World Bank, 25% at 10.1% p.a.; and Participating Banks, 20%. The current blended cost of funds to the handling banks for 80% of the KIK/KMKP loans is about, 4.175% p.a. Terms and Conditions 20. There are two eligibility criteria for participation in KIK/KMKP. The enterprises financed must have "pribumi" or indigenous majority ownership and be registered with the authorities with less than Rp 40 million in net worth (excluding land and buildings). KIK loans are for eight years at 12% p.a. with a grace period of four years on the repayment of principal. The maximum loan amount is Rp 15 million. The handling bank holds a lien on the assets purchased with the loan and requires an additional 50% of the loan as collateral. KMKP loans are for five years at 12% p.a. with a one-year grace period. The loan ceiling and collateral requirements are the same as under - 64- ANNEX 7 Page 6 KIK loans. The handling banks receive an additi3nal 1.5% annual direct subsidy on the total amount of KIK/KMKP loans from the Ministry of Finance to increase their spread. Insurance Co erage 21. KIK/KMKP loans are insured against the risk of default by P.T. Askrindo, the government owned insurance company. A 3Z up-front premium, shared equally by BI and the handling bank, covers 75% of potential losses. On loans exceeding five years (KIK loans), the insurance premium is 5Z, two- thirds of which is paid by BI and the remainder by the handling bank. KIK/KMKP Lending 22. The KIK/KMKP programs grew emarkably from their inception in 1974 to 1980, with a period *Inual growth rates of 582 for KIK and 732, respectively, for KMKP._ Since then, however, both programs have declined in number and value of loans except for 1985. The value of annual KIK loan approvals had a period decline of about 30% from Rp 130 billion in 1982 to about Rp 91 billion by the end of 1985. Annual KMKP approvals went down 442 from Rp 303 billion in 1982 to Rp 170 billion in 1984 with a big increase of more than 1002 to Rp 399 billion in 1985. The average size of KIK loans increased from about Rp 4.9 million in 1982 to Rp 7.3 million in 1985. Consequently, the growth in KIK/XMKP loans outstanding has declined over the period. The 1985 loans outstanding for KIK and KNKP were Rp 338 billion and Rp 885 billion respectively. 23. BRI is the largest lender for both KIK and KMKP, accounting for 38% of KIK loans outstanding in 1985, 18% of the 1985 KIK loan approvalsm, 44Z of the 1985 KMWP loan approvals, and about 54% of the KMKP cumulative approval. 24. The sectoral distribution of the 1985 approvals shows trade as the major sector benefiting from the KIK and KMKP programs with shares of 412 and 71%, respectively. The next major sector for KIK/KMKP loans was industry, with agriculture accounting for only 8% of KIK and 62 of KMKP approvals in 1985. C. KUPEDES CREDIT PROGRAM Background 25. The Kredit Umum Pedesaan (KUPEDES) or General Rural Credit Program, run out of the village units (Unit Desa) of Bank Rakyat Indonesia (BRI), has its origins in the now defunct BIMAS credit scheme. BIMAS was part of a GOI program aimed at improving agricultural production and practices through the provision of physical inputs, technical assistance and short-term credit facilities. The BRI unit desas were set up to facilitate the credit part of the program at subsidized interest rates (12% p.a.). The source of funds for 5/ World Bank, "Indonesia: Rural Credit Study, 1983". - 65 - ANNEX 7 Page 7 the BIMAS credit program was BI liquidity credits at 3% p.a.; GOI/BI bore up to 75X of the credit risk and provided an administrative subsidy to BRI to cover the operating costs of the Unit Desas. GO announced the collapse of the program due to massive defaults in 1984 with effect from April 1985. 26. BRI through the Unit Desas, established the Kredit Mini (1973) and Kredit Midi (1980) programs provide term finance to borrowers outside the BIMAS program but too small for the KIK/KMKP program. The loans were for all productive activities, but mainly for off-farm economic activities. Loan sizes were between Rp 10,000 and Rp 200,000 for Mini and Rp 200,000 and Rp 500,000 for Midi credit. Both programs were financed 100% by BI liquidity credits at 0% for Mini, 3% for Midi investment loans and 4% for midi working capital loans. Mini and Midi working capital loans had maturities up to 3 years at 12% p.a., and Midi investment loans had up to 5 years at 10.5% p.a. Unlike the BIMAS program, BRI Unit Desa staff were solely responsible for the selection of borrowers, and BRI bore 1001 of the risk. These two features plus the fact that the mini scheme gave BRI its biggest spread (121) of all the GOI programs were responsible for the good repayment performance of these programs. 27. The collapse of the BIMAS program meant that BRI would lose the administrative subsidy for the Unit Desas. BRI had the option of abandoning the Unit Desas or making them profitable. The Mini and Midi credit schemes had shown that there was a large demand for working capital and, to a smaller extent for investment capital for rural enterprises. The problem was the interest rate ceiling which required a large loan volume to break even and make profit. With the financial sector reforms of 1983, the banks are able to charge market rates on their non-priority loans. BRI with the support of the MOF replaced the Mini and Midi credit schemes (and BIMAS) with KUPEDES, a new genera-purpose credit program as the main credit function of the Unit Desas.Y BRI's goal was to develop the Unit Desas into financially viable entities to mobilize savings and make loans in the rural areas of Indonesia. A decision was also taken then that the Unit Desas would no longer participate in administered credit programs. Terms and Conditions 28. Eligibility. KUPEDES loans are made for any productive activity (non-targeted as long as a letter from the borroqvers' village head (kepala desa) certifies that the activity is productive._> With the knowledge that most rural families derive their family income from several activities, and that loans can be repaid from activities other than the one specified by the borrower, the enterprise listed for the loan is mainly to prove the borrower's ability to repay. The Unit Desa staff review the cash flow of the listed activity and recommend a repayment schedule that fits the activity. All loan 6/ Kredit Mini and Midi were terminated at the end of 1984 and KUPEDES operations began in February 1984. 7/ Borrowing for consumption is not permitted. - 66 - ANN%% 7 Page 8 applications require a cosigner, usually the applicant's spouse, and collateral. 29. Collateral. The value of the collateral must be at least 1001 of the loan in the form of land, buildings or any property. Tks experience to date is that most KUPEDES borrowers use land as collateral.- Since the legal system for foreclosure and collateral is complicated and expensive, collateral documentation is really to establish a borrower's ability and willingness to repay. 30. Loan Types and Sizes. KUPEDES has two types of loans, working capital loans and investment loans. While the minimum is Rp 25,000, very few loans gf less than Rp 100,000 have been made. The maximum loan of Rp 2 mil- lion,.9 is available only to repeat customers with good repayment records. All borrowers are classified on the basis of their repayment records, which determines their limit for subsequent loans. A borrower may use the same collateral for subsequent loans provided the value is 100l of the new loan. 31. Term Structure. Various maturities with or without grace periods available under KUPEDES for working capital loans range from 3 to 24 months, and those for investment loans go up to 36 months. Single baloon payments for 3 to 12 month maturities are also available for working capital loans. Possible repayment schedules are shown in standard illustrative tables from which the Unit Desa loan officer and the borrower can read corresponding installment payments for any loan size up to Rp 2 million. These tables eliminate the need to calculate loan terms for each borrower, speed up the lending process and minimizes calculation errors. The average time between loan application and disbursement is about two weeks for first-time loans and about two days for repeat loans. 32. Interest Rates. The interest rate on KUPEDES working capital loan is 1.5% per month, and 1% per month for investment loans. Both are calculated on the original loan amount not on the declining balance. The corresponding annual effective rates are about 32Z for working capital loans and about 22% for investment loans. In addition to these interest rates, there is an Insentif Pembayaran Tepat Waktu (IPTW) or Incentive for Prompt Payment of 8/ Any proof of land ownership such as a statement signed by local government official may be used for loans up to Rp 400,000. Land certificates are required for loans above Rp 400,000. 9/ Until April 1986 the maximum for KUPEDES loans was Rp 1 million. - 67 - ANNEX 7 Page 9 0.5Z, which is collected along with the monthly payment and E6turned to borrowers if they pay all installments in full and on time.' 33. Unlike its predecessors (BIMAS, MINI, MIDI) and other government credit programs which emphasized cheap credit to the final borrowers, KUPEDES focused on two tenets: (i) prompt delivery of credit, and (ii) the financial viability of the Unit Desas. The underlying assumption is that access to credit is more important to small borrowers than the interest rate charged. To achieve its goals without relying on government BRI had to mobilize voluntary savings and set deposit rates high enough to attract savings. The higher cost of funds also meant that the Unit Desas had to set lending rates high enough to cover their operating costs and risks and earn a reasonable profit. With the TABANAS interest rates then set at 15% p.a. (for amounts less than Rp 1 million), the above KUPEDES rates were set at levels to give the system a spread of 15X p.a. between cost of funds and onlending rates) and to break even when total loans lotstanding reached about Rp 200 billion which was reached in. September 1985, Lending Operations 34. Volume of Lending. The volume of KUPEDES lending has grown remarkably fast. The number of loans increased from about 640,000 in 1984 to about 992,000 in 1985, an increase of about 552. With almost 100,000 loans added from January to October 1986, the total was about Rp 2.6 million at the end of October 1986. The value of these loans increased even faster from fp 171 billion in 1984 to Rp 339 billion in 1985, or 98% and over 15% from 1985 to October 1986. The value of loans for the 10 month period was Rp 391 billion. Cumulative loans from the beginning of the program to end October 1986 was about Rp 901 billion. The average size of a loan, therefore, has increased from about Rp 268,000 in 1984 and Rp 342,000 in 1985 (a period increase of 28%) to Rp 410,000 by end October 1986 (20% from 1985). The contrast with the maximum loan limit of Rp 2 million possibly reflects caution on the part of the Unit Desas. The volume of loans outstanding was at about Rp 111 billion by the end of 1984, increased by 1062 to Rp 229 billion by the end of 1985 and by 372 to 313 billion from 1985 to end October 1986. 35. Type and Maturity. Working capital loans account for about 932 of loans outstanding as of June 30, 1986. Survey findings show that for the period January-June 1986 working capital loans with a 12 month maturity accounted for 57% of the number of loans and 45% of the value. Eighteen month working capital loans accounted for another 162 of the number and 18% of 10/ Where the loan is for more than one year, the IPTW is refunded at the end of each year. In all cases it iq deposited in the borrower's savings account to be withdrawn at will. 11/ The risk cost or loan losses assumed within the spread was 4.5% or approximately twice the loss ratio of the Kredit Mini. - 68 - ANNEX 7 Page 10 the value and, respectively, it month working capital loans for 142 of the number and 212 of the value.- At mid 1986, 69Z of the loans outstanding were listed for trading and only 271 for agriculture. 36. Geographic and Gender Distribution. At end June 1986, 751 of KUPEDES loans outstanding were in Java, which has 622 of Indonesia's population and 641 of BRI Unit Desas. (BRI has Unit Desas in 14 of the 15 provinces in which it has branches.) Sample surveys have also fouytthat approximately 251 of all borrowers and 75% of cosigners are women., Sources of Funds 37. KUPEDES funds come from a government grant, BI liquidity credits, and savings deposits. The Government grant to BRI for the Kredit Mini program at the end of 1983 was Rp 66.7 billion. When KUPEDES replaced Kredit Mini in early 1984, GOI turned this grant over to KUPEDES to distribute equally among the Unit Desas as equity contribution of Rp 19.0 million each. This grant represented about 19% of KUPEDES resources at the end of June 1986. 38. Total BI credits to BRI for Kredit Mini at its termination, were Rp 43 billion. BI agreed to convert these to general liquidity credits for KUPEDES. MOF directed BI to give an additional Rp 100 billion in liquidity credits to support the program at 151 for those onlent as working capital loans and 31 for the funds onlent as investment loans. With an assumed working capital/investment blend of 75/25, the average interest rate on BI liquidity credits was 12X. From February 1986 BI (at the instruction of MOF) agreed to supply additional liquidity credits of Rp 50 billion for each Rp 75 billion increase in KUPEDES loans outstanding. The agreement ensures that BRI provides at least a third of the incremental resources required froi its own funds. The Kredit Mini and other BI liquidity credits accounted for about 531 of KUPEDES resources at the end of June 1983. 39. Under a proposed World Bank project - BRI/KUPEDES Small Credit Project - Bank funds would replace the BI liquidity credits (from July 1987 to September 1989). Bank funds of US$100 million would be onlent to BRI at an interest rate equal to the average cost of BRI's customer deposits (excluding non-interest - bearing deposits from GOI or GOI owned entities). 40. Savings Mobilization. The Unit Desas mobilize savings under the Government's (BI) TABANAS savings program and their own SIMPEDES (Village Savings Program). TABANAS accounted for about 19X and SIMPEDES for 4.5% of KUPEDES resources at the end of June 1986. With other deposits representing about 4% of resources, the total of savings and other deposits accounted for 27% of the June 1986 resources of KUPEDES. 12/ IDF, Yellow Cover SAR, BRI/KUPEDES Small Credit Project. 13/ Ibid. - 69 - ANNe 7 Page 1 1 Repayments Performance and Sustainability 41. The default ratio, total amount overdue as a percentage of total loans outstanding, was 4.31 at the end of November 1986. While relatively small, it has been increasing over time, from 0.5% in December 1984 to 2.1Z for the same period in 1985. More relevant are the long term bad debt ratio which is total amount overdue as a percentage of all payments due arid short term bad debt ratio which is payments missed in a particular month as a percentage of payments due in that month. These were low at 2.2% for the long- term and 2.9% for the short-term in November 1986. These ratios have also been increasing from less than 1% and 1.41, respectively, in December 1984. The 2.2% long term bad debt ratio is less than half the 4.51 risk cost assumed in the initial derivation of KUPEDES interest rates. Despite this good repayment performance, BRI has been concerned. A review showed that over 50% of all arrears are concentrated in 22 branches. Special BRI teams, with both head office and regional staff, have been formed to examine the 22 branches to identify the reasons. The teams' findings are expected to be instrumental in identifying and adopting standardized procedures for future operations. 42. If KUPEDES can maintain this repayment performance, Indonesia has a model for a non-subsidized, self sustaining credit program. This point needs emphasizing because the KUPEDES program, while clearly a success, is only three years old. D. BADAN KREDIT KECAMATAN (BKK) Introduction 43. The Badan Kredit Kecamatan (BKK)141 program was begun in 1972 by the Central Java Provincial Government (CJPG) in order to make capital available to the rural poor to raise their incomes and standard of living, protect rural dwellers from usurious money lenders, create employment opportunities in the rural are, and educate villagers about the benefits of financial savings. At present there are 497 BKKs, covering all Kecamatans and 2,69 village posts, where the BKK employees (three young school leavers per BKK)_H/ lend and collect loan repayments, usually on market days. Organization 44. The governor of Central Java is the titular head of the BKK program, with coordinating functions of the program invested in a ten member provincial BKK Coordinating Body and a four member District BKK Coordinating Body at the 14/ Sub-district Credit Body. 15/ The BKK program had a project status until when the CJPG and the Central Java Provincial Assembly turned into a CJPG institution via Decree No. 11 of 1981. 16/ Consisting of a unit chief, bookkeeper and a cashier. - 70 - ANNEX 7 70 ~~~~~~~Page 12 district or Kabupatan level. Operationally, the sub-district head (c..mat) of each kecamatan has responsibility for the BKKs in his Kecamatan. The Central Java Regional Development Bank, Bank Pembangunan Daerah (BPD), advises the BKKs and performs the technical/supervision functions of the BKKS for the provincial government. The program also receives technical assistance under the USAID Provincial Development Project (PDP), through which 65 BKKs in five poorer districts have received direct support (including capital injections) The remaining 30 districts and municipalities have received indirect support including training and equipment (computers). Sources of Funds 45. The external,sources of funds for the BKKs, outside the PDP funds, have been initial capitalization from the CJPG through the BPD, loans from the BPD, and forced savings from borrowers. Each BKK, which is financially autonomous, received Rp 1 million loan from CJPG at one percent per month with a one year grace period on principal repayment. The one percent monthly interest was to go to the BPD to cover its administrative and supervisory expenses, with the principal repayment going into a provincial/development budget. Subsequent to this, ten BKKs received additional loans of' Rp 1 million for good performance, while some of the weaker ones, through a rehabilitation program, received Rp 350 million between 1981 and 1983. As part of this rehabilitation and upgrading exercise, in 1981, GOI through the MOF made an interest free Rp 3 billion loan to the CJPG through the BPD which were then lent to the BKKs at the usual one percent per month. Unlike other funds, however, only 0.6% of this interest went to the BPD for administrative expenses. The other 0.4% was to go into a BKK program development fund. It should also be noted that unlike the funds from GOI and CJPG, the USAID PDP funds were grants set up as a revolving fund within the BPD which enables the BPD to relend the principal repayments to the BKKs. 46. Funds lent by the BPD to any BKK depends upon the BKKs performance classification. For this, BKKs are classified by the BPD into five categories semi-annually on the basis of six factors, namely: total equity, a ratio of villages to village posts, number of new borrowers, portfolio quality, total savings, and capital circulation. Fifty percent of the total weight of the performance classification is placed on the BKKs' equity, which is defined as cash on hand plus total loans outstanding, minus loans overdue more than six months, loans to the BKK and borrower savings. The remaining five factors are weighted equally (10% each) in arriving at the weighted average of the six which determines each BKK's absorptive capacity for working capital and profitability. The current credit ceilings for BKKs in class I to V, respectively, are Rp 12 million, Rp 10 million, Rp 9 million, Rp 7 million, and Rp 5 million. Regardless of class or category, BKK borrowings from the BPD are released in tranches through the subdristrict head (Camat), who signs for all BKK borrowings. BKK borrowings from government and the BPD represented about 20 percent of BKK sources of funds at the end of 1985, and 22 percent in September 1986. 47. The third external source of BKK funds is the forced savings from borrowers. A portion of a BKK loan to a borrower (6.5% to 20%, depending upon the type of loan - is retained by the BKK as forced savings for the borrower - 71 - ANNEX 7 Page 13 to be paid back to him after full repayment of his or her loan. It has, however, been reported elsewhere that many BKKs do not allow or encourage such withdrawals. The BPD informed the mission that while the purpose of the forced saving element was to encourage villagers' financial savings, they plan to replace it with voluntary savings mobilization. Borrower savings constituted about 161 of BKK sources of funds in 1985 and 141 in September 1986. 48. More than 501 of BRK loanable funds come from the BRRs' own internal retained earnings. The BKK system's annual profit plus accumulated earnings have increased from less than 601 of sources of funds in 1984 to 62Z in 1985 and 1986 (September). Loan Types and Lending Procedures 49. The BKKs onlend these funds through one of six different types of loans. The maturity of these loans range from 22 days (Harian or daily repayments) to a six month seasonal (musiman) repayment with nominal interest rates for the periods of 3.51 and 121, respectively, or nominal monthly equivalents of 4.5Z and 21 respectively. The above nominal interest rates are on the original loan amounts (not on a declining balance) and, with a commitment fee of 11, yield effective moyigly interest rates of 10.81 (on 22 day loans) and 2.21 (on seasonal loans). 50. The weekly repayment (minguan) system is the one used by most of the BKKs. Under this system the borrower repays 10% of the amount borrowed each week for 12 weeks. The first payment goes towards interest repayment, the second for forced savings and the remaining ten payments towards principal repayments. 51. BKK lending procedures are designed to be simple and fast to minimize cost and risk. A borrower picks up an application form at the nearest BKK office or village post, whichever is convenient for him or her. After the borrower receives the required character reference from his village chief the form is returned to the BRK for approval. The BKK staff can approve loans under Rp 25,000; amounts over Rp 25,000 require the approval of the subdistrict head. No collateral is required for BKK loans; however, subsequent loans are based on a borrowers repayment record. Each borrower begins with a small loan and gradually increases his loan size as he repays and demonstrates that he is a good risk. 52. The only departure from the above BKK procedures, terms and conditions was in the mid 1970s when a special (Khusus) program was initiated through which the BKKs acted as collection agencies for the Provincial Government's special technical service agencies. 18/ One percent of loan principal is usually subtracted from each loan as a commitment fee. - 72 - ANNEX 7 Page 14 Performance 53. Coverage. The number of BKKs has grown from 200 in 1972 and 486 between 1976 and 1982 to the current 497 BKKs. With a BRK in every Kecamatan and over 2,6001village posts, the BKK system covers about 312 of the 8,455 villages in Central Java. 54. Loans. The number of loans granted has increased from about 120,000 in 1972 and 300,000 in 1982 to over 500,00 in 1985. Growth in the value of these loans have been even more spectacular from about Rp 400,000 in 1972 to Rp 11 billion in 1982 and more than double this amount, Rp 27 billion by the end of 1985. The average size of loan, consequently, has increased gradually to about Rp 50,000 in 1985; this is still small compared to other credit programs. Total loans outstanding which were about Rp 200,000 in 1972 and then more than doubled from about Rp 5 billion in 1982 to 1985 when it stood at about Rp 12 billion. 55. Repayment Performance and Sustainability. The default ratio, defined as all loans overdue over total loans outstanding appears high at about 16% by the end of 1985. The rate actually started out high - 151 - in 1972, increased to more than 251 in 1978 and has declined to the 1985 level of 16%. However, given the very short term nature and high turnover of BRK loans this measure does not accurately reflect the repayment performance of the BRK system, especially in the later years of the program. 56. Other indicators of repayment performance are the long term and short term bad debt ratios. The long-term bad debt ratio is defined as the total amount of loans overdue over the total amount due and the short term is the increase in amount overdue in any year over the repayments due in that year. The short term bad debt has declined from 121 in 1972 to about 2% in 1985. The long term bad debt ratios, which can be looked at as long term loss ratios under the assumption that all loans overdue would not be repaid, has declined from 12% in 1972 to less than 2% by the end of 1985. 57. In fact, the repayment performance of the BKK system has been remarkable. The bad debt is mainly from the early years under the RKK Khusus program, The BKK system does not have a write off policy yet. The supervisors of the program reported that an estimated 40% of the loans overdue are deemed unrecoverable, and that plans are underway to find a mechanism to write off the bad debts. 58. The viability and therefore, self-sustainability of the BKK program is evident in their profits. The BKK net profit for 1985 was about Rp 2 bil- lion (revenues of Rp 3.5 billion and expenses of Rp 1.5 billion). If the interest expense is increased from the stated Rp 228 million to Rp 841 million (the latter being 12% of liability), personnel expenses increased by 50% (to almost Rp I billion to reflect a third of staff being civil servants and paid slightly higher by the CJPG), and bad debt of Rp 239 million, (2% of loans outstanding) added, then total expenses would increase from fp 1.5 billion to Rp 2.6 billion. This still leaves a system wide profit of about Rp 900 million. - 73 - ANNE 8 Page 1 SAVINGS INSTRUMENTS IN INDONESIA 1. This section provides details on the various savings instruments available in Indonesia. These include demand deposits, TABANAS, TASKA, SIMPEDES, contractual or goal savings plans, compulsory savings accounts, other savings accounts, time deposits, certificates of deposit, foreign currency accounts, and securities. A. Demand Deposits (Giro) 2. Demand deposits are interest bearing accounts available at all commercial and development banks. Most banks require a minimum deposit of at least Rp 500,000 for accounts with a check writing facility, but require no subsequent minimAm balance. However, interest is dependent on the lowest monthly balance and, in some cases, fees may be charged on smaller accounts. Some examples ef the interest rate scaling includet Bank Dagang Negara, no interest on balances of less than Rp 1 million, then 4% p.a. on Rp 1 up to 10 million, 5% on Rp 10 up to 50 million, 6% on Rp 50 to 500 million, and 8% p.a. on balances over Rp 500 million; Bank Negara Indonesia 1946, no interest on balances of less than Rp 1,000,000 and 6% p.a. on larger accounts; and the regional development bank of East Java, no interest on balances of up to Rp 250,000, then 1.8% p.a. on Rp 250,001 to 50,000,000, and 3% p.a. on over Rp 50,000,000. Unlike a savings or time deposit, any interest earned on demand deposits are subject to normal taxation. B. TABANAS (Tabungan Pembangunan Nasional) 3. TABANAS was introduced by BI on August 20, 1971 to promote individual savings. It has traditionally offered a high interest rate for small depositors and account balances are guaranteed in full by BI. Conditions 4. In recent years interest has been paid on a sliding scale with a higher rate paid on lower balances. The current rate is 15% p.a. on balances of Rp 1,000 to 1,000,000 and 12% p.a. on any additional amounts. This interest is calculated on the minimum monthly balance, paid annually, and exempt from taxation. Since 1977, account holders with active accounts and balances of Rp 1,000 or more have also been eligible for lottery drawings at both the national and regional level. Balances with less than Rp 1,000, if inactive, may be subject to special services charges and eventually closed. 5. Normal TABANAS accounts require a minimum deposit and balance of Rp 250 and subsequent deposits of at least Rp 50. Withdrawals are not available during the account's first month and then are limited to twice monthly except in an emergency. The minimum withdrawal is Rp 250. Both withdrawals and deposits can be made only at the branch that opened the account. 6. As shown in Table 1, a number of special TABANAS savings schemes are available for children, students and scouting organizations. Special accounts 74 -ANNEX 8 ! - 74 ~ Page 2 require only Rp 50 to open, have a minimum deposit of Rp 25, and allow only one withdrawal per month. The youth and cub scout schemes may also allow a depositor's parent or guardian to withdraw the funds. These programs are actively promoted in the schools and at scout meetings. Table 1: TABANAS ACCOUNT CLASSIFICATIOYJS Number of accounts Deposits Type Purpose '000 Rp million TABANAS Umum General accounts 13,258 1,002,370 TABANAS Pelajar Students ] 1,340 12,029 TABANAS Pramuka Scouts 1 TABANAS Pegawai Employer or group savings 1,327 44,567 Total 15,925 1,058,966 Source: Bank Indonesia, January, 1987 7. The employer or group savings accounts are a form of payroll savings deductions and are organized by either the employer or the employees themselves. They differ from a general TABANAS account in that the deposits are set for a fixed amount each pay period. Then the scheme's coordinator deposits all of the funds at the same time with a list of the respective accounts. Although each depositor has his own passbook, any withdrawals must first be approved by the scheme's coordinator. These plans are used primarily by government departments/agencies and in practice participation is almost mandatory. Indeed in some agencies the paymaster rounds the pay down to the nearest thousand rupiah and deposits the extra amount directly into the employee's account. While the schemes ensure a high number of accounts, such frequent transactions of less than Rp 1,000 are hardly profitable for the banks. Mandatory group savings may also explain why government owned banks have lower average TABANAS balance particularly at the provincial level. Lottery 8G Each passbook receives an account number and a lottery number. However, accounts, are not eligible for the lottery if the balance is under Rp 1,000 or with Rp 1,000 but with no transactions for two years. The TABANAS lottery is conducted nationally every six months and at the regional level once a year. The national lottery has one first prize of Rp 5,000,000, nine second prizes of Rp 500,000, ninety third prizes of Rp 100,000, nine hundred fourth prizes of Rp 25,000 and one thousand fifth prizes of fp 5,000 each. The regional lotteries in each of TABANAS six regions have one first prize of Rp 2,000,000, nine second prizes of Rp 200,000, ninety third prizes of Rp 25,000, nine hundred fourth prizes of Rp 2,500 and one thousand fifth prizes of Rp 1,500. These winnings are automatically credited to the winner's _ 75 _ i~~~~~NNEX 8 - -5AM - ~~~~~~~Page 3 TABANAS account, provided it was eligible for entry. Not all prizes are awarded, and in 1986/87 Bank'Indonesia budgeted only Rp 1,274 million for the lottery prizes and drawings. Availability 9. Banks must be specially licensed to offer TABANAS/TASKA accounts and applications are currently limited to Class I or II institutions under BI's five prudential categories. As of January, 1987, there were only 38 handling banks which include the five state commercial banks, the National Savings Bank and its Post Office agency system, 20 regional development banks, 9 private foreign exchange banks, and 3 private non-foreign exchange banks. The relative importance of these institutions is shown in Table 2. Table 2: TABANAS/TASKA DEPOSITS AND ACCOUNTS BY TYPE OF BANK JUNE 1986 Amount Average No. of Billion Account Balance accounts Rps fp State banks 13,293,000 888.7 66,854.74 Private national banks 1,085,000 110.5 101,843.32 Development banks 1,000,000 46.1 46,100.00 Totals 15,378,000 1,045.3 67,973.00 Source: Bank Indonesia, Indonesian Financial Statistics, October 1986, pp. 82-83. It is surprising that more private banks are not active in TABANAS as there is no charge for the government guarantee on TABANAS deposits. The free guarantee provides an effective subsidy for private national banks; all deposits with the state banks are already government guaranteed. In interviews, private bankers indicated that this guarantee was not important in deposit raising. Promotion 10. The TABANAS savings promotion is organized at the national level by the National Savings Drive Committee (Gerakan Tabungan Nasional) which is made up of representatives from the Ministries of Home Affairs, Education, amd Information, BI, Bank Negara Indonesia 1946, BRI, Private National Banks Association, and national scouting organizations. The National Committee is then duplicated at the provincial level with the provincial counterparts from Home Affairs, Education and Information, BI, BRI and/or Bank Negara Indonesia 1984, regional scouting bodies, and sometimes the provincial development bank for that area. The private national banks are not represented at this - 76 - ANNEX 8 Page 4 level. There are also similar committees at the district level with local government representatives. The BI (or BRI where there is no 8I Branch) representative chairs each of these committees. 11. In terms of promotion, the National Committee uses a range of methods including a 15 to 30 minute TV drama shown nationally on the 4th Sunday morning of each month. These plays have a simple story line that emphasizes the value of savings and typically ends with the hero winning a major TABANAS prize. This TV show is supplemented at the national level with a range of booklets and other promotional materials. The National Committee also operates a special stand at the annual Jakarta Fair and major scouting events, sponsors a float in the Independence Day parade, and is active in other similar events at the regional level. It also broadcasts TABANAS dramas on regional radio in local languages. All of these promotional expenses are paid by BI and amounted to an estimated Rp 800 million in 1986. The National Savings Drive Committee also meets with the TABANAS handling banks at least once a year to consider changes to TABANAS and better promotional efforts. The handling banks also actively promote TABANAS following the Committee's directions. These instructions are usually very specific and include even the size and exact wording for banners. While the Committee to date has concentrated almost exclusively on TABANAS promotion, in 1987 it might expand its efforts to include time deposits and certificates of deposits. Recent Developments 12. As shown in Table 3, TABANAS accounts and deposits have grown at fairly constant rate, but this may change over 1987. In January one military district and some state enterprises in Sumatra began paying salaries via TABANAS accounts. While these additions will greatly increase the transactions for the handling banks, they should also gain greater savings and other forms of banking business. Table 3: TABANAS SAVINGS ACCOUNTS AND DEPOSITS BY YEARS Average No. of Amount account accounts billion balance Rps (Rp) 1981 9,480,000 384.2 40,527.43 1982 9,952,000 445.9 44,805.06 1983 10,887,000 540.7 49,664.74 1984 12,425,000 669.6 53,891.35 1985 14,712,000 935.6 63,594.35 1986(June) 15,362,000 1,044.9 68,018.49 Source: Bank Indonesia, Indonesia Financial Statistics, October, 1986, pp. 80-81. - 77 - ANNEX 8 Page 5 13. In early 1987, the government was considering lifting the current interest rate controls on TABANAS accounts and allowing handling banks to set their own rates, terms and conditions. The first phase might allow handling banks to offer their own lotteries, in addition to the Bank Indonesia efforts. The second step might be to set a maximum or possibly a range of interest rates rather than requiring a uniform one. Other possible changes include permitting withdrawals four times a month, increasing the minimum deposit to Rp 1,000, using one interest rate rather than the current two step interest rate (possibly 12%), and perhaps paying the interest four times rather than once a year. 14. Interestingly, interviews revealed considerable differences in opinion about TABANAS, but no one spoke favorably about the existing system. Some felt TABANAS deposits are too expensive, given the interest rate and the administration costs. If free to do so, they would limit withdrawals to once a month, raise the minimum deposit to at least Rp 1,000, and reduce the current interest rate from 15% and 12% to one rate of 9% or 10X. In contrast others wanted to allow more frequent withdrawals and to pay a higher rate of 141 to 15% on all savings. C. TASKA (Tabungan Asuransi Berjangka) 15. TASKA is a national insurance savings scheme designed to provide individuals with a combination of savings and life insurance coverage. Under this program depositors receive life insurance coverage equal to 12 times an agreed monthly payment. The deposits earn 9.0% p.a. if the program is successfully completed, but only 6.0% with an early withdrawal or failure to meet all payments. TASKA account holders are also included in the lottery for TABANAS. As with other life insurance policies, TASKA's attraction is limited because many Indonesians believe that it is unlucky to purchase death related insurance coverage and, as shown in Table 4, it has not grown much in terms of either deposits or account numbers. -78- ANNEX 8 Page 6 Table 4: TASKA ACCOUNT NUMBERS AND OUTSTANDINCS No. of Rupiah accounts (billion) 1981 13,000 0.2 1982 16,000 0.3 1983 16,000 0.4 1984 16,000 0.5 1985 18,000 0.4 1986/a 16,000 0.4 /a Figures as of June, 1986 Source: Bank Indonesia, Indonesia Financial Statistics, September, 1986, pp. 80-81. D. SIMPEDES (Simpanan Pedesan) 16. The SIMPEDES program was developed by BRI to attract sa ings for their unit desa rural banking system. It is a convenient, safe and liquid savings instrument developed from market surveys of local villages and then adjusted to its present form from pilot studies. SIMPEDES was first introduced at one BRI branch (Sukabumi in West Java) with 16 u-iit desas in November 1984. An additional 12 pilot branches followed and further expanded in late April 1986 to become nationally offered by June, 1986. Though developed by BRI head office staff, 8IMPEDES is available only through BRI unit desa system and not through the BRI branch offices. 17. A SIMPEDES account requires a minimum deposit and a minimum balance of Rp 1,000. Interest is paid on a sliding scale so that accounts with a minimum monthly balance of Rp 25,000 or less receive no interest, Rp 25,001- 200,000 earn 92 p.a., and over Rp 200,000 earn 12X p.a. The interest is posted monthly (TABANAS is annually) and paid rounded to the nearest multiple of Rp 10. To limit inactive accounts, a unit desa may close any SIMPEDES account that has had no transactions for three months and a balance of only Rp 1,000. In practice, though, most SIMPEDES accounts are active with an average of 1.26 transactions per month (.99 deposits and 0.26 withdrawals). 18. In addition to interest, SIMPEDES accounts receive one lottery chance for every multiple of Rp 5,000 in their minimum monthly balance. This coupon is issued to account holders on a monthly basis (one coupon with as many lottery numbers as multiples of Rp 5,000). The lotteries are conducted every six months on a district or BRI branch level. The prizes are decided by the local branch. One branch in Bali offered a motorcycle, TV, and radio as the first three prizes and 10 fourth prizes of clothing material. - 79 - ANNEX 19. Due to the scaling of interest rates and deposit and withdrawal activity during the month, the real interest rate costs average around 0.82 p.m. compared to the 1% p.m. rate offered. The total cost of SIMPEDES savings is confidentially estimated by BRI at approximately 14.51 or 16.11Z if Bank Indonesia's reserve requirements are considered. This percentage includes interest costs of 9.54Z, prizes of 1.25%, taxes on prizes 0.16% (now paid by the prize recipient), the coupon issue of 0.12%, and the promotion of 0.5%. The labor costs were 2.94X. 20. While TABANAS is available only to individuals, a SIMPEDES account can also be in the name of an organization or business. Many local schools, village funds, professional bodies and religious groups have already opened SIMPEDES accounts and BRI believes that there is considerable potential for more throughout Indonesia. Business accounts, too, should prove important and one unit desa in Bali estimated that approximately 60% of its SIMPEDES accounts were held by small local businesses and provided an even higher percentage of its total SIMPEDES deposits. 21. In the village in question, an estimated 70% of SIMPEDES depositors were male compared with some 60% females for TABANAS accounts. Balances of Rp 25,000 or less accounted for some 26.28% of account numbers, but only 0.99% of deposits. In contrast, balances in excess of Rp 200,000 comprised 18.61% of accounts, but 84.83% of deposits. Middle range balances (25,001 to 200,000) were 55.1 and 14.18X respectively. 22. As shown in Table 5, SIMPEDES accounts have increased significantly both in terms of account numbers and total deposits. The latter exceeded the BRI unit desa system's TABANAS balances for the first time in October, 1986. This growth should continue for the immediate future as there is still considerable untapped potential savings outside Java/Bali where SIMPEDES has still not been well promoted due to the lack of promotional materials at many unit desas. The program also suffers from poor marketing skills at the BRI branch and unit desa level and from confusion over the recent unit desa rationalization program and the role of unit desa village savings posts. ANNEX 8 - 80 - Page 8 Table 5: SIMPEDES ACCOUNTS AND DEPOSITS, 1985-86 Account No. of Deposits balance 1985 accounts (Rp'000) (Ave. Rp) January 3,564 279,766 78,497.76 February 4,550 277,372 60,960.88 March 5,376 320,366 59,581.89 April 6,921 283,092 40,903.34 May 8,132 415,627 51,110.06 June 8,822 481,947 54,630.13 July 14,889 1,077,586 72,374.64 August 20,925 2,031,179 97,069.49 September 25,852 2,713,705 104,970.79 October 33,353 3,629,067 108,807.81 November 33,786 4,436,793 131,320.45 December 36,563 5,134,179 140,420.06 1986 January 39,312 5,462,719 138,958.05 February 42,127 5,858,286 139,062.50 March 44,978 6,829,061 151,831.13 April 54,028 8,060,202 149,185.64 May 80,889 10,951,588 135,390.32 June 105,104 15,541,639 147,869.14 July 145,454 23,485,557 161,463.80 August 198,934 30,746,137 154,554.46 September 244,428 42,445,085 173,650.66 October 306,504 55,542,744 181,213.76 November 358,352 69,943,000 195,179.59 December 418,945 82,405,000 196,696.46 Source: Bank Rakyat Indonesia, January, 1987 E. Contractual or Coal Savings Plans 23. As yet Indonesian banks have made limited use of contractual plans which are designed to meet special customer savings requirements. While these programs may have a limited potential within the rural market, nevertheless they may appeal to certain clients and generally help encourage the savings habit. Some goal directed savings plans are a Retirement Savings Accounts, Scholarship Savings Accounts, Savings for Religious Ceremonies, Savings for Home Purchases, and a Down Payment Savings Scheme for Housing Loans. - 81 - ANNEX 8 Page 9 Retirement Savings with Lottery (Tabungan Hari Tua Berhadiah) 24. The Retirement Account is a special purpose account introduced by Bank Dagang Bali for retirement savings. It earns interest of 15% p.a. paid monthly (1.25X pm) on the minimum balance. In addition to interest the account is also eligible for the Bank's monthly lottery with one chance per each Rp 1,000 of the month's minimum balance. 25. Under the Retirement Account the customer chooses an end savings target and agrees to make a set regular payment of at least Rp 1,000 per month until age 55. While the customer may later discontinue the payments, the account balance is still only available for withdrawal at age 55 except for emergencies. On retirement customers may still maintain the funds on deposit and receive a monthly interest payment on the remaining balance. Since the Retirement Account was introduced on 4 December 1982, it has been well received by the Bank Dagang Bali's customers and, as shown in Table 6, has been a small, rapidly growing, source of regular long term deposits. Table 6: RETIREMENT SAVINGS SCHEME ACCOUNT NUMBER AND DEPOSITS No. of Total savings Average Rp accounts Rp balance 1982 112 406,000 3,625 1983 3,599 66,481,900 18,472 1984 7,319 224,507,925 30,675 1985 10,144 477,758,763 47,098 1986 13,899 857,163,675 61,671 Source: Bank Dagang Bali, January, 1987 Scholarship Savings Plan (Tabungan Bea Siswa Berhadiah) 26. The Scholarship Savings Plan is another goal savings scheme introduced by Bank Dagang Bali on April 12, 1983 (Table 7). Customers set a target date and monthly amount to some for higher education of their children. Like the retirement plan, once the cuistomer determines the monthly payment (Rp 1,000 minimum) and the maturity date, he cannot withdraw the funds until that date except in an emergency. There is no penalty if a payment is missed, but, as with the retirement plan, the end benefit is reduced accordingly. Interest is paid at 15% p.a. on the minimum monthly balance. - 82- ANNEX 8 Page 10 Table 7: SCHOLARSHIP SAVINGS SCHEME No. of Total savings Average Rp accounts Rp balance 1983 21 65,000 3,095 1984 3,726 68,422,623 18,364 1985 6,447 215,912,013 33,490 1986 9,306 483,105,688 51,913 Source: Bank Dagang Bali, January, 1987 Savings for Religious Ceremonies (Tabungan Upacara Agama) 27. This program was introduced by Bank Dagang Bali in January 1987 to help Bali residents prepare for funeral expenses. Custom requires an elaborate cremation ceremony which, if not provided for in advance, could place the family into considerable debt. While no accounts had been accepted in early 1987, tne program is expected to have more appeal than life insurance since the marketing emphasis is on the ceremony. Outside of Bali there is a similar potential for burial savings among Torajan people of South Sulawesi. There the traditional burial ceremony includes the sacrifice of a buffalo which cost Rp 1 to 3 million. Villagers must make a substantial savings effort to meet the costs. Savings for Home Purchase (Tabungan Pembclian Rumah) 28. Savings for Home Purchase is another goal savings plan recently introduced by Bank Dagang Bali. It operates like the bank's scholarship or retirement plan the amount of monthly payment and maturity set when opening the account. Down Payment Savings Scheme for Housing Loans (Tabungan Uang Muka Kredit Pemilikan Ruman) 29. This plan was introduced by the National Savings Bank in 1985 to encourage potential depositors to save for the down payment required for their planned home purchase. The customer must save a set amount each month equal to approximately one third of his normal salary for a period of 24 to 36 months depending on the payment size and the end housing loan lesired. These deposits earn interest at 12% p.a. calculated on the lowest monthly balance and paid annually. Under the plan those completing the terms and conditions will then be eligible for the bank's housing finance. - 83 - ANNEX 8 Page 11 Haj Pilgrimage Expenses Savings (Tabungan Ongkos Naik Haji) 30. The Raj Piligrimage Expense Savings plan is a form of compulsory savings plan designed to finance the expenses of a pilgrimage to Mecca. The customer designates the amount of payment for either a weekly or monthly basis. Most plans are relatively short-term and seldom for more than a year. In 1985 there were 34,554 accounts outstanding with a total savings balance of Rp 108.1 billion. These plans are presently offered by Bank Rakyat Indonesia, Bank Negara Indonesia 1946 and Bank Ekspor Impor Indonesia, and are likely to be offered by other banks in future. F. Compulsory Savings Accounts 31. Though not significant in terms of total deposits, compulsory savings accounts are important to some secondary banks and smaller rural financial institutions. These deposits are not compulsory savings related to establishing a savings record with the bank before being granted a loan (some multiple of deposits). They are instead a form of compensating balance whereby, with a Rp 10,000 loan the applicant will actually receive Rp 12,000 with Rp 1,000 for the flat interest charged and Rp 1,000 for the compulsory savings. In some cases the savings amount is returned after the loan is fully repaid, but not always. These compulsory balances may or may not receive interest depending on the institution. G. Other Savings Accounts 32. In addition to the TABANAS and goal savings accounts, some banks offer their own ordinary or special purpose savings plans, each with their own terms and conditions. More banks are considering such plans and among the secondary banks, the BKKs plan to accept deposits in the near future. Ordinary Savings Plans 33. While TABANAS/TASKA accounts are limited to only 12 of Indonesia's private national commercial banks and are not available for the secondary banks, the secondary banks offer their own savings account plans in competition to the TABANAS scheme. Most allow more frequent withdrawals than TABANAS and pay much higher interest rates. Indeed, some Bank Pasar in tste 1986 were paying up to 21% per annum for such funds. 34. One of the more interesting examples of private bank savings accounts is offered by Bank Dagang Bali. It offers a monthly lottery and a competitive interest rate of 1.0% p.m. on the minimum monthly balance. While this interest rate is less than TABANAS, there are no restrictions on withdrawals and the lottery chances are based on the account balance rather than one chance per account. In contrast to SIMPEDES, the lottery drawings are made monthly rather than twice yearly and the coupon numbers are based on the number of multiples of Rp 1,000 rather than Rp 5,000 in the account's minimum monthly balance. The prizes are also larger with a Rp 10 million house awarded every six months, a Rp 6 million mini van every three months, and a Rp 81 million motorcycle every month. -84 - ANNEX 8 Page 12 Cashier Guarantee Savings 35. At least one state bank requires that all tellers or cashiers pay 21 of their salary into a special savings account, the balance of which cannot be withdrawn until after retirement. This requirement is intended to guarantee against possible theft and in return the bank pays an attractive rate of interest, 15% p.a. Save and Borrow Account (Rekening Simpan Pinjam) 36. This is a form of overdraft account offered by Bank Dagang Bali through which the customer has access to an automatic credit facility (Rp 5 million maximum) equal to 25 times the agreed monthly savings payment (Rp 40,000 per month for an overdraft facility of Rp 1,000,000). There is no set time requirement for repaying the loan, but the agreed monthly savings must be continued. The savings component earns 0.025% per day on deposit balances over Rp 1,000. Alternatively the customer is charged 0.11 per day on any negative account balance. 37. As additional incentive, save and borrow account customers can pay a Bp 10,000 fee and receive an Automatic Teller Machine (ATM) card. The ATM introduced by Bank Dagang Bali on May 1, 1986, was the first in Indonesia. There were 180 ATM cards outstanding as of December, 1986 and the ATM had only a half dozen transact4.ons per day totalling approximately Rp 100,000. The bank is very selective both in the opening of these Save and Borrow accounts and in issuing ATMs. Proposed Commercial Bank Ordinary Savings Schemes 38. In interviews, state commercial banks such as Bank Dagang Negara and Bank Negara Indonesia 1946, indicated that they were considering the introduction of their own ordinary savings accounts to compete with their current TABANAS account program. The Bank Dagang Negara scheme would not have a lottery, but would allow withdrawals four times a month and pay 14Z interest on all savings. The bank hopes to attract larger savers as smaller ones would find the 15% plus lottery offered by TABANAS (on deposits up to Rp 1,0,oo000) more attractive. The Bank Negara Indonesia 1946 savings account would require an opening balance of Rp 5,000 and a minimum balance of Rp 2,500. The terms might allow up to five withdrawals per month and would pay interest on the lowest monthly balance of 15% p.a. Proposed BKK Savings Scheme 39. In January 1987 the BKKs could not accept voluntary savings, but a savings program was in the planning stage with a pilot program expected sometime in 1987. Unlike other rural savings schemes, this program is intended to work on a coupon basis instead of a passbook. The coupons will be available in varying denominations with the amount of interest dependent on the number of months held. The back of each coupon will have a schedule showing the interest per month and the issue date will be stamped on the front. Those redeeming the coupon in between months would receive interest up to the previous month. Interest would be paid only on redemption. Each - 85 - ANNEX 8 Page 13 coupon would be numbered and the name of the holder indicated on the coupon book stub as well as in an index. The coupon would be redeemable only at the issuing BKK and on each redemption the number checked against the recorded holder and his national identification card. The controls seem adequate to preclude fraud and some provisions are included for the redemption of lost coupons. The BKK's main incentive for a coupon system rather than a passbook is to reduce is the labor cost and secord keeping associated with posting interest on customer ledger books. Unlike SINPEDES, the BKK savings plan hopes to compete strictly on an interest basis and wil' offer a higher rate (probably 15% p.a.) instead of a lottery. BKK wanted to avoid the high administrative costs and supervision that a monthly lottery based program entails. H. Time Deposits 40. Time deposits are attractively priced short to medium term (1 to 24 months) savings vehicles with the interest rate fixed over the period and the interest paid monthly. The interest on one month to 24 month deposits is exempt from taxation and since 1983, the source of funds used for these deposits are free from Taxation Department investigation. 41. Prior to June 1983 all interest rates, were set by BI. While state banks are now free to set their own rates, BI imposes a minimum interest rase of 12% p.a. on the 24 month time deposits accepted by government owned banks. BI also limits the secondary banks from offering time deposits with a maturity of over three months. 42. As shown in Table 8, there are substantial differences in time deposit rates. There are also differences in the minimum deposit sizes, and price competition is encouraged since retail deposit rates are collected and published daily in the Indonesia press (Kompas). Among the state commercial banks, however, there is a gentleman's agreement as to the maximum advertised interest rates, but these banks, may provide up to an additional 0.5% to their better clients. Table 8: RANGE OF TIME DEPOSIT INTEREST RATES BY TYPE OF BANK (5 January, 1987) State Private Other Private Foreign Banks FX Banks National Banks Banks 1 month 13.0-13.50 12.5-14.50 13.0-15.0 9.50-14.00 3 months 13.5-14.25 13.5-15.00 14.5-16.0 9.50-14.75 6 months 14.5-14.50 14.0-16.00 15.0-17.0 10.00-15.50 12 months 15.0-15.00 14.0-16.00 15.0-18.0 10.25-16.00 24 months 14.0-15.00 15.5-17.00 - Source: Interviews with Bank Indonesia, 1987. 86 - ANNEX 8 Page 14 43. State commercial banks and regional development banks use a lower minimum deposit size than the private banks. The Regional Development Bank of East Java, for example, requires a minimum of Rp 100,000 for time deposits as does Bank Dagang Negara. In contrast, Bank Dagang Bali requires a minimum deposit of Rp 500,000, and Bank Central Asia, a minimum of Rp 1,000,000. The private banks also offer a more limited range of maturities, Bank Dagang Bali, for example, will accept only up to 12 months. As showu in Table 9, the 12 month maturity is also the most popular deposit maturity among state commercial bank customers, but prior to the 1983 interest rate liberalization, 24 month deposits were the most popular. Table 9: TIME DEPOSITS WITH STATE BANKS BY MATURITY (billions of rupiah) 1980 1981 1982 1983 1984 1985 1986/a 24 months 656.2 765.2 854.4 538.7 277.3 471.3 451.5 18 months - - - 1.4 2.3 3.8 1.6 12 months 134.5 42.8 39.0 837.9 1,676.2 2,691.2,789.0 6 months 38.7 18.5 11.8 298.7 557.9 719.6 750.3 3 months 4.9 2.6 3.2 212.1 247.0 710.2 797.1 <3 months 0.1 0.1 - 237.0 225.0 659.3 648.5 Total 734.4 829.2 908.4 29125.8 2,985.9 5,255.6,438.0 /a June. Source: Bank Indonesia, Indonesia Financial Statistics, September, 1986, pp. 78-79. 44. As shown in Table 10, individuals account for the largest single source of state bank time deposits because most businesses prefer che added liquidity of a certificate of deposit. Jakarta is traditionally the major source of time deposit funding and in July 1986 accounted for 72% of deposits, Java and Bali together accounted for 89% of the total, Sumatra 71, Kalimatan/Sulawesi 21, and other areas 2%. 87 - AME 8 Page 15 Table 10: OUTSTANDING TIME DEPOSITS WITH STATE BANK BY GROUPS OF OWNERSHIP, 1981-1986 (billion of rupiah) 1981 1982 1983 1984 1985 1986/a Government 5.4 6.6 100.2 273.6 216.8 394.9 Official entities 135.6 174.8 220.2 300.9 348.6 366.7 State savings banks 17.8 6.1 - - - - N.B.F.I. 61.9 56.1 132.6 21.0 57.6 91.5 Insurance companies 116.7 183.7 467.0 493.0 829.41,141.9 State enterprises 45.8 59.4 270.3 498.4 819.5 890.8 Pawnshops - - 0.8 - - - Private enterprises 61.8 48.0 157.2 108.7 158.0 137.7 Social foundations 160.5 215S. 353.1 590.4 832.3 875.8 Cooperatives 2.7 4.5 1.2 1.5 4.8 2.9 Individuals 312.5 293.6 675.2 941.9 1,731.51,698.9 Others 41.8 1A.8 41.3 204.4 257.7 250.2 Von-residents 1.0 0.2 1.2 0.5 1.4 1.9 Unclassified 44.0 48.0 267.5 52.6 68.4 48.9 Total 1,007.5 1,111.2 29687.8 3,486.9 5.326.05,904.1 /a June Source: Bank Indonesia, Indonesia Financial Statistics, September, 1986, pp. 76-77. 45. In addition to the normal range of monthly maturities on time deposits, better customers can also open time deposits with other maturi- ties. Prior to 1 January, 1987, these funds were included within the "other" category of Bank Indonesia's TAMANAS figures but are now reported separately in the time deposit. section. These deposits are not particularly comon, but are often issued for large amounts of funds. I. Certificates of Deposits 46. Certificates of deposit are similar to commercial bank time deposits in terms of their interest rates, terms and conditions. But certificates do provide slightly higher rates for the longer term maturities. The rates also differ with issue size with CDs for Rp 100 million typically offering an additional 0.25X to 1.0% p.a. with the difference increasing with maturity. 47. The main advantage of a CD is that it can be sold either to another individual or to any branch of the issuing bank. In contrast a time deposit can only be redeemed at the branch from which it was issued. Investors have a choice of paying the full face value and receiving the interest and principle at the end period, or purchasing the CD at a discount from its face value with 88 - ANNEX 8 Page 16 the difference providing the effective interest rate. While there is usually no difference in the effective annual rates or taxation treatment, most investors prefer the latter arrangement. Recent rates are shown in Table 11. Table 11: CERTIFICATE OF DEPOSITS NOMINAL INTEREST RATES, JANUARY 1987 Interest in Interest on advance maturity 1 month 12.9 13.0 2 months 13.0 13.3 _ 3 months 13.5 14.2 6 months 13.5 15.0 12 months 13.0 16.1 24 months 11.5 17.4 Source: Bank Bumi Daya, January, 1987. 48, Certificates are sold in specific size denominations from Bp 100,000, Rp 100 million. However, many banks, limit CD's for large deposits. One, for e-xample, requires a minimum of Rp 5 million and most are issued for amounts between Rp 25 to 100 million. The minimum maturity is technically 15 days, but few institutions offer this facility. 49. A major drawback in raising large deposits through CDs is a function of their bearer nature. Most state enterprises and other large holders of surplus cash are criticized by thei- auditors if they hold investments which are not registered in their name. Individuals may also be concerned over the potential theft of these instruments, but in any case individuals account for a small proportion of the total issues. 50* Commercial banks need BI permission to issue CDs. In January, 1987, only 25 commercial banks were authorized. Government owned banks are also requied to pay at least 12% p.a. on certificates with a 24 month maturity. In practice, this restriction is of little significance since 6 month certificates are by far the most important followed by 1 month maturities. J. Foreign Currency Accounts 51. As there are no restrictions on holding foreign currencies, many Indonesians prefer to place their savings in non-rupiah denominated accounts. These accounts typically require a minimum balance of the equ:%.valent of US$ 2,000 to 5,000 and are either a demand deposit or time deposits. The interest rates are adjusted according to the equivalent Singapore deposit rates, but are usually lower particularly on smaller amounts. Nevertheless in a local foreign currency time deposit account still - 89 - ANNEX 8 Page 17 some advantages as the interest received is tax exempt whereas, the income from an off-shore deposit is not. These deposits are not confined to Jakarta and one private bank branch in Malang (East Java) obtained Rp 6,000,000 of its Rp 35,000,000 in deposits from foreign currency related deposits. K. Securities 52. Though corporate equities and debt securities are available these instruments have not proved popular with individual investors particularly because alternatives investments are tax exempt. Shares 53. Equity investments in Indonesian companies may be purchased either as a normal share or, in some cases, through a back-to-back share certificate of DANAREKSA9 (the National Unit Trust Company). Both types may be purchased through the state banks, stock brokers, the investment finance and development finance corporations and or directly from other investors. 54. Direct Share Investments. Currently 24 companies with their shares are listed on the Jakarta Stock Exchange. At the end of 1985 these companies had a total market value of Rp 2,749.8 million. The last firms were listed in 1984; since then no subsequent listings or new share offerings have been made. While the average yield on share investments is 13 to 14%, there has been little prospect of capital gains as most shares are now selling much below their highs and often below their initial issue price. Semen Cibinog, for example, recently missed a dividend payment and dropped to Rp 10,000 compared to a high of Bp 16,000 in 1986 and an all time high of Rp 19,200 in 1983. Similarly where as BAT Indonesia shares initially sold at Rp 12,000, but are now worth only Rp 3,250. Indeed of the 24 companies, only 10 are now selling above their issue price. 55. Back-to-back Certificates. The back-to-back share certificates were developed by DANAREKSA as a means to encourage greater Indonesian investment in local stocks. The advantage of these certificates over a normal share purchase is that DANAREKSA will repurchase the certificates on demand even if there is secondary demand for the underlying shares on that day. 56. Three companies have shares available through back-to-back share certificates: Semen Cibinog, BAT Indonesia and Unilever Indonesia. When initially issued, each of these certificates was structured to sell for Rp 10,000 to 12,000. Thus each certificate represents different numbers of shares is priced accordingly: Semen Cibinog back-to-back certificates represent one share, BAT Indonesia 5 shares, and Unilever Indonesia, 2 shares. Once issued, DANAREKSA has only acted as a purchaser of these certificates and by December, 1986, it had retired some 502 of the initial Semen Cibinog certificates, 70% of BAT Indonesia and 40% of Unilever Indonesia. Bonds 57. Public bond issues to date have been limited to government entities and through 1986 confined to three issuers: Jasa Marga (toll road 90 - ANNEX 8 - 90 - ~~~~~~page 18 construction), Bapindo (national development bank), and Papan Sejahtera (housing construction). Since their initial issues in 1983, all three have returned to the market for additional bond issues and both Bapindo and Sejahtera plan another Rp 50 billion issue each over 1987. The first bond issne in February, 1983, Jasa Marga 1, was fully tax exempt just like savings and time deposits. The next two issues (Bapindo and Papan Sejahtera) in 1983 were also given a tax concession, but this was limited to a flat 102 final withholding tax. All subsequent issues, however, have had no special tax treatment. As result, only investors not subject to taxation have found their 15.75 to 16.5X yields attractive. Pension and superannuation funds, whose investment income is fully tax exempt, have been the main purchasers either directly or through DANAREKSA income unit trusts. These securities are unlikely to attract private investors until they are given tax exemption similar to savings and time deposits. Though the bonds are listed on the Jakarta Stock Exchange, most trading is over-the-counter between institutions as an adjunct to money market dealing rather than on the exchange. Unit Trusts (DANAREKSA) 58. DANAREKSA currently offers two types of unit trusts: a general unit trust and an income unit trust. DANAREKSA Series A,B, C, D, are general units, while the DANAREUKSA Unit Pendapatan I, II, III are income units. The general units series are invested approximately 52% in shares, 302 in bonds, and the rest in money market securities, and the income funds hold around 90% of their funds in bonds and the remainder in money market securities. In early 1987, the Rp 60 billion worth of general units provide a dividend and capital gains return of approximately 172 p.a. compared to 15.75 to 16.5% p.a. on the Rp 80 billion worth of income units. 59. The units are sold in minimum lots of 100 units or certificates. With the current price of the general and income units around Rp 10,100 to 10,550, this means an initial investment of some Rp 1,010,000. DANAREKSA units may be purchased through any stock exchange member, but the state government banks and (13 of 27) provincial development banks are its main agents. By the end of 1985 it had 21,824 general certificate holders. Jakarta residents are the largest holders of these certificates and account for 76.6% of the general units. 60. DANAREKSA differs from a commercial unit trust operator since it guarantees a return on its units often higher than commercially available by using its own investment portfolio to provide the subsidy. It also operates in close cooperation with the Ministry of Finance and the Capital Market Executive Agency (BAPEPAM) and new DANAREKSA unit issues are made directly to support new debt or equity issues. 61. In addition to its current unit trust operations, DANAREKSA is currently forming a closed end investment fund, the Indonesia Fund, to attract foreign portfolio investment. The Fund is to start with a US$ 10 million issue underwritten by Prudential Bache and GT Investments. It is expected to be listed on the Luxembourg Stock Exchange and marketed mainly to European institutional investors. It will have no special tax exemption and DANAREKSA will deduct the standard 35% corporate tax on any dividend income and capital gains. There are no withholding taxes on any direct payments to unit holders. -91 - ANNEX 8 Page 19 62. DANAREKSA is also involved in government discussions on an over-the- counter market. This market would entail the creation of a new financial institution, the private investment company, which would act as a market maker for these unlisted securities. DANAREKSA is expected to be a part owner of one of these institutions. It also expects to create a new Rp 5 billion closed end stock exchange listed fund for investment in smaller companies. Known as "growing certificates" these new units would guarantee a 12X dividend return with any extra income reinvested in additional shares.