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Indonesia central bank issues new banking rules on mandatory small and medium business lending

Indonesia central bank issues new banking rules on mandatory small and medium business lending

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia, Sep 22, 2016. (File photo: Reuters/Iqro Rinaldi)

JAKARTA: Indonesia's central bank has issued new rules making it easier for banks to meet requirements on supporting small and medium business, in a measure also aimed at bolstering an economic recovery from the COVID-19 pandemic, it said in a statement.

The new rules replaced a 2015 regulation mandating banks to provide 20 per cent of their total lending to micro, small and medium enterprises (MSMEs), which some banks had trouble meeting due to a lack of expertise in giving such loans.

Under the new regulation, which takes effect in June next year, banks must provide financing of at least 20 per cent of their total portfolio for MSMEs, their supply chains or low income earners in what Bank Indonesia calls the macroprudential inclusive financing ratio (RPIM).

Channelling loans via other banks or non-bank financial firms as well as buying securities issued for inclusive financing will also count as meeting the RPIM.

The mandatory ratio will go up to 25 per cent in June of 2023 and to 30per cent in June of 2024 and banks that fail to meet the ratio must pay fines.

"The Bank Indonesia regulation was issued as part of efforts by Bank Indonesia to increase economic inclusion and open up financial access, as well as to strengthen MSMEs' roles in the national economic recovery," Bank Indonesia in the statement late on Wednesday (Sep 1).

The new rules will also provide more options for banks to meet minimum MSME credit requirements, it said.

Islamic banks must also comply with the new rules.

Source: Reuters/ng

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