___________________________________________________________________________

2014/SMEWG39/015 Agenda Item: 11.2.2

Improving Financial Literacy of SMEs Through National Movement for Financial Transaction

Records

Purpose: Information Submitted by: Indonesia

39th Small and Medium Enterprises Working Group Meeting

Nanjing, China3-4 September 2014

THE 39th SME WORKING GROUP MEETING AND RELATED MEETINGS

NANJING, PEOPLE’S REPUBLIC OF CHINA

SEPTEMBER 3- 4, 2014

IMPROVING FINANCIAL LITERACY OF SME THROUGH

NATIONAL MOVEMENT FOR FINANCIAL TRANSACTION

RECORDS

OUTLINE

I. Indonesia at Glance

II. The SMEs Snapshot :

1. The Role of SMEs in Indonesia Economy

2. The SMEs Credit Growth

3. The SMEs Challenges

III. The Policy Direction of Bank Indonesia to Support SMEs Development

IV. Bank Indonesia’s Program to Increase Financial Literacy Through

National Movement for Financial Transaction Records

V. Conclusions

2

NUMBER OF

FINANCIAL INSTITUTION

Commercial Banks 120

Rural Banks 1,637

Insurance Companies 141

Pension Funds 267

Multifinance Companies 202

Venture Capital 89

Investment Manager 73

Credit Guarantee

Company 7

Pawn Broker 1

Indonesia has a huge economic potential and large market for financial services.

3

• More than 13,000 islands

• Population: + 237.6 million 1)

• GDP of USD878.043billion in 2013, the 16th largest economy with estimated 6.23% GDP growth rate 2)

• GDP per capita 2012: USD 3.606 3)

• Banking industry covers ± 75.8% of assets in financial sector

I. INDONESIA AT GLANCE

1) 2013, BPS

2) World Bank

3) BPS

3

78.8%

1.2% 2.6%

9.9%

6.7% 0.1%

0.5% 0.1%

0.1% Commercial Banks

Rural Banks

Pension Funds

Insurance Companies

Multifinance Companies

Credit GuaranteeCompanyPawn Broker

Market Share of Indonesia Financial System by Total Assets

Source : Bank Indonesia and FSA (2013)

99.9% of 55 million business

units

absorb around 97,2% of total

labor force.

contribution around

57,48% to the GDP

4

Economic Conditions

II. 1. THE ROLE OF SME IN INDONESIA ECONOMY (2)

Source : Ministry of Cooperatives and SMEs

7

Source: Bank Indonesia, June 2014

SME credit :

Currently SMEs loans constitute 19,7% of the total banks’ outstanding loans

SMEs Lending portfolio :20,1% to Micro, 29,9% to Small, 50,0% to Medium scale

enterprises

The growth of SME Credit in June 2014 around 11,6% (yoy), relatively lower

compared to growth of banking credit 17,0%.

5

II.2. THE SMES CREDIT GROWTH

21.6

17.0

21.2

11.5

14.9 15.5 15.3

21.20

15.65 16.98

11.56

22.5 21.0 21.5

19.9 20.4 20.1 20.7 19.6 19.4 19.6 19.7

0.0

5.0

10.0

15.0

20.0

25.0

0

100

200

300

400

500

600

700

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

(%) Triliun Rp

Medium Enterprise Credit Small Enterprise Credit Micro Enterprise Credit

Growth of MSME Credit Share of MSME Credit

6 II.3. INDONESIAN SMES CHALLENGES

6

Financing and Marketing aspects are the main challenges of the SMEs

Source : National Economic Census 2006

Financing 35%

Marketing 35%

Fuel/Enegry 4%

Transportation 3%

Skill 1%

Wage of Labour

1%

Materials 11%

Others 10%

Supporting food security and creation of new economic centers in the regions

Final

Objective The Growth of SMEs & Real Sector and Inflation Control

Short Term

Objective

Strategy Capacity Building

for SMEs

Increasing Access to

Finance

Minimize the

Asymmetric

Information

Coordination &

Strategic Partnership

Program

• Cluster (Value Chain) Development

• Entrepreneurship Development

• National Movement for financial Transaction Recording

• Strengthening Financial Infrastructure

• Facilitation of Government Credit Program

• Provision of study/research

• Dissemination of Information

• Development of SMEs Microsite in the website of Bank Indonesia

Coordination with local government, central government and international institutions

Methods Research Training Provision of Information Facilitation

III. THE POLICY DIRECTION OF BANK INDONESIA TO SUPPORT SMES DEVELOPMENT

7

Financial recording has not become a habit

SME focus on business and production activities

There is no separation for personal and business financial transaction

8

Backgound

Source: Study of Standards Financial Statements and Business Plan For SMEs, BI 2009

Knowledge of financial recording and accounting principles

Small scale of business

Information about financial performance

Information gap for creditors

Skills gap for SME

IV. Bank Indonesia’s Program to Increase Financial Literacy Through

National Movement for Financial Transaction Records

1. Improve SME’S Awareness to have Financial Recording

2. Capacity Building

NATIONAL MOVEMENT FOR FINANCIAL RECORDS

1.SME knows their business condition through financial records statement

2.Help creditors/banks in analyze SME financing needs

1. Increase awareness for financial transaction records

2. Changing habits to have financial transaction records

3. Increase knowledge to make financial transaction records

Logical Framework

Main Strategies Expected Result Benefits

10

MOVEMENT FOR FINANCIAL RECORDS STATEMENT

SOCIALIZATION & EDUCATION

TRAINING

FACILITATION

Financial Education & Planning Savings, Credits Etc

Importance of Financial Records Increase awareness & habit

Financial Transaction Records integrated with ICT Profit, Cost Struture, Efficiency

Business Planning Financing needs, investments, etc

Facilitation of Acces to Finance Focus Group Discussion with creditors/banks, financing expo, etc

Enrichment of Data Data of SME and their financial information

MOVEMENT FOR FINANCIAL RECORDS STATEMENT

11

ROAD MAP

Phases

Activities

Milestones

Training modul

preparation

Coordination with

ministries, banks,

universty, IAI etc.

Pilot Project

Coordination w/

stakeholders

Commitments

Soft Launching

Training Need

Analysis

Group targeting

Training

Evaluation of

Training modul

Socialization

Modul & software

procurement

Socialization

Facilitate SME to

finance

Training

Training monitoring

Facilitation

monitoring

TOT Reporting

Evaluation of

Program and

recomendtaions

Program Evaluation

2014 2015

Facilitate access to

finance

Lesson Learnt:

a) Financial records and education can be useful for both of SME and creditors/banks:

- SME is able to understand more about their business can know their business and choose financial product suitable to their needs

- Helps creditors/banks reveal SME financial feasibility

b) Financial records increase SME level of competitiveness

Challenges :

a) Changing the mindset of SME to have financial transaction records

b) Absence of rules that requires SME to have financial transaction records

c) Integrating the financial transaction records with Information and Communication Technology (ICT)

12 12

IV. CONCLUSIONS