The Agency for Revolving Fund Management for Cooperatives and Small and Medium Enterprises (LPDB-KUKM) has cooperated with state-owned credit insurance company Perum Jamkrindo to minimize the risks of non-performing loans (NPL) of UKM.
Last week, a cooperation agreement between the LPDB and Perum Jamkrindo was signed by the leaders of the two government institutions in Jakarta, on last Wednesday.
Besides this, the LPDB-KUMKM has also cut its interest rate on loans from 6 to 5 percent this year. The LPDBs interest rate has been reduced to 5 percent considering that it is a non-profit institution aimed at offering business stimulus in the form of revolving funds to small businesses.
Economist Thomas Ola Langoday, the dean of the Economic Faculty of the Widiya Mandira University (Unwira) of Kupang, East Nusa Tenggara, stated that banks and non-banking institutions should avail the service provided by the LPDB, which has cooperated with Perum Jamkrindo to minimize the risks of bad loans.
"The LPDB, which is established by the Ministry of Cooperatives and Small and Medium Enterprises, cooperates with Perum Jamkrindo to safeguard credits taken by small businesses, so that they can avoid the risks of bad-performing loans," Langoday noted in Kupang on last Monday.
President Director of LPDB-KUMKM Kemas Danial stated that the cooperation was a breakthrough achieved to mitigate risks when the revolving funds became NPL. The signing of the cooperation agreement was a follow up of a memorandum of understanding inked by the LPDB-KUMKM and Perum Jamkrindo on December 22, 2014.
"The presence of the financial institution is part of the efforts to push the expansion of credits for small and medium businesses and to accelerate national economic growth, which has slowed down in the first quarter of 2015. Thus, breakthroughs, such as the cooperation between the LPDB and Perum Jamkrindo, are needed to reinvigorate the real sector in a bid to trigger economic growth," he emphasized.
In order to expand credits, the LPDB-KUMKM reduced its credit rate from six percent in 2014 to five percent this year.
On Thursday, last week, Danial remarked that the LPDB cut the interest rate on its 3-5 year credit for saving and loan cooperatives to 9 percent. For the real sector, the institution reduced the rate of its 5-8 year credit to 5 percent.
"The interest rate of credit for the real sector is reduced to 5 percent. This is the governments stimulus to encourage more cooperatives and small businesses to get funding access from this institution. There is no other institution that offers a cheaper rate than this," asserted Danial.
Until May 5, 2015, the LPDB-KUMKM has channeled funds amounting to Rp5.78 trillion to more than 688 thousand small-scale businesses through 3,975 partners across Indonesia.
The institution has set itself a target to distribute revolving funds valued at Rp2.35 trillion to 174 thousand small businesses through 940 working partners this year.
"We have to apply the prudent principle in distributing revolving funds because the money is taken from the state budget. It should be returned to the government again to be redistributed as the next batch of assistance to other small businesses," he noted.
Therefore, Danial assured that his side will continue to cooperate with all stakeholders, including credit insurance companies, in conducting its tasks of extending low interest rates to small businesses, among others.
Although its interest rate has been reduced, the LPDB continues to perform well, and its financial balance shows a surplus. The return rate of its channeled credits is relatively high.
Thus, the LPDB is now able to finance its operational costs from its own revenues. "The net income after deducting its operational costs reaches Rp52 billion per annum," Danial stated.
In 2013, the LPDB-KUKM won an AA-Good grade rating, with a total score of 80.36 for its BLU public service performance. The rating was given by the Treasury Directorate of the Ministry of Finance.
"This indicates that the LPDB always records a good performance. This achievement is also a matter of pride for the Ministry of Cooperatives and Small and Medium Enterprises," Danial remarked.
He stated that with the sound performance, the LPDB is expected to develop further and have its office branches spread across various provinces in the country.
According to Danial, this is important to ensure that LPDBs services and the governments stimulus program can be absorbed more extensively and maximally across the country.
In the meantime, President Director of Perum Jamkrindo Diding S. Anwar affirmed that his companys cooperation with the LPDB is expected to pave a bright path for cooperatives and small businesses to solve the problems they face with regard to revolving funds from the LPDB.
"This is in line with the mission of Perum Jamkrindo, which is to serve as the forefront insurance company that supports the development of the nations economy," he noted.