Improvement Measures of the SME Policy Finance System · 2016-11-17 · In Kook Hwang (KODIT) ......

Chapter 22014/15 Knowledge Sharing Program with Indonesia:

Reforming Economic Institutions and State Bureaucracy for a Stronger Indonesia

Improvement Measures of the SME Policy Finance System

1. AnalysisofCurrentStatusandFinancialMarketofSMEs

2.ComparisonAnalysisofSMEPolicyFinanceStatus

3.ImprovementofSMEPolicyFinance

066 • 2014/15 Knowledge Sharing Program with Indonesia

SummaryThe government of Indonesia is running diverse public finance systems to support

SMEs and cooperatives that have sufficient growth potentials but no access to capital and the key public finance systems ran by the government include KUR program and interest subsidy scheme. KUR program is a public finance system, designed to provide operation fund and investment for SMEs based on the presidential order NO.6 of 2007, with an aim to promote economic growth, reduce poverty and increase employment. Interest subsidy scheme is a system to extend loan at lower interest rate than market rate for SMEs qualified for bank loan services. Under the system, banks take full risk but actual loan amount extended is not so high as industrial risk for agriculture and fishery, the main target industry of the scheme is relatively high.

After ASKRINDO, the credit guarantee institute in Indonesia became insolvent in executing subrogation payment twice in 1984 and 1995, it expanded its business scope to commercial guarantee and credit insurance and the service of public finance services had not been implemented except for KUR program since its foundation 2008. Business scope of Jamkrindo is also limited to private market guarantee service, including multi-purpose guarantee, except for KUR. In other words, commercial services and public functionalities are mixed in the business scope of the guarantee institutes and this makes it difficult to establish clear identity as a public institute. Also the functionality of public guarantee service remains relatively weak, despite long-term history of guarantee system. At the same time, development of internal

Improvement Measures of the SME Policy Finance System

In Kook Hwang (KODIT)

Yun Sub Cho (KODIT)

■ Chapter 02

Chapter 2 _ Improvement Measures of the SME Policy Finance System • 067

guarantee system is not sufficient due to lack of internal credit evaluation system and absence of accumulated data on SMEs credit information and credit research materials with IT system for direct guarantee service still in process of development.

Considering that the burden on the government is growing as guarantee fee for KUR is 100% paid by the government, it seems essential to apply BYOB rule to financial institutions and beneficiary companies to make sure financial institutions and SMEs to share the burden of government to ensure substantiality of the system. At the same time, given that the guarantee system first started at the Cooperative Guarantee Corporation, the predecessor of Jamkrindo and the targets are widely spread from the primary industries like agricultural, fishery and forestry to general SMEs like manufacturers and retailers/wholesalers, it seems essential to adopt “Choose and Focus” approach to achieve industrial objectives as well as financial objectively more effectively.

1. Analysis of Current Status and Financial Market of SMEs

1.1. Current Status and Financial Market of SMEs in Indonesia

1.1.1. SME Status of Indonesia The classification standard for SMEs in Indonesia is based on the Law No.20/2008

of the Small Business Act announced on July 4, 2008, which classifies SMEs into micro-enterprise, small enterprise and medium enterprise according to the scale of assets or sales. Lands and buildings of the business sites are not considered assets, and companies that are owned or invested by foreigners are not included in the SME.

As of 2012, the number of companies in Indonesia is a total of 56.5 million, where SMEs account for 99.9% of the total number of companies, accounting for 97.2% of all workers, 59.1% of GDP contribution rate and 14.1% of export ratio. The ratio of primary industries, including agriculture, forestry and fisheries, account for about 50%, while the ratio of wholesale and retail industries account for 28.8%, so that the ratio of primary industries is higher.


1.1.2. SME Financial Market of Indonesia

The banking sector accounts for 78.5% of total assets in the financial industry of Indonesia. As a single supervisory mechanism by the Otoritas Jasa Keuangan (OJK), the banking sector is classified into commercial banks and local banks according to the district and scope of business, as well as classified into general banks and Islamic banks according to the method of distributing profits. As of the end of 2013, there are 120 commercial banks (11 Islamic banks) and 1,639 local banks existing. The number of commercial banks has become stagnant, but the number of branches continued to increase, showing improvement in financial access. Local banks are not connected to the central bank’s payment system, with restrictions on business areas, whereas Islamic banks are operated according to the Sharia, or the Islamic law. If there is a profit made, banks and lenders distribute the profit among themselves.

The share of SME loans decreased from 20.4% in 2012 to 19.4% in 2013. With SME ratio of 49.9%, small enterprise ratio of 30.6% and micro-enterprise ratio of 19.5%, loans are concentrated on SMEs. As for shares by industry sector, wholesale and retail industries account for 53.1%, manufacturing industries account for 9.9% and farming industries account for 7.9%. Since human capital and financial accessibility for loan underwriting are concentrated in the downtown area, the loan

(Unit: Mil IDR)

Description Asset Revenue

Micro-enterprises up to 50 up to 300

Small enterprises 50 ~ 500 300 ~ 2.500

Medium enterprises 500l ~ 10,000 2.500 ~ 50,000

<Table 2-1> Classification Standard of SMEs in Indonesia

(Unit: number, %)

Description 2008 2009 2010 2011 2012

MSMEs 51,409,612 52,764,603 53,823,732 55,206,444 56,534,592

MSMEs total 99.9 99.9 99.9 99.9 99.9

MSMEs employees to total 97.2 97.3 97.2 97.2 97.2

Contribution to GDP 55.7 56.5 57.1 57.9 59.1

MSMEs to total export 18.1 17.0 15.8 16.4 14.1

<Table 2-2> Current Status of SMEs in Indonesia

Source: Asia SME Finance Monitor, ADB.


ratio of wholesale and retail industries is quite high. Compared to the overall default rate, the default rate of SME loans is lower, while the default rate is maintaining 3.2% for the SME loan balance.

0 50

70

90

110

130

150

170

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

08

10,868

124

09

12,837

121

10

13,837

122

11

14,797

120

12

16,625

120

Branches (left) Banks (right)

Bank 78.5%

FinanceCompany

6.7%

FinanceCompany

6.7%

Rural Bank1.2%

Pension Fund2.6%

Others2.1%

InsuranceCompany

10.1%

InsuranceCompany

10.1%

[Figure 2-1] Asset Shares of Financial Industry and Changes in the Number of Banks and Their Branches in Commercial Banking Sector

Source: Bank Indonesia.

(Unit: Bil IDR, %)

Description 2008 2009 2010 2011 2012 2013

MSME loans 633,945 737,385 926,782 458,164* 526,397* 651,180*

MSME loans to GDP 12.8 13.2 14.4 6.2* 6.4* 7.2*

MSME loans to total loans (%)

48.5 51.3 52.5 20.8* 20.4* 19.4*

MSME NPL to MSME loan (%)

3.3 3.1 2.6 3.4* 3.2* 3.2*

MSME NPL to total loan (%) 1.6 1.6 1.4 0.7* 0.6* 0.7*

Gross NPL to total loan (%) 3.2 3.3 2.6 2.2 1.9 1.9

<Table 2-3> SME Loan Status of Indonesia

Note: * fair value= Unification of methods for qualitative improvement of statistics.Source: Bank Indonesia data.


1.2. Current Status and Financial Market of SMEs in Korea

The classification standard of SMEs in Korea is based on Article 2 of the Framework Act on Small & Medium Enterprises, with the final amendment made on January 2012. Both the standard of scale (size criteria and upper limit by type of business) and the standard of independence (criteria for judgment according to the affiliation relation) have to be met to be classified as SME. The classification of SMEs is done according to the number of permanent employees, capital, sales or total assets by type of business, which is once more classified into micro-enterprise, small enterprise and medium enterprise according to the number of permanent employees. Starting from 2015, it will be simplified and changed into a method of looking at the three-year average sales by type of business (less than KRW 40 billion~less than KRW 150 billion according to type of business) and the upper limit for total assets (less than KRW 500 billion).

In Korea, there are 3.3 million SMEs in existence, accounting for 99.9% of total companies and 88% of jobs, to play important roles economically and socially. The ratio of service industry is high with the service industry 61%, the wholesale and retail business 28% and the manufacturing industry 11%.

Type of business Range and standard

Manufacturing industryLess than 300 permanent employees or capital of less than KRW 8 billion

Mining industry, construction industry, transportation industry

Less than 300 permanent employees or capital of less than KRW 3 billion

Agriculture, forestry, fisheries, wholesale and retail business

Less than 200 permanent employees or sales of less than KRW 20 billion

Upper limit

More than 1,000 permanent employeesAsset total of more than KRW 500 billionOwner’s equity of more than KRW 100 billionThree-year average sales of more than KRW 150 billion

<Table 2-4> Range and Standard of SMEs in Korea

Source: Small and Medium Business Administration.


1.3. SME Financial Market of Korea

The loan balance of SMEs in Korea is KRW 489 trillion (as of 2013), accounting for 34.3% of GDP and 42% of total loan balance. As for shares by industry, the manufacturing industry accounts for 38%, the service industry accounts for 20% and the wholesale and retail industry accounts for 16%. The access to SME loans is quite high with the SME loan ratio of more than 40% among total loans and more than 70% among business loans, where guaranteed loans account for 13.2%, secured loans account for 43% and unsecured loans account for 43.8%.

1.4. Comparison Analysis and Implications

Compared to other Asian countries, the ratio of SMEs in Indonesia and Korea are quite high with the contribution to GDP exceeding 40%, to play an important role in national economy. Indonesia classifies SMEs based on asset and sales standards and the ratio of primary industries like agriculture exceeds 50%. In the case of Korea, SMEs are classified according to the number of employees, sales and asset size by type of business and the ratio of service industries account for 60%. The micro-enterprise, small enterprise and medium enterprise in Korea account for 87%, 10.1% and 2.8%, respectively, while micro-enterprise, small enterprise and medium

Description 2008 2009 2010 2011 2012

MSMEs (number of enterprises) 3,044,169 3,066,484 3,122,332 3,231,634 3,351,404

MSMEs employees to total (%) 87.7 87.7 86.8 86.9 87.7

Contribution to GDP (%) 49.2 50.5 47.4 47.3 -

MSMEs to total export (%) 21.2 21.1 21.2 18.3 18.7

<Table 2-5> Current Status of SME in Korea

Source: Small and Medium Business Administration.

Description 2008 2009 2010 2011 2012 2013

MSME loans (trillion KRW) 422 444 441 455 461 489

SME loans to GDP (%) 45.9 41.7 37.6 36.8 36.2 34.2

MSME loans to Business loans (%) 82.6 83.5 81.5 77.7 74.6 74.7

MSME loans to total loans (%) 45.9 46.1 44.4 42.4 41.6 42.0

<Table 2-6> SME Loan Status of Korea


enterprise of Indonesia account for 98%, 1.15% and 0.09%, respectively. Both countries show low ratios for small and medium enterprises, or the middle class, and since it is much worse in Indonesia, it requires policies that can strengthen the middle class. Indonesia includes farm workers and street vendors in the SME, making the scope of SMEs too wide. Since the ratio of SMEs to population is 22.5% (Korea 6.8%), it is necessary to divide between companies conducting business activities and the working class to operate different support methods and schemes.

The SME loan balance to GDP in Indonesia is 6.4% (Korea 38.9%), which is very low compared to neighboring Asian countries, showing relatively low level of development in the SME financial market. As for the SME loan balance to total loan balance, Korea is 42% and Indonesia is 20%, and the non-performing loan ratio of SMEs to total loan balance is 2% for Korea and 0.7% for Indonesia. Both the ratio of SME loan balance and the ratio of non-performing loans are at low levels in Indonesia. Therefore, it seems like SME loans are issued to mainly outstanding companies with good collaterals and high business values. The Indonesian government has recommended the ratio of SME finance to be maintained above 20%, but it is necessary to expand the ratio of SME loans through policy finances that increase guarantee supplies.

940 10 20

SME Growth (%)

SMEs

to T

otal

(%)

30 40

95

96

97

98

99

100 KOR

THA

VIEPRC

KAZ

MAL

CAMINO PHI

10

02007 2008 2009 2010 2011 2012

20

30

40

50

60

70(%)

Indonesia

Korea, Rep. of

Thailand

Malaysia

Kazakhstan

[Figure 2-2] Ratio of SMEs & Level of Contributions to GDP by SMEs

Source: Asia SME Finance Monitor, ADB / INO=Indonesia.


2. Comparison Analysis of SME Policy Finance Status

2.1. Analysis of SME Policy Finance Status in Indonesia

2.1.1. SME Policy Finance Support System

0.0

10.0

20.0

30.0

40.0

50.0(%)

2007 2008 2009 2010 2011 2012 2013*

KORPRC

THA

SOL

INOMAL

CAMKAZ

0.0

10.0

20.0

30.0

40.0

50.0(%)

2007 2008 2009 2010 2011 2012 2013*

KOR

BAN

THA

MAL

CAM

KAZINOINO

[Figure 2-3] SME Loan Ratio among Total Loans & GDP Ratio of SME Loans

Source: Asia SME Finance Monitor, ADB.

Government

FinancialAuthority

of Indonesia

InterestSubsidy

Guarantee Funds

Investment

LoanApplying for Loan

MSMEs & Cooperatives

Revolving Fund LPDB

Commercial Bank Non-Bank

SupervisionSupervisionGuarantee Company

Loan & Investment

[Figure 2-4] Policy Finance Support System of SMEs in Indonesia

Source: Demand Survey Data.


In order to strengthen the financial accessibility of SMEs, Indonesia has continuously contributed capital to guarantee institutions, while also supporting funds to SMEs and cooperative associations through the extension of guarantees. Most guarantees are managed with the method of conditional automatic cover, which issue guarantees after corporate evaluation and loan approval by counter banks. Also, various support programs are being operated, including funds supplied to banks and non-banking financial institutions (venture capital companies, pawnshops, etc.) through the LPDB fund from the Ministry of Cooperatives and SMEs and other guarantee programs through local banks. The Ministry of Finance is in charge of the evaluation of budget performance, the Ministry of Cooperatives and SMEs is responsible for the execution of budget, including supporting guarantee fees and the OJK handles the supervision of banks and guarantee institutions.

2.1.2. SME Policy Fund

In order to support SMEs and cooperative associations that have growth potentials but lack in financial access, the Indonesian government is operating the policy finance system for beneficiaries in the following stages: Stage 1) direct subsidies; Stage 2) subsidies to support loans and agricultural machines; Stage 3) interest subsidies; and Stage 4) KUR program. The government support will be reduced gradually stage by stage, so that the ultimate goal of the policy is to enable the use of bank loans without the government’s help. Currently, the policy finance system that receives intensive support from the government can be divided into

BLM/PUAP

NationalBudget

Bank

Bank

Bank

1

2

3

5

DirectAssistance(Grant)

Grant WithPartnershipProgram

PKBL/CSR

Bank Loans

Scheme

Soft LoanWithInterestSubsidies

Soft LoanWithInterestSubsidies

CommercialCredit WithGuaranteescheme

CommercialCredit WithGuaranteescheme

Government assistance isgradually reduced until finally

the debtors can accesscommercial credit

FullyCommercialCredit

FullyCommercialCredit

KUR

KKPE/KUPS/KPENRP/SSRG

4

[Figure 2-5] Policy Finance System of Indonesia

Source: Ministry of Finance.


the credit guarantee scheme and the interest subsidy scheme. The credit guarantee scheme includes KUR (Credit for Business) and the interest subsidy scheme operates five types of subsidies as follows:

• KPEN-RP: Credit for Bio Energy Development & Plantation Revitalization• KKP-E: Credit for Food Security • KPP NAD-Nias: Credit for Entrepreneur Empowerment at Province and Nias• KUPS: Credit for Breeding Cows Business• S-SRG: Subsidy Scheme for Warehouse Receipt

2.1.2.1. KUR (Credit for Business)

Based on the Presidential Decree No.6 of 2007, KUR program is a policy finance system established to support working capitals and investment funds for SMEs, with the purpose of reinforcing economic growth, reducing poverty and increasing employment. It is supported through 4 guarantee and insurance institutions (Askrindo, Jamkrindo, Jamkrida Jatim, Jamkrida Bali) and 33 counter banks.

In the case of KUR Micro with the IDR limit of 20,000,000, it is possible to receive support within an annual interest rate of 22% for credit inquiries on debtors without the provision of additional collateral. As for KUR Ritel with the IDR limit of 500,000,000, it requires credit inquiries on debtors and the provision of additional collateral (if necessary) within an annual interest rate of 13%. During the support period, the government pays for the full amount of the annual rate of 3.25% as guarantee fees.

Indonesian workers in agriculture, fisheries, forestry, manufacturing and those working abroad receive support for partial guarantee of 80%, while the workers in other industries are supported for the partial guarantee of 70%. The loan period of working capital is for up to 3 years, which can be extended up to 6 years, and the loan period of investment fund is for up to 5 years with extension of up to 10 years. In the case of farms, it is possible to receive guarantee supports for up to 13 years (no extension).

The cumulative amount of issuance for KUR program between 2007 and 2013 is 137.7 trillion IDR, showing a huge growth. The economic center of Java region received 48.6% of issuance, while wholesale and retail industries received 62.9% and agriculture and fisheries received 19.9%, showing low issuance in agriculture and fisheries unlike the policy goal.


2.1.2.2. Interest Subsidy Scheme

Interest subsidy scheme supports funds at a lower interest rate than market interests to SMEs that met the requirement of bank loans. The government pays the difference between the bank interest rate and the interest rate imposed on debtors. Banks cover all risk, but the results of issuance were not active because of the high industrial risks in agriculture and fisheries.

A. Credit for Food Security (KKP-E)

It selects support targets for crop and horticultural development, food and beverage, ranches and fishery. The bank interest rate ceiling is set at LPS (Lembaga Penjamin Simpanan, or Indonesia Deposit Insurance Corporation, the deposit insurance interest rate is announced every three months) rate+5%, with adjustments made after the reexamination on April 1st and October 1st. Interest rates are set at 6% for sugar cane growers and 4% for the rest. The difference with the bank interest rate is supported by the government, and there are 22 counter banks.

B. Credit for Bio Energy Development & Plantation Revitalization (KPEN-RP)

It targets palm oil, cocoa and rubber plantations. The bank interest rate ceiling is set at LPS rate+5%, with adjustments made after the reexamination on April 1st and October 1st. Interest rates are set at 7% for palm oil plantations and 6% for rubber and cocoa plantations. The difference with the bank interest rate is supported by the government, and there are 17 counter banks.

C. Credit for Entrepreneur Empowerment at Aceh-Nias region (KPP)

It targets direct and indirect victims of earthquake and tsunami in Aceh-Nias

(Unit: Mil IDR)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

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40,000,000

2008 2009 2010 2011 2012 2013

Target Performance

0

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800,000

600,000

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2008 2009 2010 2011 2012 2013

Budget Allocation Budget Realization

[Figure 2-6] Performance and Necessary Budget of KUR Program


region. The bank interest rate ceiling is set at LPS rate+5%, with the interest rate difference supported by the government but not for interests on extension and increase of funds. There are 4 counter banks.

D. Credit for Breeding Cows Business (KUPS)

It targets business operators related to breeding cows. The bank interest rate ceiling is set at LPS rate+6%, and there are 12 counter banks.

E. Subsidy Scheme for Warehouse Receipt (S-SRG)

It targets warehouse operators engaged in agricultural activities. The bank interest rate ceiling is set at LPS rate+5%, which is decided in January, April, June and October. The debtor’s interest rate is set at 6% during the loan period, with the difference with the bank interest rate supported by the government. There are 7 counter banks.

2.2. SME Credit Guarantee Scheme

Indonesia’s guarantee institutions consist of largely two institutions, Askrindo, which mainly provides non-financial guarantees and credit insurances on general SME loans, and Jamkrindo, which mainly handles financial loan guarantees on SMEs and cooperative associations. The characteristic of Askrindo changed into an insurance company, so that the position of Jamkrindo got relatively stronger in the guarantee part. In 1995, a private credit guarantee institution called PKPI

(Unit: Bil IDR)

0

200

400

600

800

1,000

1,200

2008

75

1,124

2009

29

951

2010

181

944

2011

287

454

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309

369

2013

301

356

Allocation

Realization

[Figure 2-7] Necessary Budget of Interest Subsidy Scheme

Source: Ministry of Finance.


was established and currently in operation, but very small in size. Starting from 2010, credit guarantee companies like JAVA and Bali were established by local governments, with 10 local credit guarantee companies being operated and showing a continuous growing trend through government support. Let’s take a look at the credit guarantee scheme focusing on Jamkrindo, which accounts for more than 90% of the guarantee market in Indonesia.

2.2.1. Jamkrindo

2.2.1.1. History

In 1970, Jamkrindo was established as the credit guarantee corporation to support the cooperative associations of farmers. In 1981, it changed the name to the financial development corporation, to provide guarantee support on not only cooperative associations, but also SMEs (mostly in agriculture). In 2000, the name was changed to the Small and Medium Enterprises Development Corporation, while the coverage of guarantee was extended to all business types of SMEs to start direct lending operations based on the profit sharing system. In 2008, the company name

JAMKRINDO ASKRINDO PKPI

Date of establishment July 1, 1970 April 6, 1971 October 10, 1995

Corporation form Government-owned Government-owned Private company

Capital 6,550 bil IDR 5,320 bil IDR 10,175 mil IDR

Number of branches56 (including 28

offices)53 -

Number of employees 513 524 7

Guarantee targetMSMEs, cooperative

associationMSMEs

SMEs, cooperative association

Guarantee balance 97,058 bil IDR - 4,075 mil IDR

Guarantee rates

General guarantee 70%~75%

KUR guarantee 70~80%

Credit insurance70%~90%

KUR guarantee 70~80%

75%~100%

Guarantee fees

General guarantees 0.2%~1.5%

KUR guarantees 3.25%

Credit insurances 0.2%~3.0%

KUR guarantees3.25%

1.5%

<Table 2-7> Work Status of Indonesia by Credit Guarantee Institution


was changed to the current credit guarantee corporation to focus on only credit guarantee issuance and banning direct loans. After 2007, in order to support KUR guarantee, the government greatly expanded capitals, so that there are 15 divisions and 28 branches.

2.2.1.2. Guarantee Products

Guarantee products managed by Jamkrindo include: Commercial Credit Guarantee; Micro Credit Guarantee; Counter Bank Guarantee; Construction & Procurement Credit Guarantee; Distribution Guarantee; Surety Bond; Multipurpose Credit Guarantee; Sharia Guarantee; and Program Credit Guarantee (KUR).

Besides guarantees for companies or cooperative associations, it can be characterized by providing credit guarantees on small loans to salaried employees, accounting for the biggest part together with KUR.

B

A

I

G

H F

E

D

C

GuaranteeProduct

CommercialCredit

Guarantee

Micro CreditGuarantee

Surety Bond

ShariaGuarantee

Program CreditGuarantee

Multipurpose CreditGuarantee

DistributionGuarantee

Construction &Procurement Credit

Guarantee

Counter BankGuarantee

[Figure 2-8] Jamkrindo’s Guarantee Products

Source: Jamkrindo.


2.2.1.3. Method of Guarantee Evaluation

A. Conditional Automatic Cover

Certain requirements for guarantees are set by signing an agreement on comprehensive guarantee in advance with the financial institution. The guaranteed loan is first issued to companies that met the requirement, with the guarantee approved afterwards. Mostly small loans with low credit risks are managed through the method of conditional automatic cover, following the bank’s evaluation result without any separate procedures from guarantee institutions. Conditional automatic cover is applied to KUR guarantees and small-sum guarantees, where about 80% are supported by it.

B. Case by Case Cover

The method of case by case is applied to medium and large sum guarantees, and whether or not to support the guarantee is decided in a preliminary evaluation according to each case. Guarantees are supplied to companies that acquired a score of more than 70 points in the evaluation of checklist and score system, such as business outlook and productivity by guarantee product.

2.2.1.4. Performance

In 2013, the performance of guarantee supplies decreased, but the size of Jamkrindo’s guarantees showed a huge growth during the recent five years by increasing more than twice. KUR guarantees increased steadily from 5% in 2009 to achieve 46% in 2013. Since governmental support is provided on 3.25% of guarantee fees regardless of default rate, KUR guarantee has greatly contributed in improving the company’s profit structure. In 2013, KUR guarantee accounted for 46% of total guarantees and 66% of guarantee fee revenues.

(Unit: Bil IDR)

Description 2009 2010 2011 2012 2013

KUR 1,372 6,663 20,220 22,798 20,939

Multipurpose 17,728 22,824 29,360 23,310 17,856

Construction 2,380 2,001 1,794 3,029 3,039

Micro 802 1,116 1,815 3,335 2,168

Commercial 1,409 817 760 1,043 859

<Table 2-8> Value of Guarantee Products Supplied by Jamkrindo

Source: Jamkrindo


The recent increase of default rates is because of the economic recession and the increase of KUR guarantees mainly supplied for low creditors. In 2013, the ratio of subrogation to guarantee fees was 56%, showing sound solvency. Defaults increased, but also there was a huge increase in the amount of debt recovery. After payment by subrogation, collateral is confirmed together with the bank to conduct the evaluation process of collateral value. Recovery activities for indemnity receivables are mostly implemented directly by creditor banks according to the agreement. Since there are many cases where banks own collaterals, the amount recovered from selling collaterals is distributed. Jamkrindo monitors the recovery activities of creditor banks and periodically makes evaluation.

(Unit: Bil IDR)

Description 2009 2010 2011 2012 2013

Guarantee supply 25,438 34,206 54,305 53,543 45,843

Guarantee balance 49,809 66,411 72,649 91,582 97.058

Default rate 0.76 0.81 0.81 1.58 2.44

Payment by subrogation 148 178 333 618 899

Guarantee fees 440 510 969 1,399 1,601

Payment by subrogation / guarantee fee (%)

33.6 34.9 34.3 44.1 56.1

Amount of debt recovery 23 25 40 72 127

<Table 2-9> Guarantee Performance of Jamkrindo

Source: Jamkrindo.

(Unit: Bil IDR, %)

0

10,000

20,000

30,000

40,000

50,000

60,000

0%

80%

70%

60%

50%

40%

30%

20%

10%

2008

11%

2009

5%

2010

19%

2011

37%

2012

43%

2013

46%

45,843

KUR Total Portion of KUR

20,939

[Figure 2-9] Current Status of Guarantees Supplied by Jamkrindo

Source: Jamkrindo.


Default rates of KUR guarantees and micro guarantees are increasing, but the overall default rates are a low level. Micro guarantees with relatively high default rates are very small in size, while KUR guarantees are being managed safely with the subrogation to five-year average guarantee fee revenues accounting for 37.05%. As for multipurpose credit guarantees, construction guarantees and commercial credit guarantees, guarantees are mainly supported to outstanding companies with less than 1% default rates.

2.2.1.5. Financial Position

In order to reinforce the role of credit guarantee institution to strengthen the financial accessibility of SMEs according to the Presidential Decree No.6 of 2007, Jamkrindo financed 600 Bil IDR in 2007, and since then until 2013, invested capitals of 5,239 Bil IDR. The current financial position is quite outstanding with more than 40% of five-year average asset and capital increase rate. Based on the stable revenues of guarantee fees resulting from increasing KUR guarantees, revenue size has continued to increase. As a result of the government’s continuous investments and profits earned, the capital has continued to increase, so that the operation multiple decreased from 34.73 times in 2009 to 14.82 times in 2013 to greatly reduce the risks of operation multiple. Taking into consideration that the legal operation multiple is 40 times, Jamkrindo seem to have sufficient capacity of guarantee supplies.

(Unit: %)

Description 2009 2010 2011 2012 2013Five-year average

claim ratio

KUR 1.69 0.89 1.15 2.43 3.82 37.05

Multipurpose 0.58 0.44 0.19 0.88 1.27 30.56

Construction 1.14 0.88 0.53 0.17 0.18 64.98

Micro 1.78 7.55 2.69 1.40 3.55 118.29

Commercial 1.71 1.18 1.87 0.52 0.80 72.44

<Table 2-10> Default Status of Products by Jamkrindo

Source: Kamkrindo.


2.2.1.6. Guarantee Fees

Fixed guarantee fees of 0.5%~1.5% are charged for general guarantees and 3.25% for KUR guarantees. Guarantee fees are calculated according to risk of claim + overhead cost + margin. Taking into consideration that the default rates of general guarantees are quite low, there is a strong commercial aspect by adding overhead cost and margin to guarantee fees.

2.2.1.7. Risk Management System Jamkrindo established a risk committee, which is held regularly every three

months and also when there is a special agenda. It handles problems related to guarantee risk (guarantee default, payment by subrogation, debt recovery), Co-guarantee risk (partner companies), financial risk (liquidity) and market risk

(Unit: Bil IDR, %)

Description 2009 2010 2011 2012 2013

Total assets 1,662 2,993 4,929 6,661 8,293

Capital 1,434 1,896 3,433 5,050 6,550

Government investment 250 900 1,200 1,169 1,120

Operation multiple 34.73 35.03 21.16 18.14 14.82

Guarantee fee revenues 440 510 969 1,399 1,601

Subrogation fees 148 178 333 618 899

Pre-tax profits 136 179 379 562 596

ROE(%) 7.89 7.83 10.84 10.09 8.02

<Table 2-11> Major Financial Status of Jamkrindo

Source: Jamkrindo.

Description Fomulation

Guarantee Fee (GF) Risk of Claim+Overhead Cost+Margin

Period(P)< 1 GF (P month) GF (GF/12)× Present Value (n month+1)

P=1 GF (P year) GF (P year)×Present Value (n year)

P>1 GF (p year) GF (P year)×Present Value (n year+1)

<Table 2-12> Calculation Method of Guarantee Fees by Jamkrindo

Source: Jamkrindo


(guarantee growth rate, investment returns, goal achievement). There isn’t an advanced evaluation system in place, such as its own credit ratings and prediction of default ratio. Since about 80% receive guarantee supports through the conditional automatic cover from the bank’s corporate evaluation, the overall risks are managed by using past materials on default rates by bank. Decisions on whether or not to support medium and large sum guarantees are made according to case by case cover. Evaluating items, including business outlook, productivity (evaluation of the quality of assets, debts and profits), repayment (loan needs, loan period, funding capability), the management (management ability, relationship between financial institution and guarantee institution, reputation), into good, average and bad and calculate the score by multiplying weighted value. If the score is more than 70 points, decisions on whether or not to support are made by taking into consideration of additional collateral value and bank information (past information on default rates). Besides KUR and small sum guarantees, it seems like guarantees are managed relatively conservatively.

2.2.2. Askrindo

2.2.2.1. History

In January 1971, Askrindo was established according to the government regulation No.1/1971 to support SMEs without access to the bank’s loan system due to lack of collaterals, with the Bank Indonesia and the Ministry of Finance as shareholders. Between 1974 and 1990, guarantees were provided to government loan programs that support SMEs, students and farmers. In 1996, operations were expanded to surety bonds, trade credit insurances and reinsurances. In 1999, credit insurances started, but supports stopped in 2005 because of massive losses. In 2007, KUR management agency was designated as the government guarantee scheme, to start insurance services, including fire insurances and accident insurances, from 2013. After experiencing the insolvency of subrogation twice in 1984 and 1995, operations were expanded to commercial guarantees and credit insurances, while policy-based guarantees reduced operations.

2.2.2.2. Guarantee Products

Askrindo’s guarantee programs include small loan insurance, trade credit insurances, surety bonds, customs insurances and KUR guarantees. After experiencing environmental changes at home and abroad, the ratio of commercial guarantees and insurances got bigger than policy guarantees. Starting from 2012, the supplies of small loan insurances (consisting of micro loans, public housing loans, consumer loans and construction loans), surety bonds and KUR guarantees greatly increased.


2.2.2.3. Performance

Askrindo’s guarantee supplies showed substantial increase starting from 2012. However, even though the amount of guarantee supplies greatly increased, the ratio of subrogation amount to guarantee fee revenues decreased from 112% in 2009 to 37.9% in 2014. The earnings of guarantee fees greatly increased, while the generation of defaults seemed to decrease. Excluding KUR guarantees that belong to the government’s policy guarantee system, it is mostly concentrated on surety bonds and small loan insurances with low risks. The ratio of KUR guarantees increased up to 31% in 2013, accounting for 53.1% in the profit structure.

(Unit: Bil IDR)

Description 2009 2010 2011 2012 2013

Small Credit Insurance 3,791 4,367 4,057 18,789 16,658

Medium Credit Insurance 963 1,073 1,108 3,039 3,992

Trade Credit insurance 724 921 949 1,876 4,800

Surety Bond 9,991 11,135 10,529 19,204 22,321

Customs Bond 1,505 1,300 1,671 852 340

In-Bound Reinsurance 1,125 1,693 2,806 12,688 1,320

KUR Guarantee 4,150 3,205 6,718 12,114 22,661

<Table 2-13> Support Amount of Guarantee Products by Askrindo

Source: Askrindo.

(Unit: Bil IDR)

Description 2009 2010 2011 2012 2013

Guarantee supplies 24,258 25,704 29,848 70,574 74,106

Subrogation 347 462 367 406 594

Guarantee fees 310 357 597 778 1,566

Subrogation/guarantee fees (%) 112.0 129.3 61.5 52.2 37.9

Recovery amount 43 61 88 98 127

In-Bound Reinsurance 1,125 1,693 2,806 12,688 1,320

<Table 2-14> Performance of Askrindo

Source: Askrindo.


2.2.2.4. Financial Position

Based on the Presidential Decree No.6 of 2007, capital investments of 850 Bil IDR went to Askrindo, followed by capital investments of 4,511 Bil IDR until 2014. Based on the stable guarantee fee revenues of KUR guarantees, the profit size continued to increase after turning into profit-making starting from 2011. In 2013, the net profit and the pre-tax profit increased year on year by 98% and 61%, respectively. Overall financial ratio showed a huge improvement.

(Unit: Bil IDR)

0

10,000

30,000

40,000

20,000

50,000

60,000

70,000

80,000

0%

80%

70%

60%

50%

40%

30%

20%

10%

2009

17%

2010

12%

2011

23%

2012

17%

2013

31%

74,106

KUR Total Portion of KUR

22,661

[Figure 2-10] Current Status of Guarantees Supplied by Askrindo

Source: Askrindo.

(Unit: Bil IDR)

Description 2009 2010 2011 2012 2013

Total assets 1,669 2,472 3,504 4,733 6,522

Capital 1,390 2,079 3,011 4,089 5,320

Government funded 250 900 800 831 880

Guarantee fee revenues 310 358 597 778 1,566

Subrogation 347 462 367 406 594

Pre-tax profits (111) (177) 139 251 403

ROE(%) (7.3) (11.0) 5.2 7.2 7.5

<Table 2-15> Financial Status of Askrindo

Source: Askrindo.


2.2.3. Regional Credit Guarantee Institutions

For the purpose of developing regional economy and increasing SME loans of local banks and commercial banks located in the region, regional credit guarantee corporations were established in various regions starting from January 2010. Credit guarantee institutions were established in regions like West Java, East Java, South Sumatera, West Sumatera, Riau, Bali and South Borneo, with continuous expansion in other regions. Regional credit guarantee institutions were established through capital investments of about 95% from local governments and about 5% from the welfare foundation of regional development bank. Only credit guarantee corporations in Java and Bali are operating KUR programs, which are expected to increase in the future. Indonesia is an island country consisting of many islands and taking into consideration of low level of regional development, it is expected that the role and necessity of regional credit guarantee corporations will continue to increase.

2.3. Analysis of SME Policy Finance Status in Korea

2.3.1. SME Policy Finance Support System

2.3.1.1. Financial Environment of SMEs

SMEs have low dependence on direct financing like stocks and corporate bonds compared to large companies. However, they have very high dependence on indirect financing through bank loans, so that it accounts for 98.5% of total SME finance as of the end of 2013, while the ratio of loans from non-banking financial institutions accounted for 1.1%. The dependence on indirect financing accounted for 99.6%, making it the largest part of financing methods for SMEs.

(Unit: KRW trillion, %)

Description 2008 2009 2010 2011 2012 2013 Ratio (2013)

Indirect financing 424.7 445.8 443.1 456.8 462.9 491.5 99.6

Bank 421.8 441.6 438.8 452.6 458.5 485.9 98.5

Non-bank 2.9 4.2 4.3 4.2 4.4 5.6 1.1

Direct financing 3.8 6.0 4.8 3.6 1.9 1.7 0.4

Total 428.5 451.8 447.9 460.4 464.8 493.2 100.0

<Table 2-16> Current Status of SME Finance

Source: The Bank of Korea, Small & Medium Business Administration, Financial Supervisory Service, Korean Venture Capital Association.

1) Indirect financing is the year-end balance, direct financing is the newly taken amounts 2) Others are direct financing from the Small & Medium Business Corporation


After the global financial crisis in 2008, the banking sector that had absolute position in SME finance reduced the ratio of SME loans, making it necessary to further strengthen the complementary role on the policy finance’s market failures since it was difficult for SMEs to cover capital requirements. Among the total business loans of banks, the ratio of SME loans came to 86.3% in 2007, but after the global financial crisis, it fell to 74.2% as of the end of 2013.

If you look at the ratio of SME loans by collateral type, the ratio of guaranteed loans increased from 10.2% in 2007 to 13.4% in the end of 2013. On the other hand, the ratio of credit loans dropped from 47.9% to 42.1% during the same period. This is because after the global financial crisis, banks applied strengthened prudential standards and took up conservative lending behavior to reduce credit exposure at times of economic uncertainty, which continuously stressed the need of SME policy finance as the financial accessibility of SMEs fell.


Description 2007 2008 2009 2010 2011 2012 2013

Large companies 58.6 92.9 90.2 103 134.2 161.1 170.0

Ratio 13.7 18.0 16.9 18.9 22.8 25.9 25.8

Medium companies 370.0 422.3 443.5 441.0 454.8 461.3 488.9

Ratio 86.3 82.0 83.1 81.1 77.2 74.1 74.2

Total 428.6 515.2 533.7 544.0 589.0 622.4 658.9

<Table 2-17> Balance and Ratio of SME Loans

Note: Including banks and trust accounts of loans in won.Source: Financial Services Commission.


Description 2007 2008 2009 2010 2011 2012 2013

Guaranteed loans 39.3 43.0 59.4 59.5 59.1 60.7 65.3

Ratio 10.6 10.2 13.4 13.5 13.0 13.2 13.4

Collateral loans 153.6 167.5 165.9 169.8 184.8 198.4 217.6

Ratio 41.5 39.7 37.4 38.5 40.6 43.0 44.5

Credit loans 177.2 211.9 218.3 211.8 211.0 202.2 206.1

Ratio 47.9 50.2 49.2 48.0 46.4 43.8 42.1

Total 370.1 422.4 443.6 441.1 454.9 461.3 488.9

<Table 2-18> Ratio of SME Loans by Collateral Type

Source: Financial Services Commission.


2.3.1.2. Characteristics of SME Finance and SME Policy Finance Support System

Compared to large companies, SMEs have insufficient management resources and low reliability of financial information with high asymmetries in information between financial institutions and SMEs, which is why financial institutions consider SME finance to be an area of high uncertainty in fund collection unlike large companies and household finances. In order to resolve problems of asymmetries in information, financial institutions ask for provision of collaterals, or submission of certified audit reports, but generally SMEs have lack of ability to provide collaterals or unable to provide sufficient information required by financial institutions, making it difficult to raise funds. Also, SME loans are small in size per case from the financial institutions’ point of view, but since there are too many cases of loans, lots of expenses are required to generate and evaluate information on individual loans, including high transaction costs related to loan management.

Due to these characteristics of SME finance, market failures frequently occur in the financial markets of SMEs, while the SME policy finance carry out the role of complementing market failures. Generally, SME policy finance aims to expand credit availability and improve financial accessibility, by fulfilling the role through support measures like credit guarantees, loans and investments. In the case of Korea’s SME policy finance support system, financial accessibility was improved by strengthening the weak collateral power and credit rating of SMEs through credit guarantee institutions like the Korea Credit Guarantee Fund (KODIT), the Korea Technology Finance Corporation and regional credit guarantee foundations, while the credit availability of SMEs expanded through the financial funds of central government and local governments.

Aspects of demander (SMEs) Aspects of supplier (financial institutions)

• Tendency of undervalued credit rating• Unfair borrowing conditions (high interests, etc.)

• Difficulty of identifying credit information• High credit risks

• Financial demands are concentrated on banks because of unstable loan market

• Excessive transaction costs compared to profitability

<Table 2-19> Characteristics of SME Financee

Source: Cho Young Sam (2008).


If you look at detailed support system by support institution, in the case of Korea, credit availabilities of SMEs are expanded indirectly through the financial intermediation loans and the compulsory ratio system of SME loans. In the case of financial intermediation loans, the Bank of Korea supports low-interest funds to banks within the aggregate credit ceiling based on the SME loan performance handled by financial institutions. As for the compulsory ratio system of SME loans, it is a system where financial institutions lend certain ratio (commercial banks at 45%, local banks at more than 60%) of the amount increased for loans in won to SMEs.

Credit guarantee institutions help SMEs get bank loans through credit or collateral enhancement, while the Korea Credit Guarantee Fund (KODIT), the Korea Technology Finance Corporation and regional credit guarantee foundations provide guarantee supports mainly to Inno-Biz SMEs and micro-enterprises. As a policy fund enforcement agency under the Small & Medium Business Administration, the Small & Medium Business Corporation provides direct financing on low-interest policy funds and conducts proxy borrowing by delegating to financial institutions at the same time. As for the Korea Finance Corporation, it provides indirect financing by on-lending funds to financial institutions, while also sharing risks for some loans of start-up enterprises. In order to support regional SMEs and the industries under the jurisdiction of various ministries, the central government and local governments established financial funds, so that banks conduct proxy borrowing and support low-interest funds through the interest subsidy system.

Bank of Korea

FinancialIntermediationSupport Loan

ObligatorySME Loan Ratio

Direct Loan LoanInvestment

On-lending

Policy FundsTransfer

Policy FundsTransfer

Small Business Corporation(supervised by SMBA)

Execution Bodyunder Ministries

Korea FinanceCorporation

Central Government Local Government

Credit GuaranteeInstitution

Commercial Banks Korea Venture Investment Co.

SMEs

Select & Recommend

GuaranteeGuarantee

InvestmentInvestment

[Figure 2-11] SME Policy Finance Support System



Meanwhile, diverse SME support institutions provide supports through methods like credit guarantees, direct loans, indirect loans through banks (proxy borrowing) and investments, which raised overlapped support issues. However, efforts are made to prevent overlapped and excessive supports among policy finance institutions by ensuring major support measures of institutions are different, dividing up the credit rating of SMEs targeted for support, expanding credit loans for policy finance through the direct loan of Small & Medium Business Corporation and choice and concentration of support targets, including start-up and innovative enterprises.

(Unit: KRW trillion)

Support institution Support system Support detail Support size (2013)

The Bank of Korea

SME compulsory loan

• Lend certain ratio of the amount increased for loans in won to SMEs

Commercial banks 45% Local banks

60%

Financial intermediation loan

• Support funds to financial institutions (interest rate 1%) based on the SME loan performance handled by financial institutions

12

Korea Credit Guarantee Fund

Credit guarantee

• Guarantee the performance of obligation for companies with insufficient collateral power to reduce risks arising from credit transactions

44.7

Korea Technology Finance Corporation

19.7

Regional guarantee foundations

14.3

Small & Medium Business Corporation

Policy fund financing

• Support financial funds to strengthen the competitiveness of SMEs

4.4

Korea Finance Corporation

On-lending• Indirect financing through on-

lending and sharing risks with banks

6.7

Korea Venture Investment Corporation

Venture investment

• Induce investments by investing in private investment funds by establishing SME fund of funds

1.1

<Table 2-20> Support Institution and Support System of SME Policy Finance



2.3.1.3. Strength and Weakness of Policy Finance Systems for SME

Korean policy finance systems are categorized into loan, investment and guarantee schemes and the government organized each institution for the schemes. The institutions assist startups, micro, and small and mid-size of enterprises (SMEs) which private financial institutions are reluctant to support, and consequently they contribute to make up the weakness of market and enhance competitiveness of SMEs. Also, they drastically reinforced the functions and roles of a policy financial institution in order to overcome the Asian currency crisis and global finance crisis.

However, commercial banks or other policy financial institutions provide funds to enterprises that can easily access to finance and duplicate supports to such enterprises. Similar function and target of policy financial institutions cause competition and mainly they provide short-term working capital fund rather than long-term facility fund, related to an expansion of potential growth. Furthermore, policy finance is used as low-fee fundraising by SMEs, they are reluctant to enlarge their scale and be larger enterprise.

Specifically, credit guarantee schemes were amended market-friendly as problems such as oversupply of credit guarantee, duplicated supports were brought up. The schemes started to target startups, tech-oriented enterprises more and reduced the guarantee supports to stable enterprises. The government tried to improve guarantee schemes effectively by specializing KODIT and KOTEC’s

Credit rating Soundness Small & Medium

Business CorporationKorea Finance Corporation

Credit guarantee institution

AAA~A

NormalSupport excluded

Support excluded

Bank loan guarantees

BBB

Credit and some collateral loans

BB

B Credit loans Policy fund guaranteesCCC Precautionary Credit and guarantee

loans

Support excluded

CC Substandard

Support excludedC DoubtfulCollateral and credit

loansD Loss

<Table 2-21> Policy Finance Allocation Structure by Credit Rating

Note: Grade standards may be different by support institution.Source: Small & Medium Business Administration.


function, decreasing the coverage ratio, and promoting indirect guarantee systems. Unfortunately, 2008 Global Financial Crisis attacked SMEs’ financial soundness and the government granted special contributions to expand the credit guarantee and stopped the amendment of credit guarantee schemes.

2.3.2. Current Status of SME Policy Finance Support System

2.3.2.1. Central Government’s Policy

The Small & Medium Business Administration (SMBA) is an administrative institution within the central government responsible for supporting SMEs, with the largest amount of SME policy finance being supported. SMBA’s policy finance is provided for support through its affiliated institution, Small & Medium Business Corporation. Based on the “Fund for the Establishment and Promotion of Small and Medium Businesses (SME Promotion Fund),” the SMBA raised funds and use it to implement the SME policy fund loan business. Sources of the fund include contributions and loans from the government, local governments and other entities, lottery profits, deposits received for the Public Capital Management Fund and fund operation profits, while bonds are issued with the money from the fund to be utilized as finances for policy fund loan business.

SME’s policy finance consists of 7 programs, including supporting start-up enterprises, which conduct the method of SMBA’s recommendation and proxy borrowing (indirect loan) of bank loan and the method of SMBA’s direct loan at the same time. SMBA’s loan businesses can be divided into the loan for expanding credit


Description Details

Support size • KRW 4.4 trillion (2013)

Loan period • 5~8 years

Loan limit• KRW 4.5 billion for enterprises located in Seoul metropolitan area,

KRW 5 billion for enterprises located in the region• Within 150% of sales

Loan interest rate• Procurement interest rate of SME promotion bond + variable interest

rate by quarter• Facility fund: fixed interest rates may be applied to different programs

Loan method• Decision on the subject of loan by applying at the SMBA• Direct loan or proxy borrowing (credit or collateral loan from bank)

<Table 2-22> Outline of Policy Finance from the Small & Medium Business Corporation

Source: Small & Medium Business Corporation.


availability of high-risk SMEs and the loan for easing the financial burden of SMEs. Products like the loan for supporting start-up enterprises, the loan for financing the commercialization of development technology, the loan for supporting new growth infrastructure and the complex financial product for investments and loans are to support the expansion of credit availability of high-risk SMEs. Meanwhile, products like the loan for emergency management stability, the loan for conversion of business and the loan for micro-enterprise support are to support the ease of financial burden on SMEs. The loan for supporting start-up enterprises is biggest in size, showing continuous increase in loan size, while the loan for supporting micro-enterprises has also continued to increase.

Other ministries besides the Small & Medium Business Administration also utilize the funds to manage a variety of loan support system according to different fields. Each ministry implements diverse SME support programs through general accounts, special accounts and separate funds. Also, funds are supported through the method of proxy borrowing where consigned a financial institution conducts loan works by going through the screening and recommendation of affiliated institutions.

(Unit: KRW 100 million, %)

Description 2011 budget

2012 budget

2013 budget

2014 budget Limit Period Interest

rate

Start-up enterprise support

12,000 13,900 15,300 13,000 45 8 years 3.14

Business conversion 1,475 1,650 1,700 1,700 45 8 years 3.14

Commercialization of development technology

2,580 3,080 3,300 3,500 20 8 years 3.14

New-growth infrastructure

10,620 8,550 9,350 8,350 45 8 years 3.69

Emergency management stability

2,400 2,500 3,150 1,000 10 5 years 4.19

Micro-enterprises 4,450 5,050 10,500 9,150 0.7 5 years 3.69

Complex finance for investments and loans

- 1,500 1,700 1,500 20 5 years -

Total 29,086 29,692 32,813 27,564 - - -

Amount executed (ratio of execution)

34,016(101.5)

36,508(100.8)

43,922(97.6)

38,200 - - -

<Table 2-23> Support Status of the Small & Medium Business Corporation by Policy Finance Programe

Source: Small & Medium Business Corporation.


2.3.2.2. Local Governments’ Policy Finances

Each local government establishes their own finance that is separate from the central government to carry out the function of supporting policy finance for SMEs located in their region. Usually the fund raised by each local government are utilized to support the interest subsidies through the bank’s co-financing, showing the characteristics of being supported at low interest rates compared to the central government’s policy finance. As for the execution system, there are cases where it has consigned operation system through affiliated executive organizations like Seoul Metropolitan Government and Gyeonggi-do, or cases where it has consigned operation system through the financial institutions entrusted with the fund.

2.3.3. Operating Structure of Credit Guarantee Scheme

2.3.3.1. Meaning and Types of Credit Guarantee Scheme

Credit guarantee scheme is a system that promotes smooth financing of enterprises by having a credible institution guarantee the performance of obligation to the financial institution regarding enterprises that have difficulty in raising funds from financial markets, due to problems like asymmetries of information and lack of collaterals. Compared to other policy finance support measures like direct loans, indirect loans and investments, credit guarantees are widely used around the world as a favorable policy finance support method14) in improving the financial accessibility of SMEs and expanding the liquidity of policy-making authorities through collateral replacement and multiplier effect. In particular, during economic crises like the Asian financial crisis and the global financial crisis, Korea has implemented countercyclical countermeasures by actively increasing credit guarantees, showing the highest level

14) La Porta, Lopez-DeSilanes and Shleifer (2002) suggested two opinions on the government’s intervention in financial markets, including the opinion of development view that the government uses policy finance for the purpose of pursuing economic development and the opinion of political view that the government uses policy finance for political reasons.

(Unit: KRW 100 million)

Description 2008 2009 2010 2011 2012 2013

Funds of cities & provinces 12,938 10,868 6,897 6,780 7,581 11,183

Bank funds 55,168 70,645 68,450 62,091 62,204 61,038

Total 68,106 81,513 75,347 68,871 69,785 72,221

<Table 2-24> Policy Fund Support Status of Local Governments

Source: Small & Medium Business Administration.


of guarantee size to GDP in the world, excluding Japan.

Based on the operator, credit guarantee scheme can be divided into mutual guarantee scheme, public guarantee scheme and loan guarantee scheme, with difference in operation according to different economic conditions, level of development in financial market and goal of economic policies for each country. Korea supplies guarantees in the form of public guarantee scheme through separate and independent credit guarantee institutions, which are usually used in Asian countries like Japan and Taiwan, including Indonesia. Mutual guarantee scheme is mainly used in Europe, which is operated by raising funds through investments from members. Loan guarantee scheme is mostly used in the American continent, including the U.S and Canada. It is a system where there is no independent public credit guarantee institution, but a financial institution consigned with the duty issues loans according to the conditions set beforehand and compensate for losses if there is loss occurrence.

Description Public guarantee scheme

Loan guarantee scheme

Mutual guarantee scheme

OperatorIndependent

guarantee institutionBank Company group

Guarantee form Institution guaranteeGovernment guarantee

Institution guarantee/ Government reguarantee

Guarantee targetUnspecified

companiesUnspecified companies

Member companies

Credibility Large Medium Small

Guarantee amount Large Medium Small

Credit check/guarantee

examinationEssential None Formality

Guarantee utilization Large Small Medium

Country in operation Asian regionAnglo-American, Central and South

AmericaEuropean region

<Table 2-25> Types and Characteristics of Credit Guarantee Scheme

Source: Korea Credit Guarantee Fund (KODIT).


2.3.3.2. Major Status by Credit Guarantee Institution

Credit guarantee institutions in Korea consist of three organizations, including the Korea Credit Guarantee Fund (KODIT), the Korea Technology Finance Corporation and regional credit guarantee foundations. According to the establishment purpose of each organization set by applicable law, the three organizations implement credit guarantee works for SMEs, Inno-Biz SMEs and regional micro-enterprises. The Korea Credit Guarantee Fund (KODIT) was established to promote smooth financing of SMEs by supporting credit guarantees to SMEs with weak collateral power, with innovative enterprises, export enterprises and start-up enterprises as major targets. The Korea Technology Finance Corporation was established for the purpose of facilitating finance to new technology businesses, with Inno-Biz and technology venture enterprises as major targets. Regional credit guarantee foundations were established for the purpose of credit guarantees on micro and small enterprises located in the region. Currently, there are 16 regional credit guarantee foundations established and being operated according to metropolitan local governments15). The establishment of funds by the Korea Credit Guarantee Fund (KODIT) and the Korea Technology Finance Corporation are made through contributions from the government and financial institutions, and supervised by the Financial Services Commission as the competent authority. As for regional credit guarantee foundations, the government, local governments and regional financial institutions make contributions with supervision from the Small & Medium Business Administration.

15) In order to enhance common profits of 16 regional credit guarantee foundations and conduct reguarantee works, the Korean Federation of Credit Guarantee Foundations was established and being operated as other public organization under the Small & Medium Business Administration.

Government,Financial Company

SMEs

KODIT

Contribution

Guarantee

Re-guarantee

Guarantee

Contribution

KOTECRegional Credit

Guarantee Foundations

Government, Municipal Government,Local Financial Company,

Local Entrepreneur

Federation of CreditGuarantee Foundations

[Figure 2-12] Operating Structure of Credit Guarantee Scheme in Korea



(Unit: %, KRW trillion, times)

DescriptionKorea Credit

Guarantee Fund (KODIT)

Korea Technology Finance

Corporation

Regional credit guarantee

foundations

Legal basisCredit Guarantee

Fund Act

Korea Technology Credit Guarantee

Fund Act

Regional Credit Guarantee

Foundation Act

Year of establishment 1976 1989 1996

Purpose of establishment

Debt guarantee for companies with weak collateral

power

Facilitation of fund supplies for new

technology businesses

Guarantee for small enterprises within

the region with weak collateral power

Target of guarantee

Innovative enterprises, export enterprises,

start-up enterprises, etc

Inno-Biz and venture enterprises

Micro and small enterprises within

metropolitan council

Differentiated dutiesSOC credit guarantee,

P-CBO guarantee, credit insurance

Technology evaluation and certification,

venture and Inno-Biz certification

Personal and low incomer guarantee

Guarantee fee ratio 0.5~3.0 0.5~3.0 0.5~2.0

Guarantee limit (KRW 100 million)

30 30 8

Major source of finance

Contributions from the government and financial institutions



Ratio of contribution from financial

institutions0.225 0.135 0.02

Legal operation multiple

20 20 15

Supervision byFinancial Services

CommissionFinancial Services

Commission

Small & Medium Business

Administration

Guarantee balance 40.6 18.9 14.3

Occupied ratio 55.0 25.7 19.3

<Table 2-26> Work Status by Credit Guarantee Institution

Note: Guarantee balance is based on general guarantees (end of 2013).Source: Korea Credit Guarantee Fund (KODIT).


2.3.4. Major Status of Credit Guarantee Fund

2.3.4.1. Legal Characteristics

The Korea Credit Guarantee Fund (KODIT) is a nonprofit and non-capital special corporation established according to the Credit Guarantee Fund Act. The fund is a corporate fund that was given the corporate entity to the aggregate of assets established to provide credit guarantees to enterprises. The fund has no members or employees like in a corporation and there is no concept of general meeting or shares of employees. The basic property of the fund was established mostly through contributions from the government and financial institutions, which are considered as donation under the civil law as a kind of endowment instead of an act of contribution. Therefore, it can be interpreted that contributors cannot ask for distribution of profits or have any rights to residual claims.

As a nonprofit corporation that does not pursue profit, the fund has the characteristics of a corporation for the public interest. The Credit Guarantee Fund Act stipulates that the purpose of the fund is for the balanced development of national economy, without the distribution of profit to contributors or any residual claims given to them. Also, the public interest of the fund is strengthened through establishing the fund with contributions from the government and financial institutions and appointing executives and supervising works by the Korean president and the Financial Services Commission.

2.3.4.2. Supervision of the Fund

The fund receives the supervision of the Financial Services Commission, and if it is necessary for supervision the Financial Services Commission may give orders. The fund is a public corporation operated with contributions from the government. As the main operation of the fund, credit guarantees aim to achieve a balanced development of national economy through guarantee supports on SMEs, while the operations of the fund are closely connected with the government’s economic policies, especially SME policies. Within the scope, business plans are set up and operated for credit guarantees. Therefore, in order to command and supervise affiliated organizations so that SME development policies can be executed effectively and consistently in a uniform way, the government has made ground rules that allow the Financial Services Commission to supervise and give orders to the fund as the competent authority.

2.3.4.3. Formation of Finance

Since the fund engages in a financial business of guaranteeing the debts of


enterprises with weak collateral power, it was necessary to establish a sound foundation of finance to maintain the fund’s own credibility and facilitate the implementation of business. To achieve this, the fund has formed the basic property through the following sources:

Since contributions from the government are decided according to the required annual amount of the government contribution budget for operating credit guarantees, it is not the same every year. Also, in order to ensure stable financing of basic property, there is a law obligation where financial institutions have to contribute the amount added or subtracted after applying differential rates (2/100,000) to the basic rate (currently 22.5/100,000) set by the Ordinance of the Prime Minister (enforcement regulation), within the scope of not exceeding an annual rate of 3/1,000. Financial institutions have to give monthly contributions to the fund by the last day of the following month. In 2013, a total of KRW 958.3 billion was collected in the basic property at the beginning of a period, including KRW 824.1 billion from legal contributions of financial institutions and KRW 64.2 billion from special contributions. As of the end of 2013, the basic property amount to KRW 5.9608 trillion.

① Contributions from the government ② Contributions from enterprises (including company groups)③ Contributions from financial institutions, etc.④ Other contributions

<Table 2-27> Sources of the Korea Credit Guarantee Fund


(Unit: KRW 100 million, times, %)

Description 2009 2010 2011 2012 2013

Total contributions 28,774 8,460 10,633 5,063 9,383

Government 16,800 - - △3,500 500

Financial institutions, etc. 11,974 8,460 10,633 8,563 8,883

Basic property (A) 48,951 51,598 53,669 48,239 46,402

Guarantee balance (B) 392,494 387,810 384,314 392,813 405,811

Operation multiples (B/A) 8.0 7.5 7.2 8.1 8.7

Default rates 4.4 4.7 4.9 4.8 4.2

<Table 2-28> Current Status of Contributions and Operation Multiples

Note: Based on general guarantees.Source: Korea Credit Guarantee Fund (KODIT).


2.3.4.4. Corporate Credit Rating System

The Korea Credit Guarantee Fund (KODIT) developed the Corporate Credit Rating System (CCRS), to use it in works related to credit check, credit guarantee and credit insurance starting from 2001. Also, starting from 2007, the Start-up Business Scoring System (SBSS) was introduced and operated for the purpose of facilitating start-up enterprise guarantees by reflecting the characteristics of start-up enterprises. In 2009, the Automatic Rating System (ARS) was adopted for enterprises that require temporary screening, to simplify the checking and screening processes by deciding on whether or not to approve guarantees automatically. In 2010, the Kodit Valuation System (KOVAS) was developed, which integrated the credit rating and growth of enterprises, to establish a Corporate Credit Rating System (CCRS) that reflected the future value of enterprises. It provided an opportunity to conduct selective restructuring together with risk management, by developing a model for identifying marginal enterprises to differentiate between those that have the chances of survival and those that do not.

CCRS, which is the foundation of the Korea Credit Guarantee Fund’s credit rating system, calculates 15 credit ratings (KR1~KR15) by evaluating quantitative and qualitative factors affecting the credibility of enterprises with more than 3 years of business experiences, including financial risk, business risk and management risk, as an exclusive credit rating system for SMEs. Credit ratings are calculated by combining financial, quantitative non-financial and purely non-financial factors (expert judgment).

Scores fromQuantitative Factors

Combination of Model(Combined Score)

Pre-Rating

CCRS Rating (Final)

Filtering

CreditInvestigation

ModifiedCB

Quantitative Model

Scores fromFinancial Factors

Financial Model

Scores fromQualitative Factors

Rating

KR1KR2KR3

•••

KR15

0.100.300.60

•••

30.0

MedianPD(%)

Qualitative Model

[Figure 2-13] Calculation Flow of Credit Ratings



2.3.4.5. Guarantee Types and Type of Business

In 1974 at the time when the Credit Guarantee Fund Act was enacted, there were only four types of guarantees, including loan guarantees, guarantees of payment, bond guarantees and tax payment guarantees, but guarantee types have continued to expand to a total of 11 types due to the emergence of new financial products, changes in commercial transaction methods between companies and the necessity of national economy. Currently, it is possible to get guarantee supports on all types of financial forms, including indirect financing, direct financing, guarantees on commercial transactions between companies and guarantees on taxation. In particular, loan guarantees are credit guarantees on “money debts of enterprises that have with financial institutions by getting the loan of funds from financial institutions,” known as the most general form of guarantee in the credit guarantee scheme and accounting for the largest part of credit guarantee supports. Since the most common method of external financing for the working funds of enterprises, or the facility funds required for purchasing facilities and investing in facilities, is to borrow from financial institutions, loan guarantees account for 85.3% of total guarantee balance as of the end of 2013.

Meanwhile, the Korea Credit Guarantee Fund (KODIT) has regulated enterprises targeted for credit guarantees as “individuals, corporations and their groups engaging in business,” without setting a limit on the type of business in the law. However, from the aspects of managing guarantees, the type of business is limited so


Description 2009 2010 2011 2012 2013

Loan guarantee 323,112 328,810 326,529 333,966 346,348

Guarantee of payment 2,757 2,921 2,897 2,817 2,740

Tax payment guarantee 24 42 41 42 18

Bill guarantees 16,273 14,451 13,574 13,203 12,511

Nonmonetary institution guarantee

19,001 19,625 19,605 20,570 21,586

Surety bond 7,994 5,522 3,831 3,514 2,936

Distribution guarantee 13,494 16,334 17,822 18,681 19,650

Collateralized guarantee 9,833 93 - - -

Guarantee of payment 6 12 15 20 22

Total 392,494 387,810 384,314 392,813 405,811

<Table 2-29> Balance Status by Guarantee Type



that enterprises engaging in industries with high contribution to national economy can get the support from the limited resources of finance. Regarding speculative and unhealthy entertainment industries and other industries with the potential of raising speculation in real estates, guarantee supports have been continuously strengthened on businesses with high contribution to national economy and huge impact on the related industry, such as identifying businesses that require limitation on guarantees or need caution in handling guarantees to manage them with heightened discretionary powers. As of the end of 2013, guarantee balances of the wholesale and retail industry and the manufacturing industry accounted for 76.1% with 43.1% and 33.0%, respectively.

2.3.4.6. Guarantee Rates

Partial guarantee is a guarantee system where guarantee institutions and financial institutions cover certain ratio of losses on guaranteed loans. There had been active discussions about implementing it in the past, but due to lack of surrounding situations the implementation had been on hold, which was adopted after the Asian financial crisis for the purpose of promoting the soundness of guarantees and preventing the moral hazard of financial institutions, by strengthening loan underwriting and follow-up management. In December 1998, along with the increase of consignment guarantee institutions, all of the consignment guarantees were managed as 70%~80% partial guarantees by institution. In April 1999, direct guarantees were also managed as partial guarantees by differentiating base partial guarantee rate according to types of contribution institution, non-contribution institution and target funds, to be implemented in phases to minimize the shock resulting from full implementation. Currently, the base guarantee rate is applied with different rates according to credit ratings of enterprises and guarantee periods, and the base guarantee rate according to credit ratings and guarantee periods are as shown below.

(Unit: %)

Description 2009 2010 2011 2012 2013

Manufacturing 35.7 33.1 32.2 32.0 33.0

Wholesale and retail 41.4 42.7 43.7 43.6 43.1

Construction 11.7 10.8 9.8 8.9 8.4

Service 6.3 6.8 7.4 8.0 7.9

Others 4.9 6.6 6.9 7.5 7.6

Total 100.0 100.0 100.0 100.0 100.0

<Table 2-30> Guarantee Balance Ratio by Type of Business



2.3.4.7. Guarantee Fee

In June 2001, the Korea Credit Guarantee Fund changed the evaluation operating system from the existing total judgment system to the total evaluation system based on corporate credit rating system, to adopt and manage differential guarantee fee ratios by credit rating for guarantee fees. In September 2004, the spread of guarantee fee ratio by credit rating was expanded, while the application of simple add-on ratio by guarantee period was abolished. Starting from January 2006, it is

Guarantee evaluation grade

Guarantee period of less than 10 years

Guarantee period of exceeding 10 years

• Ratings of K1 70% 65%

• Ratings of K2 75% 70%

• Ratings of K3~K5 80% 75%

• Ratings of K6~K15 85% 80%

<Table 2-31> Base Guarantee Rates


CCRS basis SBSS basis Guarantee fee rate

K1 - 0.6%

K2 - 0.8%

K3 - 0.9%

K4 - 1.0%

K5 SB1 1.1%

K6 - 1.2%

K7 SB2 1.3%

K8 SB3 1.4%

K9 SB4 1.5%

K10 - 1.6%

K11 SB5 1.7%

K12 SB6 1.9%

K13 SB7 2.0%

K14 - 2.1%

- SB8 2.2%

- SB9 2.4%

K15 SB10 2.5%

<Table 2-32> Guarantee Fee Rate According to Guarantee Evaluation Ratings



managed with the method of applying the add-on rate and the deducted rate to guarantee fee rate one at a time according to total credit ratings, followed by giving the adjustment right on guarantee fees. When handling guarantees, the add-on rate and the deducted rate are applied and calculated one at a time to the guarantee fee rate according to total credit ratings based on the Corporate Credit Rating System (CCRS), within the scope of minimum of 0.5% and maximum of 3.0% for guarantee fee rates.

3. Improvement of SME Policy Finance

3.1. Conclusion and Implications

In Chapter 1 and 2, the current status of SMEs and financial markets of Indonesia and Korea, as well as the SME policy finance of both countries, were introduced. If you look mainly at the credit guarantee scheme of Indonesia, the credit guarantee corporation of cooperative associations (LJKK: Lemgaga Janinan Kredit Koperasi) was established in 1970 to support the self-help cooperative association of farmers, to be the first of guarantee scheme. In 1971, the government established the credit insurance corporation (PT.Askrindo: PT.Asuransi Kredit Indonesia) to provide credit guarantees for SMEs other than cooperative associations, so that Indonesia’s guarantee scheme developed into two organizations. Afterwards, based on the government decree No.51 of 1981, the development finance corporation of cooperative associations (Perum PKK: Perm Pengembangan Keuangan Koperasi) was established to integrate with the existing guarantee corporation of cooperative associations, so that Perum PKK transformed into the development finance corporation (Perum SPU: Perum Sarana Pengembangan Usaha) in 2000, to supply guarantees to SMEs other than cooperative associations and also handle direct loans. After 2007, in order to overcome the global financial crisis, the role of guarantee

(Unit: %)

Description 2009 2010 2011 2012 2013

Average guarantee fees 1.18 1.21 1.23 1.21 1.24

Average guarantee rates 87.9 87.4 86.9 87.0 87.0

Average interest rates (new guarantees) - 5.52 5.65 5.19 4.39

<Table 2-33> Average Guarantee Fees and Guarantee Fee Rates

Note: Starting from 2010, changes have been made to be notified with executed interest rates of guaranteed loans from the bond financial institution.



institutions was strengthened, while the name of Perum SPU was changed to credit guarantee corporation (Perum Jamkrindo) to the present.

If you look at the history of Indonesia’s credit guarantee institutions, the credit guarantee fund was established in 1976 and the history of establishing guarantee institutions is longer than Korea, which launched the guarantee scheme in full scale. However, the role of SME guarantee scheme started fully in guarantee supports focusing on agriculture and cooperative associations only after 2008 when the current credit guarantee corporation (Perum Jamkrindo) was established. Meanwhile, the credit insurance corporation (PT. Askrindo) maintained its name at the time of establishment, but after going through the insolvency of subrogation twice in 1984 and 1995, operations were expanded to commercial guarantees and credit insurances, including payment guarantees, surety bonds and credit insurances on import credits, while policy guarantees are nonexistent except for the KUR program that began after 2008. Also, excluding the policy guarantee of KUR, the operations of the credit guarantee corporation (Jamkrindo) mostly supplied private guarantees of marketability, such as multi-purpose guarantees. In other words, the role of guarantee institutions got confusing between the commercial function and the public function, so that the identity became unclear and weakened the function of policy guarantees compared to the history of guarantee scheme. Also, there was a lack of development in its own guarantee scheme because of the method of supplying consignment guarantees through commercial banks, making it difficult to accumulate SME credit information and acquire credit check data due to no credit rating system and insufficient computerization of direct loans.

Credit GuaranteeScheme:TRI, Loan for riceand crops,fertilizer credit

1970~1981 1981~2000 2000~2008 2008~now

Credit GuaranteeScheme; KKP,TRI, GLP & GLK,Kopelra, RMU, dairycow credit, Loan forrice and crops,fertilizer credit, KUT

Credit guarantee withbusiness oriented forSMEs development,direct loan on profitsharing and sharia(Islamic) guarantee

More focus oncreditguarantee forSMEsdevelopment

LembagaJaminan KreditKoperasi (LJKK)

Perum PengembanganKeuangan Koperasi

(Perum PKK)

Perum SaranaPengembangan

Usaha (Perum SPU)

Perum JaminanKredit Indonesia

(Jamkrindo)

[Figure 2-14] Growth Path of Credit Guarantee Scheme in Indonesia

Source: Jamkrindo.


Meanwhile, the guarantee fees of KUR as the policy guarantee receive 100% government support, and taking into consideration that the burden on the government will increase, it was necessary to allocate appropriate costs of managing guarantee schemes of the government, financial institutions and SMEs, by applying the benefit principle on financial institutions and enterprises to ensure the sustainability of guarantee schemes. Also, since the guarantee scheme started from the guarantee corporation of cooperative associations (LJKK) as the former organization of Jamkrindo, it has combined the support for primary industries like the agriculture fishing industry and the support for SMEs in manufacturing and wholesale and retail industries, making it necessary to provide supports through choice and concentration to achieve efficiency in industrial policy purposes, besides the financial policy purpose of guarantee institutions.

(Unit: %)

46

66

5347

34

(Unit: %)

(Unit: %)

31

69

54

Guarantee Supply Guarantee Fee

Guarantee Supply Guarantee Fee

KURNon-KUR

KURNon-KUR

Jamkrindo

Askrindo

[Figure 2-15] Business Area and Import Structure of Guarantee Institutions in Indonesia (2013)

Source: Jamrkindo, Askrindo.


3.2. Policy Recommendations

① Reorganization of credit guarantee institutions and increase policy functions focusing on Jamkrindo

Since Indonesia’s guarantee institutions focus on pursuing profit, they seem to have vague identity between policy financial institution and private company. If you compare the purpose establishment between the Korea Credit Guarantee Fund (KODIT) and Jamkrindo, in the case of Korea Credit Guarantee Fund (KODIT), the main purpose is “contributing to national economy through the development of SME finance.” On the other hand, one of the purposes of establishing Jamkrindo is to create profits and benefits for shareholders and stakeholders.

(Unit: million IDR)

<Trend of Guarantee Supply Amount> <Trend of Government Budget>

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2008 2009 2010 2011 2012 2013

PerformanceTarger

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2008

Budget RealizationBudget Allocation

2009 2010 2011 2012 2013

[Figure 2-16] Guarantees Supplied and Government Budget for the KUR Program

(Unit: million IDR)

KODIT (KODIT Act Article 1) JAMKRINDO (Tridharma: three duties)

Balanced development of national economyConducting credit guarantee business to support MSMEs and cooperatives

Facilitate SME financing Providing wider and qualified services

Establish sound financial environment through effective management of credit information

Providing interests to stakeholders* Providing benefits to stakeholders (Askrindo

Mission)

<Table 2-34> Comparison of the Purpose of Establishment between the Korea Credit Guarantee Fund (KODIT) and Jamkrindo

Source: Korea Credit Guarantee Fund (KODIT), Askrindo.


Even in the comparison with other guarantee institutions that operate public guarantee schemes in Asian region, Jamkrindo showed very high profitability with the net profit and loss ratio exceeding 250%. However, two-thirds (66%) of guarantee fee incomes, which is the major source of profits, depend on the government’s guarantee fee support by supplying policy guarantees (KUR).

The Indonesian government should concentrate the role of policy guarantees mainly on Jamkrindo, which is the largest credit guarantee institution existing, while transferring commercial guarantees to Askrindo, to clarify the identity of Jamkrindo and develop it into the core organization of SME policy finance. Meanwhile, taking into consideration of the regional characteristics of Indonesia with over 17,000 islands all across the region, the current 10 regional credit guarantee institutions should be increased to 33 major provinces, so that the regional guarantee institution is established and developed by province. In order to ensure the credibility of guarantee institutions, it is necessary to increase guarantee supply channels that utilize regional financial institutions and regional credit guarantee funds, by expanding resources of finance from the central government and making reguarantees by Jamkrindo. In case of Korea, KODIT and KOTEC used to produce re-guarantee services, but as CGFs were enlarged, KOREG started to do re-guarantee services in order to resolve inconvenience from the dual re-guarantee systems in 2004 and supported CGFs financial soundness.

(Unit: %)

Jamkrindo (INO)

0 50 100 150 200 250 300

DCGC (NEP)

TCG (THA)

CGTMSE (IND)

Askrindo (INO)

CBSL (SRI)

KOREG [CGFs] (KOR)

KOTEC (KOR)

CGCMB (MAL)

KODIT (KOR)

NFCGC (JPN)

SBC (PHI)

[Taipei, China] SMEG (TAP)

JFC (JPN)

IND=India, INO=Indonesia, JPN=Japan, KOR=Republic of Korea, MAL=Malaysia, NEP=Nepal,

THA=Thailand, PHI=the Philippine, SRI=Sri Lanka, TAP=Taipei, China.

※ Net profit and loss ratio = (recovery+fee income) / payment under guarantee

profitable

[Figure 2-17] Net Profit and Loss Ratio of Credit Guarantee Institutions*

Source: ADB-OECD Study on Enhancing Financial Accessibility for SMEs (2014).


Also, since Askrindo has similar characteristics like Korea’s Seoul Guarantee Insurance (SGI), it seems more reasonable to reduce the government’s shares and privatize it in the long run.

② Establish the credit guarantee part separately for agriculture and fishing industry within Jamkrindo

Also, in order to efficiently support primary industries like agriculture, it is more efficient to apply choice and concentration to have the credit guarantee function of agriculture and fishing industry separately under Jamkrindo’s affiliate or in a separate part, allowing the development of the separate xamination function of credit guarantees. In the case of Korea, in order to support primary industries, the Credit Guarantee Fund for Farmers and Fishermen was established separately within the National Agricultural Cooperative Federation (NACF), to develop separately from the SME support system. For reference on the operation status of the Credit Guarantee Fund for Farmers and Fishermen, separate data has been attached. As shown below in the figure, if you look at the appearance after the reorganization of credit guarantee institutions, it shows that efficient supports are possible through choice and concentration and clarifying the composition of SMEs in Indonesia according to business areas.

AS-IS To-BE

54%

54%

69%

Commercial P/G

Commercial Area

Privatization in thelong-term period

Policy P/G

Policy Area

Core Institutionfor SME financing

Re-guarantee

Policy P/G

Regional CGCs (8)

※ Numbers inside the circle is the ratio of guarantee supplies by business area

Regional CGCs (33)

Commercial P/G

Entering the financial market

Unstable

46%

46%

31%

69%

31% Policy target : LocalMicro companies

[Figure 2-18] Reorganization Plan of Credit Guarantee Institutions in Indonesia (1)



③ Reduce the interest rate of policy guarantee loans by adopting the prevention of charging credit add-on interest rates

In the case of the KUR Micro Program, the separate credit rating investigation can be omitted, but the high interest rate of 22% close to twice that of general loans is charged. As for guarantee rates, taking into consideration of the high risks in the non-guarantee part from the bank’s point of view with 80% for primary industries and 70% for others, it is partially reasonable that interest rates are high. However, taking into consideration that the credit add-on interest rates on guarantees are the guarantee of government agencies, it is necessary to apply limitation. In the case of Korea, credit add-on interest rates on the guarantee of guaranteed loans are strictly limited, so that during the payment by subrogation, it is regulated in provisions not to pay for credit add-on interest rates of guarantees. Also, in the case of KUR Ritel, financial institutions avoid risks by acquiring separate collaterals on the non-guarantee part. It is necessary to complement the risks of financial institutions by prohibiting the charging of credit add-on interest rates on guarantees to increase the guarantee rates of policy guarantees instead of reducing interest rates. If it is easy to acquire credit information and conduct credit rating evaluation, it may be possible to differentiate guarantee rates like in Korea, but at the current stage of Indonesia, it

AS-IS To-BE

go public

feasible &bankable

feasible &unbankable

infeasible &unbankable

Policy target is too wide

99.99%

99.91%

MICRO55,2 mil Units

(98.82%)

SMALL602,195 Units

(1.09%)

MEDIUM44,280 Units

(0.08%)

LARGE4,952 Units(0.001%)

Regional CGCs (33)

RegionalMicro Companies

AgriculturalCredit Guarantee

Division

SME CreditGuarantee Division

Policy target

※ Spin-off in long-term

Selection &Focus

<Advantages of Target Market Segmentation>

Collect creditinformation

Efficient

Riskmanagement

Efficient

PolicyExecution

Efficient

[Figure 2-19] Reorganization Plan of Credit Guarantee Institutions in Indonesia (2)



is necessary to enhance the productivity of guarantees to sufficiently cover the risks of financial institutions. After the establishment of the Korea Credit Guarantee Fund (KODIT), Korea operated the full guarantee scheme, but after the 2000s introduced partial guarantees when the accumulation of SME credit information and the SME loans of financial institutions increased. Currently, the average guarantee rate is around 87% where the productivity of guarantees is maintained by complementing the risks of financial institutions through direct guarantee examination.

④ Ensure sustainability through appropriate allocation of financial resources including adopting the financial institution contribution system, etc.

The allocation of financial resources for Indonesia’s guarantee scheme includes 100% government contribution and guarantee fee support. If you look at from the concept of loss ratio of insurance companies, Jamkrindo’s loss ratio (payment by subrogation/guarantee fees) for the recent three-year average is around 44.8%~50%, while showing very good loss ratio to guarantee fee revenues. On the other hand, the government’s budget requirement exceeded the initial allocation amount after 2011, showing rapid increase in the amount of execution. After 2008, the Indonesian government expanded the credit guarantee scheme targeting all SMEs to continuously increase guarantee supplies and secure the sustainability of

AS-IS To-BE

Program

BaseRate

GuaranteedPortion

O

BankPortion

O

CreditSpread

X

O

ExtraCost

O

O

Ceiling

Interest Rate

Coverage

Primary sector

Guarantee Fee*

Credit information

Collateral

KUR Micro

20

22

70

80

3.25

Not applied

Not applied

KUR Ritel

More than 20

(Unit: million Rp, %)

13

70

80

3.25

Applied

Applied

Considering government-backed guarantee

program, interest rate is too high, especially for

KUR Micro. No participation from bank and SMEs.

Prohibition of additional collateral should be made, by increasing guarantee coverage.

In order to prevent moral hazard, branch extension forCAC cover and banks contribution based on

performance should be introduced.

Prohibition of credit spread on the guaranteedportion should be made.

※ Government fully pays guarantee fee to Jamkrindo.

※ Credit Spread: Reflecting lender’s PD (Probability of Default), LGD

※ Risk Weight on guaranteed loan: 20% (Indonesia), 0% (Korea)

KUR

[Figure 2-20] Improvement Measures of Policy Guarantee Programs



guarantee scheme in the future, enabling the government, financial institutions and enterprises to appropriately allocate financial resources through adopting the financial institution contribution system and the conglomerate contribution guarantee program like Korea. In the example shown below, it has been suggested that commercial banks make 0.3% of contributions on corporate loans for Jamkrindo’s SME part, while rural banks make 0.1% of contributions for agriculture part and commercial banks make 0.1% of contributions on regional credit guarantee institutions.

As a unique system developed in Korea, the financial institution contribution system is regulated by the Credit Guarantee Fund Act as the basis for the bank’s contributions. The cost-benefit analysis result of Korea’s financial institution contribution system after the establishment of KODIT showed that the total amount of the payment by subrogation and the loan-deposit margin profit was 2.6 times that of the total amount of the bank’s contributions to KODIT and the loss in the non-guarantee part of guaranteed loans, showing the benefits of increasing the bank’s SME loans was much higher. The transformation process of the financial institution contribution system is explained in detail in attachment.

AS-IS To-BE

2011 2012 2013

Guarantee Fee 969 1,399 1,601

Claim 333 618 899

Default Rate 1.15 2.43 3.82

Claim / Fee 34.3 44.1 56.1

Guarantee fee from government is the mainsource of revenue. Still, lucrative business for

guarantee company, but hard to sustain forever.

Financial contribution of commercial banks andrural banks is necessary. Government should

demonstrate that banks can enjoy fruit from SMEmarket penetration with government support.

(Unit: billion Rp, %)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2008 2009 2010 2011 2012 2013

Allocation

Realization

Budget RealizationBudget Allocation

Government Budget

KODIT KOTEC KOREG ACGF

Rate 0.225 0.135 0.02 0.38

Banks Commercial Banks AgriculturalBank

(Unit: %)

Rate

Jamkrindo

SME Div. Agri, Div.

0.3 0.1

RegionalCGCs

0.1

Banks CommercialBanks

RuralBanks

CommercialBanks

(Unit: %)

[Figure 2-21] Adoption Plan of Financial Institution Contribution System



⑤ Conduct the digitization and informatization of operations and adopt credit rating system

Jamkrindo supplies more than 80% of guarantees through the method of conditional automatic cover (CAC) in the form of consignment guarantees, and there is no separate credit rating system by leaving investigations and evaluations to the bank’s discretion, except for the basic agreement conditions with the bank. In the case of case by case cover for direct loans, if the score exceeds 70 points through the evaluation of checklists, there is a scoring system that determines whether or not to issue guarantees through the pass or non-pass method. In order for Jamkrindo to actively supply SME policy finance by increasing its role as policy guarantee institution to adopt the financial institution contribution system and strengthening cooperation with private banks, it is necessary for guarantee institutions to examine the credit rating of enterprises on their own and have the ability to accumulate credit information. To achieve this, the SME credit information should be accumulated through the digitalization and informatization of operations first, including direct loans, while also developing a credit rating system through the accumulated credit information and examination materials in the future. In the case of KODIT, it supplied guarantees through a scoring system like Jamkrindo before 2001, but developed the Corporate Credit Rating System (CCRS) in 2001 to be operated to the present. Based on the operating experience and know-how until now, in order to export it the CCRS to guarantee institutions in Vietnam and Kazakhstan this year, orders have been received for system consulting. In the second stage of the program in the future, the

※ (Spread + Subrogation) - (Loan loss + Contribution)※ Benefits to Costs ratio = 2.6 → "efficient"

Benefit Cost Analysis

Benefits (A)

(1976~2012) (Unit: billion USD)

Spread

9.3 23.7

Subrogation

Costs (B)

Loan loss

2.8 9.8

Contribution

Benefit to Cost

Difference(A-B)

20.4 2.6

Multiple(A/B)

[Figure 2-22] Cost-Benefit Analysis of Financial Institution Contribution System



transfer and informatization of the CCRS under the cooperation with the Indonesian government and guarantee institutions will take place, to seek increased cooperation though practical business development in the one-time policy recommendation. Also KODIT has been conducting credit insurance services since 1997. It plays a role of social safety net by enhancing the competitiveness of SMEs as well as preventing from chained-bankruptcy of SMEs due to bad debt. After the guarantee scheme becomes stable, it makes sense to exanimate the introduction of sales receivable insurance services

AS-IS To-BE

For CBC cover, Jamkrindo has a simple scoringmodel based upon checklist. For CAC, no model.

Jamkrindo has limited service area.Branch 28. Service unit 28

In order to foster core innovative and viableSMEs, Jamkrindo should build capacity for credit

evaluation and SME data accumulation.CBC cover 50% Automatic cover 50%

<Development of Credit Rating System of KODIT>

Model Model

Scoring System

Corporate CreditRating System

(CCRS)

Industry Rating

System

Startup Business

Scoring System

AutomaticRatingSystem

KODIT Valuation

System

~2001

2001

2004

2006

2008

2010

[Figure 2-23] Adoption Plan of Credit Evaluation System



Appendix 1. Current Status of the Credit Guarantee Fund for Farmers and Fishermen

A. Business Overview

□ Establishment of the Credit Guarantee Scheme for Farmers and Fishermen (1972)- By providing the required funds in the agriculture and fishing industries by

guaranteeing the credit of farmers and fishermen with weak collateral powers, the credit complementary system contributes to a balanced development of farming and fishing economy.

□ January 13, 1971: Enactment of the Credit Guarantee for Farmers and Fishermen Act (Act No. 2277)

□ March 20, 1972: Start operations with fund contributions (KRW 100 million) from the National Agricultural Cooperatives Federation (NACF)

□ Fund managing institution (381 persons): NACF (Article 5 of the Act)- Central headquarter (61 persons): President (concurrently acting as Managing

Director), Director and General Manager (2 persons) - Guarantee center (320 persons): regional guarantee centers (9 centers), zone

guarantee centers (18 centers)

□ Fund accounting is separate from the NACF’s accounts

□ Establishment and expenditure of the fund- (Fund establishment) Net profits made from managing and operating the fund

with contributions from the government and financial institutions*

□ The amount of contribution ratio applied to collateralized bonds among bank accounts and partial loans among trust accounts (0.38% from Nonghyup and Suhyup Bank, 0.027% from regional cooperatives)* Contributions in 2013: KRW 201 billion (Nonghup Bank KRW 131.2 billion,

National Federation of Fisheries Cooperatives KRW 28.3 billion and regional farming and fishery cooperatives KRW 40.5 billion)

- (Fund expenditure) Spending expenses required for operating the fund and performing guarantee debts

□ Guarantee Procedure of the Credit Guarantee Scheme for Farmers and Fishermen- Direct guarantees: guarantees issued after conducting credit checks by

managing institutions- Consignment guarantees: guarantees issued by managing institutions after


conducting credit checks by financial institutions

□ Less than KRW 30 million of general guarantees (total of debt and special business recovery guarantee balance)

□ Less than KRW 100 million each for special guarantees of debts, disasters, feeds and leading farming cattle

□ Less than KRW 50 million for special business recovery guarantees

□ Guarantee handling financial institution: 1,389 (as of the end of 2013)- Nonghyup (National Agricultural Cooperatives Federation): 1,162 (federation 1,

cooperatives 1,161)- Suhyup (National Federatoin of Fisheries Cooperatives): 89 (federation 1,

cooperatives 88)- National Forestry Cooperative Federation: 137 (federation 1, cooperatives 136)- Korea Agro-Fisheries & Food Trade Corporation: 1 (head office 1)

□ Related government agencies - Managing supervisor: Financial Services Commission (Industrial Finance Division

of Financial Policy Department) - Government fund contribution: Ministry of Agriculture, Food and Rural Affairs - Fund management plan: Ministry of Strategy and Finance (Agriculture and

Fisheries Budget Division, Fund Management Planning Division)- Audit agency: The Board of Audit and Inspection of Korea

B. Major Guarantee Details

Guarantee target

○ Persons engaging in farming, fishing, forestry and deep-sea fishing (less than 150 persons of regular workers), after-service sites of farming machinery, seed producing companies

○ Distribution and processing groups of agriculture and marine products and agricultural and marine groups in accordance with Article 4 of the Credit Guarantee Scheme for Farmers and Fishermen regulations

○ Persons exporting agriculture and marine products or its processed goods and persons producing equipment needed for the agriculture and marine industry (SMEs)

Guarantee contents

○ Funds for farming and fishing (guarantee prohibited for households and the money for living)


□ Current Status of Fund Settlement by Year

Partial guarantee

scheme

○ Guarantees where managing institutions and financial institutions cover certain ratio of debts collateralized by the credit guarantee letter

- Farming and fishing individuals, farming and fishing corporations 85% - Other persons 80% (20% are burdened by financial institutions)○ Excluded from the application of partial guarantees: full guarantees - In case of less than KRW 20 million of total guarantee balance for

farming and fishing individuals - Special guarantee for disaster funds

General guarantee

limit○ Individuals and groups KRW 1 billion, corporations KRW 1.5 billion

Current status of fund (End

of 2013)

○ Basic property (A): KRW 2613.2 billion ○ Guarantee balance (B): KRW 9427.5 billion○ Operation multiple (B/A): 3.6 times○ Subrogation amount: KRW 135.4 billion


Description 2007 2008 2009 2010 2011 2012 2013

Income

Government contribution

7,357 6,952 9,095 1,200 - - -

Financial institution contribution

1,248 1,601 1,742 1,710 1,742 1,913 2,010

Guarantee fee, interest income, etc.

841 1,119 1,296 1,322 1,368 3,708 2,587

Total 9,446 9,672 12,133 4,232 3,110 5,621 4,597

Expenditure

Preparation costs for subrogation

△1,524 2,163 1,386 △3,266 △2,552 - -

Redemption costs for the right of indemnity

11,581 5,277 2,451 1,809 441 217 421

Managing expenses, etc.

512 513 507 501 531 533 548

Total 10,569 7,953 4,344 △956 △1,580 750 969

Basic property (A) 5,424 8,182 15,971 21,159 17,633 22,504 26,132

Guarantee balance (B) 129,241 119,553 105,031 91,446 85,615 86,895 94,275

Operation multiple (B/A) 23.8 14.6 6.6 4.3 4.9 3.9 3.6

Guarantee capacity (A×20times-B) △20,761 44,087 214,389 331,734 267,045 363,185 428,365

Note: 1. Government contribution: Total of KRW 5.4196 trillion until 2010 (53.1% of the total amount raised for the fund). 2. Legal operation multiple: (initially in 1972) 10 times → (1976) 15 times → (1995) 17 times → (2001~present) 20 times.


□ Guarantee fees

□ Current Status of Guarantee by Target: agriculture, fishing and forestry 96.9% (individuals 93.5, corporations 6.5), other processing companies, etc. 3.1%

□ Guarantee Balance by amount (per case)

Guarantee amount

Farmers General corporation

Agriculture, fishing and

forestry

Non-agriculture, fishing and

forestry

Agriculture, fishing and

forestry

Non-agriculture, fishing and

forestry

Less than KRW 100 million

Annual rate of 0.3%

Annual rate of 0.4%

Annual rate of 0.7%

Annual rate of 1.0%

Exceeding KRW 100 million

Annual rate of 0.4%

Annual rate of 0.6%

Annual rate of 0.9%

Annual rate of 1.2%

Exceeding KRW 500 million

Annual rate of 0.6%

Annual rate of 0.9%

Annual rate of 1.2%

Annual rate of 1.4%

Note: ± 0.2% of guarantee fee rates according to credit rating exceeding KRW 100 million.


Description Less than KRW 30 million

KRW 30 million~

50 million

KRW 50 million~

100 million

KRW 100 million~

500 million

KRW 500 million~1 billion

Exceeding KRW

1 billionTotal

Guarantee balance

43,766(46.4%)

14,405(15.3)

13,250(14.0)

13,250(14.0)

2,536(2.7)

1,288(1.4)

94,275

Note: Average guarantee amount per case (2013): KRW 16 million (number of guarantees 575,845 cases, Amount of guarantees KRW 9427.5 billion).


Appendix 2. The Financial Institution Contribution System

A. The history of Contribution from Financial Institutions

Date of enactment

Contribution ratio Reason of changing contribution ratio Note

Aug. 3, 1972Annual rate of

0.5%

- Legalization of contribution obligations on all loans from financial institutions in accordance with the “emergency order on the stability and growth of economy,” excluding the Bank of Korea

- Making contributions with financial institutions charging loan interests on imports by increasing loan interests to 0.5% so that enterprises can pay additional burden of increased 0.5%

Chapter 4 of Emergency

Order on the Stability and Growth of Economy

Dec. 21, 1974Annual rate of

0.5%- Enactment of the Credit Guarantee Fund Act

Law enactment

Feb. 14, 1977Annual rate of

0.3% and annual rate of 0.5%

- Reduce the application of contribution ratio to 0.3% on “non-corporate low-incomer lending of Kookmin Bank and non-corporate low-incomer mutual fund”

- Continuous application of 0.5% on other loans

Enforcement rule revision

Dec. 28, 1979Annual rate of

0.3%

- Revision to contribute 0.3% on loan balance regardless of the increase of loan interests

- Adjustment of contribution loans (excluding household loans)

☞ Going beyond the initial perception that the beneficiary of credit guarantee letter is enterprise, measures taken based on the consensus that financial institutions are directly the biggest beneficiary

Law enactment

Apr. 1, 1989Annual rate of

0.2%

- Allocation of contribution ratio according to the establishment of the Korea Technology Finance Corporation (Apr. 1, 1989)

→ Korea Credit Guarantee Fund 0.2%, Korea Technology Finance Corporation 0.13%


Apr. 24, 1992Annual rate of

0.17%

- Reduce contribution ratio to 0.03% to secure resources for Korea Technology Finance Corporation according to the increased accident ratio (6.6% in 1991⇒16.1% in 1992)



Aug. 25, 1994

Annual rate of 0.2%

- Reduce contribution ratio of Korea Technology Finance Corporation from 0.13% to 0.1% according to the stability of accident ratio and the difference (0.03%) is contributed to the fund




B. The Characteristics of Contribution from Financial Institutions

The contribution from financial institutions seems to be a surcharge, but the financial institutions share large proportion of profits through contribution in reality, so the contribution from financial institutions is not just regulatory regime. It is necessary to utilize the Korean cases of operation and performance so that financial institutions contribute to the capital funds.

First, the contribution acts as an insurance with a default-event report since it

Date of enactment

Contribution ratio Reason of changing contribution ratio Note

Aug. 26, 2005

Aug. 2005~ Jan. 2006: annual rate of 0.0%

- In order to resolve the liquidity risk of the Korea Technology Finance Corporation, the financial institution contributions of Korea Credit Guarantee Fund between Aug. 2005 and Jan. 2006 were temporarily transferred to the Korea Technology Finance Corporation


Enforcement rule revisionAfter Feb. 2006:

annual rate of 0.2%

Jan. 24, 2006

Jan. 2006: annual rate of

0.1%

- In order to expand the resources of the Korea Credit Guarantee Fund to facilitate credit guarantees, the contribution ratio of both funds were increased (0.3%⇒0.4%), while financial institutions adopted differential rates according to subrogation.

→ Korea Credit Guarantee Fund 0.25%, Korea Technology Finance Corporation 0.15% ± differential rates


Feb. 2006: annual rate of

0.2%

Mar. 2006~June 2006: annual rate of 0.25%

After July 2006: Annual rate of 0.25% ±differential

rates*)

Jun. 4, 2007Annual rate of 0.225% ±

differential rates*

- Contribution based loans clarified “collateralized bond” on B/S submitted to the Financial Supervisory Service every month by the bank, adjusting contribution based loans and easing contribution burdens on financial institutions by reducing contribution ratio by 10%

→ Korea Credit Guarantee Fund 0.225%, Korea Technology Finance Corporation 0.135% ± differential rates


Note: Differential ratio: apply ±0.02% according to total subrogation amount of the previous semi-annual period / total contribution amount of the previous semi-annual period.


is used as the funds for subrogation payment which the financial institutions can demand.

Second, commercial banks can reduce their risks through credit guarantee and easily practice loans, so the contribution can be a reinvestment cost for sustained profit growth.

Third, the contribution is like social costs for enhancing SMEs as credit guarantee schemes ease the difficulties of SMEs accessibility of finance in the market.

Fourth, the contribution can be payment by proxy. The financial institutions add the contribution to the interest rate, so practically, the borrowers, SMEs pay for the contribution.

InsurancePremium

Socio-economic

Cost

Paymentby Proxy

ReinvestmentCosts

※ For continuing profit form SME loans※ Spread between loans & deposits

※ For default risk of SME loan※ Installment for anticipated subrogation

※ SME access to credit※ Balance between

publicity & profitability※ Passing on to SMEs

by building cost intoloan Interest rate

* At the first time, it was extended its limitation by revising regulation, because of Korea Credit Guarantee Fund law, which contribution of the financial institutions had limited to 5 years. Even though the banks had opposed the contribution, the limitation could be abolished by laying out logical basis of beneficiary paying principle.


Appendix 3. Introduction of Re-guarantee Scheme□ The Importance of Re-guarantee

□ In a re-guarantee, when a regional Credit Guarantee Foundations (CGFs) provides guarantee for a micro and small enterprise, Korea Federation of Credit Guarantee Foundations (KOREG) provides re-guarantee for a certain proportion of the original guarantee provided by CGFs (coverage ratio: 50~80%) for CGF’s financial soundness,• KOREG is responsible for the reguaranteed amount when CGFs can not collect

the payment by subrogation to the financial institution. • KOREG is not related to the micro and small enterprises directly, but supports

the strength and soundness of CGFs.

□ The Framework of Re-guarantee System

□ Main Contents of a Re-guarantee Contract• Term of Re-guarantee : 1year (renewable)• Maturity of Re-guarantee : the same as that of loan guaranteed• Re-guaranteed Target : guarantee for financial obligations of the micro&small

enterprises • Re-guarantee Limit : Different depending on each CGF contract • Re-guarantee Amount : Maximum KRW400 million per an enterprise (exception


KRW 500 million)• Re-guarantee Ratio : 50~80% of the original guaranteed amount• Re-guarantee Fee : 0.75~0.85% per annum• Compensation Payment : Demand payment under the re-guarantee when 2

months has passed (within 1 year) after the subrogation date


References

A Study of Policy Finance Advancement, FEI, 2014

ADB-OECD Study on Enhancing Financial Accessibility for SMEs – Lessons from Recent Crises, ADB-OECD, 2014

Asia SME Finance Monitor, ADB, 2014

Askrindo Annual Report 2013

Bank of Indonesia Annual Report 2013

Cho Young Sam, Major Issues and Policy Tasks of SME Policy Finance, Korea Institute for Industrial Economics & Trade, 2008

Jamkrindo Annual Report 2013

KB Financial Holding Management Research Institute, “Structure and Understanding of SME Policy Finance,” 2014

Korea Credit Guarantee Fund, Credit Guarantee Schemes of the World, 2012

La Porta, R.,F. Lopez-de-Silanes, and A. Shleifer, Government Ownership of Banks, Journal of Finance, 2002

Nam Joo Ha and others, Economic Environment of Policy Financial Institutions and Development Plan of Credit Guarantee Fund, Sogang University Industrial Cooperation Agency, 2013

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