of the public budget allocated to direct expenditures on innovation and business support programs in Indonesia (World Bank 2021).<sup>9</sup> Outstanding KUR loans as of March 2024 total approximately US$36 billion (IDR 545 trillion), roughly 40% of the total US$90 billion (IDR 1,362 trillion) of outstanding MSME loans in the country. During the period of the study, the cumulative non-performing loan ratio for KUR loans was The NPL for KUR 1.2%, with a slightly higher NPL ratio for micro-KUR (1.66%) than small KUR (0.75%).<sup>10</sup> loans compares favorably to NPL of broader MSME loans in the country: during the same time period, the average monthly NPL rate was 4.22% for MSME loans in Indonesia.<sup>11</sup> There are five types of KUR loans; however, this study focuses on the two most common categories that existed between 2015 and 2020, i.e. the period of our data: micro KUR and small KUR loans.<sup>12</sup> Table 2 compares the conditions of micro and small KUR loans for the year 2019.<sup>13</sup>

**Table 2: Comparison of terms and conditions for micro KUR and small KUR loans for the year 2019**

|Term/conditon|Micro KUR|Small KUR|
|---|---|---|
|Interest rate<br>(paid byborrowers)|6%|6%|
|Interest rate subsidy<br>(paid to banks)<br>|10.5%|5.5%|
|Term/conditon|Micro KUR|Small KUR|
|Loan amount<br>|Up to 50 million IDR<br> (US$3,500)|50 – 500 million IDR<br>(US$3,500 to US$35,000)|
|Loan duraton<br>|Max. 3 years (working capital)<br>Max. 5years(investment)<br>|Max. 4 years (working capital)<br>Max. 5years(investment)|
|Lifetme limit|No limit for the producton sector<sup>14</sup><br>200 million IDR (US$ 14,000) for the<br>non-producton sector|500 million IDR (US$ 35,000)<br>for both producton and non-<br>producton sectors|
|Collateral requirements|Principal collateral is the business or<br>object fnanced by KUR<br>Additonal collateral is not required<br>and without contract or agreement<sup>15</sup>|Principal collateral is the<br>business or object fnanced by<br>KUR<br>Additonal collateral in<br>accordance with the assessment<br>of the distributor|

> 9  Tax incentives play an important role in Indonesia’s policy mix to support businesses; however, the value of these incentives is not included in this calculation due to data constraints.

> 10  Data from the Indonesia Coordinating Ministry of Economic Affairs (CMEA), <u>available here.</u>

> 11  Data from Indonesia Financial Services Authority (OJK).

> 12  The five types of KUR loans include: (i) micro KUR loans; (ii) small KUR loans; (iii) KUR loans for migrant workers (TKI); (iv) ultra-micro KUR loans; (v) special KUR. Ultra-micro KUR loans were introduced in August 2020, after the period of the data used in this study.

> 13  Some terms and conditions, including the interest rate and the subsidy amounts, have changed over time. The conditions that were in place in 2019 reflect the conditions that were most common during the study period of this report.

> 14  Production Sector in the regulations refers to “the economic sector that produces goods and/or services”.

> 15  Without contract or agreement means that it is not notarized and cannot be confiscated in the case of default.

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