Access to credit through formal financial institutions is at a nascent stage in Indonesia. World Bank estimates that only 13.1% of the Indonesians have borrowed from a formal financial institution. Financial institutions (FIs) recognise this credit gap and have been growing at a rapid pace over the last few years in Indonesia. The top three FIs i.e. MBK Ventura, BAV and Komida grew at 57.3% (year-on-year) in terms of gross loan portfolio and 30% (year-on-year) in terms of number of clients for the past three years. However, this growth is largely limited to Java and specifically to West Java province.
This rapid growth could lead to credit over supply and over indebtedness among the clients. And as seen in other markets such as India, Mexico, Bosnia, Nicaragua, etc. with higher penetration of FI loans – this situation could lead to mass defaults.
This report analyses the situation of over indebtedness in Indonesian market and suggests recommendations/interventions to avoid a crisis situation.
Read the Bahasa version of the report here