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Workshop on Financing for ASEAN MSME in the 21 st Century

SME and Financing The Case of Venture Capital in Indonesia. Workshop on Financing for ASEAN MSME in the 21 st Century. Bali – Indonesia 19 – 22 October 2009. Venture Capital Company.

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Workshop on Financing for ASEAN MSME in the 21 st Century

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  1. SME and Financing The Case of Venture Capital in Indonesia Workshop on Financing for ASEAN MSME in the 21st Century Bali – Indonesia 19 – 22 October 2009

  2. Venture Capital Company Is an entity which is involve in the financing / equity participation activities to another entity / company / person which receives this scheme for a predetermined period of time Presidential Decree No 9 2009 on Financing Institution SME and Financing

  3. Economic Benefits of Venture Capital A source of financing for an entity at the start-up / expansion stage with a purpose to further increase its growth The partnership of Venture Capital Company (VCC) can be: Shaping the direction of the business and the strategic vision Decide on investment policy and assist on negotiation with external parties Continue to develop systems to enable an efficient running of the company Continuous monitoring and accompany investee entity Providing access to relevant industry Assisting in professional recruitment 3 In short, VCC aims to create a business environment to optimise the potentials of the investee entity in order to receive a maximum return. SME and Financing

  4. History of Venture Capital in Indonesia 1973 – Government of Indonesia (GoI) established PT. Bahana Pembinaan Usaha Indonesia (BPUI) mandated with the development of SMEs and entrepreneurs through equity financing scheme and technical assistance 1988 – GoI formalised the Venture Capital (VC) and multifinance industry as an alternative source of capital financing to the bank through the issuance of KMK1251 1993 – BPUI established Bahana Artha Ventura (BAV) to provide capital financing to SMEs using VC scheme supported by Jexim Loan (TSL-919) with a Rupiah equivalent of Rp1.2trillion. BAV established Provincial Venture Capital Companies (PVCC) in 27 provinces. In addition, PT Astra International established Astra Mitra Ventura (AMV) in the same year 1995 – The Ministry of Finance (MoF) separated the regulation concerning Venture Capital and Multifinance. This enabled the establishment of private VC which can be owned by domestic investors or foreign investors (Joint Ventures) 2000 – Establishment of PNM Ventures by Permodalan Nasional Madani 2004 – Pertamina Venture established by Pertamina 4 SME and Financing

  5. Background: Statistics on Business in Indonesia Large / Conglomeration: • Net Asset > Rp10 bio • Annual Sales > Rp 50bio Medium Enterprise Total 41,133 unit (0,08%) • Net Asset >Rp500mio to Rp10bio • Annual Sales >Rp2.5bio to Rp50bio Small Enterprise • Net Asset >Rp50mio to Rp500mio • Annual Sales >Rp300mio to Rp2.5bio Micro Enterprise : Kreteria sesuai UU No. 20/2008 ttg UMKM Source: Ministryof SMEs and Cooperatives 5 Total 4,677 unit (0,01%) Total 546,675 unit (1,04%) Net Asset up to Rp50mio • Total 52,176,795 unit (98,88%) • Annual Sales up to Rp300mio SME is the largest practitioners of Business in Indonesia SMEs account for 52.8million or ~ 99.99% of total businesses (2009) SME and Financing

  6. Market Positioning for SMEs Amount Of Financing Level of Independence Stock Exchange Banks More Professional Larger Amount Feasible but non Bankable Venture Capitals Rural Banks Cooperatives Equity 6 SME and Financing

  7. Regulations of Venture Capital in Indonesia 1988 – The Legal status of Venture Capital Company (VCC) was confirmed in Deregulation Policy Package 1988 through the issuance of Presidential Decree 61/88 regarding Financing Institution 1995 – Provisions of the implementations of financing institutions is contained through the issuance of the Decree of The Minister of Finance (KMK) No. 1251/KMK.13/1988, on provisions and procedures for Financing Institutions. Amended through KMK No.468/KMK.017/1995 1999 – Based on the Decree KMK No.58/KMK.017/1999 on the supervision of PVCC, the guidance and supervision of PVCC activities is carried out by the Ministry of Finance, conducted by Bapepam-LK and assisted by BAV 2009 – Through the issuance of Presidential Decree (KepPres) No.9 Tahun 2009 regarding Financing Institution PVCC is defined as a business entity that conducts business financing / equity investment into a company / entity that receives financing assistance for a certain period in the form of: equity investments, investments through the purchase of convertible bonds and / or financing based on the profit-sharing scheme 7 SME and Financing

  8. Regulations of Venture Capital in Indonesia PMV industry in Indonesia is still undeveloped, and still having a small portion of the national financing industry – based on a study done in 2005, the industry accounts for less than 0.1% of total assets of financial institutions in Indonesia The relation with the capital market is also very limited. None of the VC partnering companies is listed in the Indonesia Stock Exchange VC companies in Indonesia are not allowed to collect funds from the public and are also not allowed to issue bonds, thus funds allocation is highly dependent to the shareholder or other third party loans  Companies in Indonesia are also very rare to give a pure equity financing. Most of the financing are in the form of profit-sharing (80%) or convertible bonds (19%). This is due to non-matching funding sources as well as internal resistance on the investee (target) company Excluding joint ventures, the majority of VCCs in Indonesia are owned by the Government (i.e. BAV and its PVCCs affiliates) or large national companies (i.e. Astra and Pertamina) The majority of VCCs conduct financing to their investees at the expansion stage not start-up stage to reduce risk on the back of funds mismatch 8 SME and Financing

  9. Venture Capital Industry Progress in Indonesia 9 • * Based on semester I 2010 data • Source: Bapepam-LK 2010 Annual Report SME and Financing

  10. PT. Bahana Artha Ventura Background and highlights SME and Financing

  11. Bahana Group PT Bahana Artha Ventura (BAV) carries on the original work of PT. Bahana Pembinaan Usaha Indonesia (BPUI) The mandate is to support the development of micro, small and medium-sized enterprises (SMEs) by providing seed capital, funding and management support without diminishing the quality of healthy business practices 11 Govt Indonesia Securities SME Financing Fund Management SME and Financing

  12. Bahana Artha Ventura – Company Highlights PT Bahana Artha Ventura (BAV) has been commended as the pioneer in the development of SMEs Wide network of 27 affiliated companies in 26 provinces An established pool of trained human resources An integrated and comprehensive administration and financial systems Servicing SMEs that are feasible – business-wise, though not yet ‘bankable’ based on the banking sector requirements Has financed ~ 37,000 SME partners with a cumulative funding of ~ Rp. 5.6 trillion (approximately USD 650million) 12 In recent years, BAV and its affiliates – the Provincial Venture Capital Companies (PVVCs) – have been at the forefront in efforts to accelerate the development of SMEs. Through the provisions of venture capital and other forms of development financing as well as the deployment of various development programs (training, workshop), client firms have experienced business expansion SME and Financing

  13. Vision and Mission Vision The leading venture capital Company in Indonesia in developing SMEs and Cooperatives Mission To develop and enable SMEs and Cooperatives through the creation of professionally-managed entrepreneurs to compete in the global market To continuously expand the number of SME partners being funded and maintaining sound business practices To continuously improve the quality of the investment portfolio to provide a respectable return for the stakeholders 13 SME and Financing

  14. BAV Network Through its affiliates in 26 provinces, BAV has a wide span of network across the archipelago 14 SME and Financing

  15. Financing Flow 15 Funding Sources from: Government, Bank/Non Bank FI, Equity BAV Supporting Institutions Assistances Supervision Equity Loan 27 PVCCs in 26 provinces Assistances Supervision Equity Loan Micro, Small, Medium Enterprises Revitalization of Indonesian Economy through the Acceleration of the Development of SME businesses SME and Financing

  16. SME Financing – Track Record Accumulated SME 16 SME and Financing

  17. Business Sectors 17 SMALL & HOME INDUSTRIES AGRICULTURE TRADING & SERVICES • Support Government program to strengthen agriculture industries and to develop sectors related to energy alternatives • Provide financial and management support to group of farmers as well as cooperatives throughout the country • Support micro, small and medium industries to enlarge job opportunities • Finance agriculture supporting industries so they will be able to create added values and thus upgrading their economic conditions • Support SMEs in export-oriented industries, such as crafts, natural resources, etc. • Strengthen financial and management support to centers of traditional economic activities • Support SMEs in service industries that could create added values • Finance those in trading and service sectors that have potential to serve global market. SME and Financing

  18. Investment – by Scale 18 SME and Financing

  19. Challenges Going Forward 19 Matching SME needs SME and Financing

  20. Recommendations for Indonesia’s Venture Capital (World Bank Study 2006) VC Industry needs to be supported by the Government during the early stages of inception The need to make the industry more attractive: Legal aspect on VC Industry needs to be more defined Improving the Divestiture mechanism to create IPO condition that is more favorable for the SME sector Increase the number of sources for VC company (i.e. Pension Funds, VC Equity Funds) Improving the attractiveness to join / enter the VC industry (i.e. registration, improve the legal structure) Separation of the operation side and the management side of VC funds (create trust vehicles) Further education / socialisation to local entrepreneurs on the existence of VC 20 • Source: Worldbank Study “What Can We Learn from Other Countries: VC/PE” by P.S. Srinivas, 2006 SME and Financing

  21. Contacts 21 PT. BahanaArtha Ventura GrahaNiaga 20th Floor Jl. JendralSudirmanKav. 58 Jakarta 12190 – Indonesia Phone : +6221 250 5270 Fax : +6221 250 5271 +6221 250 5275 SME and Financing

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