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Finance
Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
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Finance
Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
With fintech paving the way forward, traditional banking followed suit by revolutionizing its services. From 2022 to 2023, the banking industry’s fund distribution increased by 6.28 percent, source of funds increased by 6.33 percent, and total assets in the industry grew by 6.98 percent, reaching a total of US$8.22 trillion. Moreover, even regional banks have been benefitting from this wave of innovation. For the same period from 2022 to 2023, the regional banking sector saw a 7.67 percent in distributed funds, an 8.08 percent increase in source of funds, and a 7.52 percent increase in total assets, reaching a total of US$137.96 billion.
Innovations in Indonesia’s finance sector extend beyond financial services. On September 2023, the Indonesian monetary authority, Bank Indonesia (BI), introduced three pro-market monetary instruments that function as short-term fixed income securities with high coupon rates. The three instruments, SRBI, SUVBI, and SUVBI, were able to collect Rp 409 trillion (US$25.2 billion), US$2.31 billion, and US$387 million, respectively.
Particularly in the case of the SRBI, this instrument represented an innovative way to attract capital flow from abroad during a period of high credit costs and slow investment. Approximately 20.77 percent, or Rp 85.02 trillion (US$ 5.26 billion), of the total outstanding SRBI were owned by non-Indonesian residents, underscoring the SRBI’s success as a monetary instrument.
Even when compared to other countries in the same region, the Indonesian finance sector stands out for its stability against fluctuations. Throughout 2023, the global cost of credit was high due to hawkish Fed policies made to curb US inflation, resulting in a stagnation of capital flow on a global scale. Entering the second quarter of 2024, the composite index of many Southeast Asian countries such as Singapore and Thailand recorded price decreases compared to the same period last year, reaching -3.96 percent and -13.9 percent on the Straits Times Index (STI) and the Bangkok SET index, respectively. Meanwhile, the Jakarta Stock Exchange Composite Index (JKSE) recorded a price increase of 5.18 percent for the same one-year period.
In summary, the Indonesian financial sector stands out for its stability and consistency, maintaining growth through innovation even during periods of austerity or global uncertainty. This consistency is also reflected in its GDP, which grew by 7.4 percent from 2022 to 2023, contributing roughly 4.16 percent to the national GDP in 2023.
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The plan to finance President Prabowo Subianto’s flagship Red and White Village Cooperatives (KDMP) program remains controversial, as the burden is set to fall on state-owned banks and the Village Fund. The Finance Ministry has stipulated that state-owned banks, supported by government liquidity, will finance the establishment of KDMP units, while the Village Fund will be used for repayment. Without strong governance, the program risks repeating the failures of the New Order regime’s Village Unit Cooperatives (KUD).
The legal foundation for extensive state financial support to KDMP was laid out in Presidential Instruction (Inpres) No. 17/2025. The regulation authorizes the Finance Ministry to utilize the General Allocation Fund (DAU), Revenue-Sharing Fund (DBH) and the Village Fund to repay loans for constructing and equipping KDMP units. The ministry is also instructed to place funds in state-owned banks (Himbara) to finance PT Agrinas Pangan Nusantara, which is responsible for construction, with loans of up to Rp 3 billion (US$177,310) per unit and six-year maturity.
Financing for KDMP has effectively become highly dependent on the Village Fund, as stipulated in Finance Ministry Regulation (PMK) No. 7/2026. According to Article 7, of the total Village Fund allocation of Rp 60.57 trillion in the state budget, Rp 59.57 trillion is distributed based on existing formulas, while Rp 1 trillion is reserved for incentives for priority villages and KDMP support. Notably, Article 15 mandates that 58.03 percent of the formula-based allocation, equivalent to Rp 34.57 trillion, be directed toward supporting KDMP units. This leaves only around Rp 25 trillion to be directly distributed to and managed by more than 75,000 villages, or roughly Rp 300 million per village.
The Finance Ministry has clarified that loan repayments to Himbara banks for Red and White Subdistrict Cooperatives (KKMP) will be funded through DAU and DBH transfers to local administrations. It also emphasized that KDMP buildings and equipment will be legally owned by villages. To compensate for the reallocation of Village Fund resources, Inpres No. 17/2025 mandates that 20 percent of each cooperative’s profits (SHU) be distributed to the village for development purposes.
Meanwhile, Agrinas Pangan revealed that, of the Rp 200 trillion financing it secured from Himbara banks, around Rp 90 trillion has been spent. The funds have been used to construct 30,712 KMP cooperative stalls, although only 1,357 were operational as of Feb. 24. The company has also imported 105,000 pickup and six-wheel trucks from India.
The Finance Ministry has assured that the mass import of trucks, valued at Rp 24.66 trillion, will not add to the 2026 state budget deficit. Instead, it will manage repayment of Agrinas Pangan’s debt to Himbara banks through annual installments of Rp 40 trillion over six years, in line with the original financing scheme. A significant portion of this repayment is expected to rely on the Village Fund, alongside continued budgetary support for the KMP program.
Criticism over the truck imports has prompted Agrinas Pangan to state that it would comply with any directive from the government or the House of Representatives to cancel the orders. However, the company has already paid Rp 7.39 trillion in down payments for 1,000 trucks that have arrived in Indonesia.
Separately, the government has introduced supporting measures to strengthen KDMP’s viability. The Villages and Regional Development Ministry has proposed halting the issuance of new mini-market permits to support village-based enterprises, including KDMP units. In parallel, the Coordinating Food Ministry plans to position KMP cooperatives as distribution agents for subsidized fertilizers, LPG cylinders and branchless banking services, aiming to eliminate middlemen and informal lenders.
However, such extensive top-down support risks replicating the shortcomings of the New Order regime’s KUD program. KUD units failed to achieve genuine business autonomy and became heavily dependent on government support. Many collapsed after support was withdrawn under Inpres No. 18/1998. Their close ties to state programs also contributed to widespread governance issues, including corruption. A key improvement in the KDMP design is that assets are legally owned by villages rather than managers, addressing a major flaw in the KUD model, where asset ownership by individuals enabled capture by managers and their families and contributed significantly to mismanagement.
The reliance on the Village Fund to repay bank loans further risks undermining KMP cooperatives’ financial discipline from the outset. Combined with extensive state backing, including the potential creation of local monopolies, this could entrench long-term dependence on government support. Amid rising fiscal pressures, the government should consider limiting the program to currently completed units, while prioritizing efforts to gradually reduce state dependence by fostering partnerships with local entrepreneurs and community-based enterprises.
