The financing business has grown fast in the country in the past three years despite a slow down slightly in 2009. The sluggish growth in 2009 followed the global financial crisis. The Indonesian Association of Financing Firm (APPI) said the industry has expanded 17.4% annually in the past five years.
The expansion of multi-finance industry is attributable to improved economic condition of the country. The cut in benchmark interest rate of Bank Indonesia (BI Rate) to a record low of 6.5%, which has been maintained since end of multi-finance industry. The expansion has been driven by leasing and consumer finance (credits for the purchases of cars and motorcycles), which account for 95% of the total value of non banking financing business in the country.
Consumer finance and leasing strongly dominated financing industry in the country until 2009. The industry has become part of the motorcycles driving sales of cars, motorcycles and heavy equipment. Almost 80% of the purchases of automotive products are finance with credits largely provided by multi-finance companies. APPI estimated credits for the purchases of brand new cars and motorcycles could reach Rp110 trillion in 2010. The value of transactions with factoring and credit cards are not yet popular in the country.
Based on data from Bank Indonesia (BI) in 2009, the total value of financing reached Rp137.2 trillion or an increase of 4.3% from the previous year's figure of Rp131.6 trillion. Consumer finance made up Rp90.3 trillion or 65.78% of the total financing with leasing contributing 31.67% or Rp43.3 trillion. The expansion of multi-finance business followed the country's economic development, which has been driven mainly by the consumption sector. The assets of multi-finance industry grew fast to reach a total value of Rp174 trillion in 2009 - up from Rp168.4 trillion, in 2008 or an increase of 3.3% in a year.
However, from 2009 to mid 2010, the operating licenses of a number of multi-finance companies had been revoked by the finance ministry over violation of regulation and failure to meet requirements. The companies include PT. Tridana Pratama Finance, PT. Primarindo Finance Corp, PT. Inti Karya Megah Finance, PT. Grand Pacific Tamara, PT. Artha Sedaya Finance, PT. Primadana Putra Finance, PT. Mandiri Intifinance, etc. On the other hand a number of new companies have secured license such as PT Anugerah Buana Central Multifinance, PT Hitachi Construction Machinery Finance Indonesia, etc.
Multi-finance Products and Services
Multi-finance Industry in Indonesia is under the supervision of the Bureau of Financing and Guarantee of the Capital Market and Financial Institution Supervision (Bapepam LK), of the finance ministry.
Multi-finance financing include includes leasing, factoring), consumer financing and credit card financing.
Leasing is used by the lessees for a certain period with payments regularly and periodically. After the period is over the lessee could buy the goods or extend the leasing period based on the remaining value agreed by both sides.
Under the financing system of factoring one party takes over short term debts or claims of a company made in trade transactions.
Consumer financing (consumer credits)
Consumer financing is credit for the procurement of goods or services to be repaid by installments in a certain period.
Credit card financing
Credit card financing is a system of financing procurement of goods or service using credit card.
Development of multi-finance companies
Number of companies
The number of multi-finance companies decline din 2007 when a number of them were suspended for failure to meet requirements such as minimum capital and failure in publishing financial reports.
In addition to suspension of companies, the decline in the number of multi-finance companies also was caused by mergers among some of them, change in core business and bankruptcy. Small multi-finance could not survive because of the sharp competition in this sector.
The capital market and financial institution watchdog has tighten the regulation on licensing procedure for multi-finance business. Based on the regulation of the finance minister (PMK) No. 84/ 2006 on Financing Firms, paid up capital or basic saving that has to be paid by a multi-finance company is at least Rp100 billion to prevent the license from being sold as a trade commodity.
However, the number of financing companies declined. From January to August 2009, Bapepam-LK revoked the license of 10 financing companies. The number was reduced from 217 companies in 2007 to 212 in August 2009 and by the end of that year the number shrank further to 198 because of the revocation of license.
In the first half of 2010, around 10 more companies were revoked their license for violation of regulation. There were, however, six new companies licensed. The number of multi-finance companies operating until the end of the first half of 2010 was 194 companies.
Table - 1
Number of multi-finance companies, 2006 - 2010
Multi-finance based on type of business
Around 54.6% 106 of the multi-finance companies are consumer financers. Leasing companies make up 63 companies or 32.5% and factoring companies 23 units (11.9%).
Credit card business has not grown as expected. There are only two credit card companies as companies operating in credit card service have to compete sharply against banks, which dominate the business in the country. Based on data at BI, there are 21 banks including state, private and foreign banks issuing credit cards in the country.
Table - 2
Types of multi-finance company, 2010
There are three multi-finance companies having three core businesses such as Buana Finance, which offers leasing, consumer financing and factoring financing services.
Among major multi-finance companies are PT. Federal International Finance and PT. Adira Dinamika Multifinance.
Revocation of licenses of companies
In 2009 through mid 2010, the finance ministry cracked down on multi-finance companies failing to comply with the regulation of the finance minister No. 84/2006 on financing business. Their operations were suspended and finally their licenses were revoked.
The expansion of the consumption sector has encouraged the establishment of new multi-finance companies. After the government offered new operating license in 2006, many new companies have emerged. However, many of the new companies failed to effectively operate.
In 2009, the government cancelled the license of a number of companies including PT Tridana Pratama Finance, PT Primarindo Finance Corporation, PT Inti Karya Megah Finance, PT Sahabat Multifinance, PT Grand Pacific Tamara, and PT Duta Kirana Finance Tbk.
In the first half of 2010, the finance ministry revoked the license of more companies including PT Artha Sedaya Finance, PT Mandiri Intifinance, and PT Primadana Putra Finance for failure to comply with the regulation.
The operating license of PT Mandiri Intifinance was canceled on 19 January 2010 as it changed its business line. On January 28, 2010, the license of PT. Artha Sedaya Finance was revoked as it was merged with another multi-finance company.
In March 2010, the license of PT Primadana Putra Finance was cancelled after being suspended on 25 November 2009. In April 2010, the license of PT Hana Risjad Finance was revoked, followed with the revocation of the license of PT Sarijaya Multidana on 7 June 2010. The license of PT SMBC Indonesia Finance was also revoked on 7 June 2010.
The revocation of the licenses of PT Ometraco Multiartha (formerly PT Lestari Aneka Finance) PT Alindo Internusa Finance and PT Perdana Cipta Finance followed in the same month.
The companies have their licenses revoked for violation of regulation such as offering credits more than 40% of their assets and they failed to submit audited financial reports. Some of them have no clear addresses and some changed their license of business.
The imposition of the ministerial regulation PMK No. 84/ 2006 resulted in the closure of a number of companies for failing to meet the new minimum capital requirement. A multi-finance company with the status of limited company (PT) , is required to have a paid up capital of Rp100 billion and the minimum paid up capital for a cooperative is Rp50 billion.
Adjustment has to be made in capital if there is change in the shareholders. The new regulation is apparently discouraged new investors in the business sector as there are not many proposals submitted for new license. Under the previous regulation, the minimum capital was set only at Rp10 billion for a PT and Rp 5 billion for a cooperative.
In addition to the equity capital of a multi-finance company is set at least 50% of the paid up capital.
Table - 3
Multi-finance companies having problems, 2009 - 2010
Meanwhile, the regulator has also issued new licenses also. In 2009, a new license was issued for two companies PT Hitachi Construction Machinery Finance Indonesia in January and PT Anugerah Buana Central Multi-finance in September 2009.
In the first half of 2010, new licenses were issued for four companies PT Jasra International Multi-finance, PT Sarana Global Finance Indonesia, PT PPA Finance, and PT SMFL Leasing Indonesia.
So far in the second half of 2010, there were two companies licensed PT Central Sentosa Finance, which is owned by PT BCA Finance and PT IBJ Verena Finance, which is a joint venture between PT Verena Oto Finance Tbk and IBJ Leasing Co Ltd.
Table - 4
New licensees among multi-finance companies, 2009 - 2010
Multi-finance companies by status
Most or 150 of the multi-finance companies are Indonesian private companies and 47 other are foreign joint venture companies with only one state company - PT. PANN Multi-finance.
Joint venture companies are financially powerful with support from their principals such as Japanese principals.
Table - 5
Multi-finance companies by status, 2010
Ownership of multi-finance companies
The status of the owners of multi-finance companies include banks, affiliate in a company group, auto brand holding sole agent (ATPM) and foreign principals operating in financial services. Those affiliated to banks or car producers or ATPM are generally more powerful.
Many auto ATPMs seek to team up with financing firms even established their multi-finance company to help boost their sales. The Astra Group, which is the ATPM for Toyota, Daihatsu and Isuzu cars and Honda motorcycles , has Astra Sedaya Finance, Toyota Astra Finance offering financing service for the purchases of cars and Federal International Finance which offers credits for the purchases of motorcycles).
The Indomobil Group has financing firms - Indomobil Finance Indonesia for car purchases and Suzuki Finance Indonesia financing the purchases of Suzuki motorcycles.
Table - 6
Owners of multi-finance companies
Banks have the largest number of multi-finance companies. Bank Panin has the largest number of three multi-finance subsidiaries Clipan Finance, DKB Panin Finance and Verena Oto Finance.
Table - 7
Multi-finance companies and ownership
Big players in consumer financing
Consumer financing service has been dominated by credits for the purchases of car and motorcycles. There are credits for the purchases of household electronic goods such as TV sets, refrigerators, AC, washing machines, and DVD players.
Among big players in consumer financing business is:
Federal International Finance (FIF) - established in 1989 with the name of PT. Mitrapusaka Artha Finance. In 1991, it was renamed PT. Federal International Finance (FIF). It is controlled by PT. Astra International of the Astra Group. FIF offers credits for the purchases of Honda motorcycles, which are produced by PT. Astra Honda Motorcycles, a subsidiary of the Astra Group. Later FIF expanded its operation to offering credits for the purchases of household electronic products through FIF Spektra and sharia financing through FIF Syariah. FIF has financial support from Bank Permata, which is also a subsidiary the Astra Group.
Astra Sedaya Finance (ASF) - established in 1982 with the name of PT. Rahardja Sedaya. Its named was changed with Astra Sedaya Finance after it was taken over by Astra International, the holding of the Astra Group in 1992. ASF became an investment holding for a number of subsidiaries including Astra Auto Finance, Estetika Sedaya Finance, Stacomitra Sedaya Finance and Swadharma Bhakti Sedaya Finance. The financing companies are all under Astra Credit Company (ACC) which offer credits for the purchases of cars produced or assembled by the Astra Group including Toyota, Daihatsu, Isuzu, BMW, Peugeot and Nissan Diesel trucks.
ASF plans to issue bonds valued at Rp1.5 trillion in 2011 to strengthen its financing capacity. In February, the company already issued bond valued at Rp 1.5 trillion. In 2010, ASF hopes to extend Rp 18.5 trillion in credits for the motor vehicle financing.
General Electric Capital Corporation has sold its 47% stake in ASF to PT. Astra Internasional Tbk (ASH). With the deal PT. Astra International, which previously owned 53% of ASF, became the sole owner of ASF. The purchase of the entire shares of GE Finance Indonesia from General Electric Capital International Holdings Corporation by Bank Permata Tbk, which is a subsidiary of Astra International, also took place in September 2010. The take over of the entire shares of GE is to speed up expansion of ASF.
Bussan Auto Finance (BAF) started operation in 1997. Originally the company was named Danamon Mitsui Otomotif Finance, with PT. Danamon Sanggrahan and Mitsui Co Ltd of Japan as the shareholders. In 1998, Danamon quit as a shareholder and later the name of the company was changed with Bussan Auto Finance. Currently the company is 75% owned by Mitsui Corp, 15% by PT. Mitsui Indonesia, 7% by Yamaha Motorcycles Co. Ltd and 3% by PT. Yamaha Motorcycles Kencana Indonesia. ...