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Development of multifinance industry in Indonesia.

Current Issue

The country's multifinance industry has grown fast over the past years. The market of the industry, however, is dominated by consumer finance industry (financing the purchases of cars and motorcycles cycles). Consumer finance accounts for 90% of the total market value of multifinance industry. Factoring, is not yet popular in the country having a small share of the multifinance market.

Based on data from Bank Indonesia (BI) in 2013 total value of financing reached Rp 348 trillion or an increase of 14.9% from Rp302.8 trillion in the previous year. Consumer finance alone accounted for 64% or Rp 222.7 trillion and leasing for 34.1% or Rp 118.7 trillion of the total value of the multifinance market in 2013. Expansion of multifinance industry followed the trend of the country's economic growth, which is driven mainly by the consumption sector. The assets of multifinance industry has grown rapidly. The total assets of multifinance industry was recorded at Rp 398.9 trillion by the end of 2013, up 16.7% from Rp 341.8 trillion a year earlier.

Currently, financing business contributes greatly to sales of automotive products and heavy equipment in the country. Almost 90% of purchase of automotive products are financed with credit. In 2014, car sales are predicted to reach 1.25 million units and motorcycles cycle sales 7.7 million units. According to the Indonesian Association of Finance companies (APPI) new car and motorcycle purchases with credits in 2014 are predicted to reach Rp 240 trillion in value.

Meanwhile, the Financial Service Authority (OJK) has cancelled and suspended the licenses of a number of multifinance companies in the past two years for violation of regulations and for failing to meet the requirements. Among the companies were PT Patra Multifinance, PT Metro Finance, PT Semesta Citra Dana, PT Siantar Top Multifinance, PT Cahyagold Prasetya Finance, PT Tata Internasional Multifinance and PT Diamon Jaya Multifinance. In 2013 a number of new companies were licensed including PT Takari Kokoh Sejahtera, PT Indonesia Internasional Finance and PT Karunia Multi Finance.

Multifinance Products and Services

Multifinance industry in Indonesia is under the supervision of the OJK.

Multifinance industry includes leasing, factoring and consumer finance.

Leasing

Leasing business involves financing companies offering capital goods to lessee that will use and will pay for the goods in a certain period. At the end of the period, the lessee could buy the goods or extend the leasing contract for the goods based on the remaining value of the goods. Agreed upon by the lessor and the lessee

Factoring

Factoring companies offer to buy or take over short term claims of other companies from domestic or international trade under a certain price.

Consumer finance (consumer credits)

Consumer finance companies offer to finance the procurement or purchases of consumer goods to be repaid by installments.

Development of Multifinance Companies

Number of companies

The number of multifinance companies declined sharply since 2007 after the government suspended many of them for failing to meet their obligations such as in minimum capital requirement and in submitting financial report regularly.

In addition, there were a number of multifinance companies have been combined in business merger, and some have changed business and there were also some which have been out of business or bankrupt. Financially small companies are in difficulty in seeking financial support from banks as banks were not easily to offer funds for less competitive companies.

Currently the government is more selective in issuing multifinance business license Based on the regulation of the finance minister No. 84/ 2006 on Finance companies, a multifinance company is required to have at least Rp100 billion in paid up capital. The regulation is aimed at preventing trade in business license in the financing service industry.

Currently, there are 202 multifinance companies operating in the country based on record by May, 2014.

Multifinance Industry by Lines of Business

Multifinance industry is dominated by consumer finance with 112 companies or 55.4% of the total number of companies operating in multifinance industry. The second largest number is leasing company with 66 companies (32.7%), followed by factoring totaling 24 companies (11.9%).

Among the multifinance companies, there are three companies operating in more than two business sectors, some of them in three sectors such as Buana Finance, which offer leasing, consumer finance and factoring services.

Among big multifinance companies are PT. Federal International Finance, and PT. Adira Dinamika Multifinance.

Revocation of License of a Number of Companies

Since 2009, the finance ministry has been selective in licensing multifinance companies. A number of finance companies failing to comply with the regulation of the Finance Minister No. 84/2006 on financing business, have their license suspended or revoked.

With the implementation of the ministerial regulation, many finance companies have been closed mainly on failure to meet the minimum capital requirement. Multifinance companies with the legal status of Limited Corporation (PT), are required to have a paid up capital of Rp100 billion. The paid up capital is Rp50 billion for one in the status of cooperative.

The capital has to be readjusted in the event of change in the shareholders. The requirement is obviously too difficult for investors that there are not many new investors interested in the business. Previously the minimum capital requirement was only Rp10 billion for PT and Rp5 billion for a cooperative.

Second, in addition to ministerial license, a multifinance company also need to have an equity capital of more than 50% of the paid up capital.

Interest, however, remains strong in multifinance business with the improvement in the country's economic condition driven mainly by the consumption sector.

Many new finance companies have come on line. After ban on license for new companies was lifted in 2006, the number of multifinance companies has increased. However, many of the newly licensed companies failed to start operation immediately.

In 2012, among the finance companies having their license revoked included PT Patra Multifinance, PT Metro Finance and PT Semesta Citra Dana. The main reasons is failure to meet the minimum capital requirement.

In 2013 through the middle of 2014, the Financial Service Authority (OJK) cancelled the business license of a number of finance companies including PT Cahyagold Prasetya Finance, PT Tata Internasional Multifinance, PT Siantar Top Multifinance and PT Diamon Jaya Multifinance.

By the end of April, 2014, PT Siantar Top Multi Finance which started operation in 2002, was banned from resuming its business in the financial sector under a decision of the OJK No. KEP-24/D.05/2014 per 25 March 2014.

PT Siantar Top Multi Finance, therefore, changed its business line with a new name PT Siantar Top Anugerah Sejahtera.

New License

While revoking license, the regulator also offers and issues new license. In 2013, there were additional license issued by the regulator, including for PT Takari Kokoh Sejahtera, PT Indonesia Internasional Finance and PT Karunia Multi Finance.

PT Takari Kokoh Sejahtera proposed for new license on 8 April 2013, and PT Indonesia International Finance submitted a similar proposal on 1 October 2012.

PT Takari Kokoh Sejahtera is an affiliate of Mitsubishi UFJ Lease & Finance, a multifinance company.

Multifinance Companies By Status

Indonesian private companies make up most or 77.3% or 156 of the total number of multifinance companies operating in the country with joint venture companies with foreign investors making up 22.2% or 45 companies. One of owned by the state--PT. PANN Multifinance.

With financially powerful principals abroad, joint venture companies have less problem financially to support their operations in the country. Among the joint venture companies have powerful principals in Japan such as PT. Mitsubishi UFJ Lease & Finance and PT. Toyota Astra Finance.

Owners of Multifinance Companies

Most of the multifinance companies are owned by banks, company groups, brand holding sole agent (ATPM) in automotive sector and foreign principals. Powerful finance companies are all affiliated to banks or car makers and ATPM.

ATPM companies cooperate with finance companies to expand distribution and sales of their automotive products. A number of ATPMs have even established their own multifinance companies. The Astra Group, the country's largest automotive company group, as a group of ATPMs for Toyota, Daihatsu and Isuzu cars and Honda motorcycles, has established Astra Sedaya Finance, Toyota Astra Finance for car financing, and Federal International Finance for motorcycle financing.

The Indomobil Group also has its own finance companies--Indomobil Finance Indonesia for car financing and Suzuki Finance Indonesia for motorcycle financing.

Banks have the largest number of multifinance companies. Among the banks is Bank Panin having three multifinance subsidiaries including Clipan Finance, DKB Panin Finance and Verena Oto Finance.

Main players

Big players in consumer finance

Consumer finance companies offer to finance the purchases of consumer goods such as cars and motorcycles, electronic goods including TV sets, refrigerators, air conditioners, washing machines, computer set, etc..

Federal International Finance (FIF)

This company was established in 1989 with the name of PT. Mitrapusaka Artha Finance. In 1991 the name of the company was changed with PT. Federal International Finance (FIF). Its majority shares are held by PT. Astra International of the Astra Group. FIF offers to finance the procurement of motorcycles with its product of FIF uMc specially financiang the purchases of Honda motorcycles of PT. Astra Honda Motorcycles, which is a subsidiary of the Astra Group. FIF expanded its business operation to financing electronics goods through FIF Spektra and sharia financing through FIF Syariah. FIF is financially supported by Bank Permata, which is also a subsidiary of the Astra Group.

In early 2014, FIF has an offer for syndicated loan Rp 8 trillion from 19 banks with lead arranger The Hong Kong & Shanghai Banking Corporation (HSBC). FIF, however, has not decided whether to accept the offer or not. The fund is to be used for business expansion.

In early 2013, FIF already received a syndicated loan of US$400 million from foreign financers.

Astra Sedaya Finance (ASF)

This company was established in 1982 with the name of PT. Rahardja Sedaya. After being taken over by Astra International, the holding company of the Astra Group in 1992, the name of the company was changed with Astra Sedaya Finance. ASF became holding companies for a number of subsidiaries including Astra Auto Finance, Estetika Sedaya Finance, Stacomitra Sedaya Finance and Swadharma Bhakti Sedaya Finance. The group of the companies is known as Astra Credit Company (ACC) offering to finance the purchases of cars produced by the Astra Group including Toyota, Daihatsu, Isuzu, BMW, Peugeot and Nissan Diesel trucks.

Meanwhile, around 47% stake of General Electric Capital Corporation in ASF was sold to PT. Astra Internasional Tbk. With the takeover PT. Astra International, previously a 53% shareholder, became the sole owner of ASF. In September 2010, Bank Permata took over the entire stake of General Electric Capital International Holdings Corporation in GE Finance Indonesia. The deal contributes to expansion of ASF business.

Bussan Auto Finance (BAF)

BAF started operation in 1997. It was originally named Danamon Mitsui Automotive Finance, with shareholders PT. Danamon Sanggrahan and Mitsui Co Ltd of Japan. In 1998, Danamon quit as a shareholder and at the same time the name of the company was changed with Bussan Auto Finance. Currently its shareholders include Mitsui Corp of Japan as a 75% owner, PT. Mitsui Indonesia (15%), Yamaha Motorcycles Co. Ltd (7%) and PT. Yamaha Motorcycles Kencana Indonesia (3%). BAF offers to finance the purchases of Yamaha motorcycles.

Oto Multiartha

This company was established in 1994 with the name of Manunggal Multi Finance. In 1995, its name was Oto Multiartha. In 1996 Sumitomo Corp of Japan took over the majority shares of the company. Oto offers to finance the purchases of cars. Its sister company, Summit Oto Finance, offers financing for the purchases of motorcycles.

Wahana Otomitra Multiartha (WOM)

WOM was established in 1982 with the name of PT. Jakarta Tokyo Leasing by PT. Fuji Semeru Leasing. In 1997, the company was 50.03% acquired by Bank International Indonesia (BII) and its name was changed with Wahana Otomitra Multiartha.

WOM offers to finance the purchases of motorcycles including Honda, Yamaha and Suzuki, which dominate the motorcycle market in the country.

PT. Adira Dinamika Finance (ADF)

ADF was established in 1990. Currently it is 95% owned by Bank Danamon Indonesia Tbk, 0.4% by PT. Asuransi Adira Dinamika and 4.6% by investing public.

ADF hoped to receive a loan of US$ 200 million from abroad in April 2014 to increase its financing capacity. It also plans to issue bonds of Phase III and Phase IV valued at Rp4 trillion. The bonds are to be issued in the first and second semesters of 2014 each valued at Rp2 trillion.

Main Players In Leasing Business

Leasing companies generally offer the financing service to heavy equipment like tractors, loaders, excavators, etc. and capital goods such as factory machines, etc.

Currently leasing business is growing with the expansion of mining industry and construction sector and boost business in heavy equipment rental.

PT. Central Java Power (CJP) is a subsidiary of PT. PLN. In May 2003 CJP and PLN continued construction of the steam powered electric plant (PLTU) of Tanjung Jati B valued at US$ 1.65 billion after long been left idle. The PLTU, which is located in Jepara, Central Java, has a capacity of 2 x 660 MW.

In 2006 CJP as the lessor handed over the maintenance, power generation and sales of power to PLN as the lessee. The leasing scheme is for 20 years.

In 2012 the 4th units of PLTU of Tanjung Jati B in Jepara, Central Java was commissioned. The 3rd and 4th units of PLTU of Tanjung Jati B each with a capacity of 660 MW were built on build, lease and transfer (BLT) scheme between PT PLN and PT Central Java Power (Sumitomo Corporation).

Based on the contract the 3rd units of PLTU of Tanjung Jati B came on line in January, 2011 and the 4th unit in January 2012.

Chandra Sakti Utama Leasing (CSUL) was established in the 1990's. CSUL is a subsidiary of the Trakindo Group, in which PT. Trakindo Utama as the holding company. CSUL offers financing service for the purchases of heavy equipment of Caterpillar from the United States with Trakindo as the sole agent in the country. CSUL has branches in Medan, North Sumatra and Surabaya in East Java.

Orix Indonesia Finance (ORIF) was established in 1975 with the name of PT.Orient Bina Usaha Leasing (OBUL). This company is a joint venture between ORIX Corporation (85%) and Yayasan Kesejahteraan Karyawan Bank Indonesia (15%). ORIF is set to further strengthen its reputation among customers and promote the brand as the best in financial services. ORIF offers financing service for heavy equipment, shipping, office equipment, industrial machines, etc. It also offer the service for the purchases of cars, but is relatively small in proportion.

Main Player In Factoring Financing

Factoring has not grown significantly in the country. Factoring business is much smaller compared to other financing service business in value. There are few companies operating in factoring financing in the country.

The main players in factoring business include Koexim Mandiri Finance and Clemont Finance Indonesia Corp.

Performance of Multifinance Industry

The assets of multifinance industry has increased 23.2% per year

In the period of 2009-2013, the total assets of multifinance industry grew rapidly by 23.2% per year. In 2009, the assets of multifinance industry was recorded at Rp174 trillion, up to Rp 398.9 trillion in 2013.

The increase followed the rise in outstanding credits from year to year. Consumer finance contributed the largest to the total value of assets notably with the steady growth in demand for car and motorcycle credits. In 2013, car outstanding credits rose to around Rp120 trillion.

Considerable contribution also came from leasing of heavy equipment which is high in demand especially from the plantation sector mainly in Sumatra and Kalimantan.

Multifinance Companies With Largest Assets

a. Total asset over Rp 1 trillion

Based on the financial report of multifinance companies, there are more than 30 multifinance companies having assets valued more than Rp 1 trillion.

In this group, PT. Central Java Power (CJP) is the largest with assets 9.75% or Rp 38.9 trillion of the total assets of the country's multifinance industry in 2013. Unlike other multifinance companies, CJP is focused only on financing PLTU of Tanjung Jati.

Other multifinance companies offer standard financing service--with leasing, consumer finance, factoring and credit card.

PT. Astra Sedaya Finance (ASF) and PT. Adira Dinamika Multifinance Tbk) are the second and third largest in assets respectively having assets valued at Rp31 trillion and Rp30 trillion, with market shares of 7.8% and 7.7%. ASF is a subsidiary of the Astra Group offering to finance the purchases of cars and motorcycles. ASF, however, offers credits only for the purchases of Astra automotive products including Toyota, Daihatsu, Isuzu, BMW, Peugeot and Nissan Diesel.

FIF which has assets valued at Rp21.1 trillion is also a subsidiary of the Astra Group offering credits for Honda motorcycles.

b. Multifinance companies with assets less than Rp1 trillion

There are around 74 multifinance companies with assests less than Rp1 trillion each. With assets valued at Rp 951.7 billion, PT. Mizuho Balimor Finance is the largest among the group of less than Rp1 trillion with a relatively small share of 0.29% of the total Rp 333.5 trillion assets of the country's multifinance industry. This company offers credits only for consumer finance.

After PT. Mizuho Balimor Finance is PT. Swadharma Indotama Finance with assets valued at Rp947 billion (0.28%), followed by PT. SMFL Leasing Indonesia with assets valued at Rp 939.7 billion (0.28%).

Outstanding Credit Rp 348 Trillion In 2013

A rapid growth has been recorded for multifinance industry in Indonesia notably in consumer finance that has continued to dominate the industry. In the period of 2009-2013 the industry grew 26.5% per year. In 2009, the financing was recorded at Rp137.2 trillion in outstanding credit. The outstanding credits grew strongly in the following years to reach Rp348 trillion by the end of 2013 or an increase of 14.9% from Rp302.05 trillion a year earlier.

The growth was slower in 2013 because of a decline in the leasing and consumer finance sector.

Adira Chalks Up largest Value of financing credit

In 2013, PT Adira Dinamika Multi Finance Tbk (Adira) succeeded in recorded Rp48.3 trillion in credit or a market share of 13.9%. Around 60% of the funds were for motorcycle finance with the rest for car finance. Around one third of the total financing was for second hand automotive products.

Altogether, Adira provided credits for the purchases of 1.9 million units of cars and motorcycles both new and second hand. The credits for motorcycles was dominant but showed no growth. The credits for cars still grew 6% based on the number of units financed.

In the same year, 2013, Federal International Finance (FIF) recorded value of financing at Rp21.5 trillion. FIF had a 6.2% share of multifinance market in the country. FIF finances the purchases of Honda motorcycles.

In 2014, FIF sets financing target at Rp 21.5 trillion the same as in 2013. Most or Rp18 trillion of the credits would be for motorcycles, Rp 2.5 trillion--Rp 3 trillion for electronic goods and household equipment through FIF Spektra, with the rest for cars.

In a bid to strengthen its working capital in April 2014, FIF issued a bond valued at Rp1 trillion. The bond underwriters included PT. Danareksa Sekuritas, PT Khresna Graha Sekurindo, PT. Indo Premier Securities and PT. Mandiri Sekuritas.

Java is the largest market for FIF accounting for 70% of the credits its has disbursed. However, the composition is expected to shift in favor of regions outside Java with the growing purchasing power following improved economy in the outer regions.

BCA Finance, with a total credit of Rp 30 trillion had a market share of 8.6%. BCA Finance offers to finance the purchases of cars both new and second hand.

Astra Sedaya Finance (ASF) followed with a market share of 6.9% valued at Rp 24 trillion in credit. ASF offers credits only for cars of Astra Group including Toyota, Daihatsu, Isuzu, etc.

NPL Low

The non performing loans (NPL) of multifinance companies have remained low and in a safe level despite the rapid growth in assets, according to the Indonesian Association of Finance companies (APPI).

In 2013, the country's economy was under heavy pressure on an increase in the prices of oil fuels (BBM). By June, 2013, the NPL of multifinance industry was recorded at 1.3-1.4% but by the end of 2013, the NPL rose to 1.62%.

Consumer Finance Has The Largest 64% Share Of The Market

In 2013, consumer finance had a 64% share of the multifinance market with financing valued at Rp222.7 trillion or an increase of 13.8% from Rp191.8 trillion in the year earlier.

The domination by the consumer finance in value was attributable to continued increase in demand for motor vehicles. In 2013, car sales peaked at 1.22 million units and sales of motorcycles reached 7.7 million units. The interest rate was also relatively low at 6.55%. More than 80% of the value of consumer finance was for motor vehicles (cars and motorcycles), with the rest for electronic goods.

Leasing companies posted outstanding credit of Rp118.7 trillion with a market share of 34.1%. In the past three years leasing transactions have tended to increase to follow the recovery of the corporate sector. The mining, construction and manufacturing grew fast boosting demand for heavy equipment and machines.

Factoring business had only a market share of Rp6.6 trillion or 1.9%. The business is not yet popular in the country.

In 2014, consumer finance is predicted to grow 9% to Rp242.7 trillion with car sales predicted to reach 1.25 million units and sales of motorcycles are forecast to reach 7.7 million units.

Multifinance Companies Reporting Largest Profit

Based on the financial reports issued by the OJK, in 2013 multifinance industry posted Rp 14.46 trillion in profit. The largest contribution to the profit came from 20 large companies.

Adira Dinamia Multifinance led with a profit of Rp1,695 billion, followed by Federal International Finance with a profit of Rp1,200 billion and Astra Sedaya Finance Rp 1,086 billion.

Performance of Publicly Traded Multifinance Companies

According to data at the Indonesian Stock Exchange (BEI), there are 10 publicly listed multifinance companies including PT Adira Dinamika Multi Finance Tbk, PT BFI Finance Tbk, PT Batavia Prosperindo Finance Tbk, PT Clipan Finance Indonesia Tbk, PT Amstelco Finance Tbk, PT Mandala Finance Tbk, PT Trust Finance Indonesia Tbk, PT Verena Oto Finance Tbk, WOM Finance Tbk and PT Buana Finance Tbk.

A number of the publicly traded multifinance companies are expansive. In 2013, PT Buana Finance Tbk diversified business in consumer finance by offering special housing credit (KPR) in Java. Buana Finance set target for KPR at Rp 100 billion that year .

The company financed KPR with internal fund totaling Rp1.014 trillion by the end of December 2012. The company offered KPR after a decline in its financing business in 2013.

PT Batavia Prosperindo Finance Tbk (BPF) cooperated with Malacca Trust Limited to establish a joint venture company in multifinance industry specially to finance heavy equipment. The joint venture company PT Malacca Trust Finance (MTF) is to be operational in mid 2014. MTF will be focused in financing heavy equipment procurement. BPF will hand over financing of the procurement of heavy equipment to its subsidiary. It will no longer provide financing service for heavy equipment.

MTF will finance the procurement of heavy equipment in the infrastructure, plantation and mining sectors. The portion would be larger for the plantation and infrastructure sectors. In the mining sector MTF would choose financing in nickel and coal sectors.

Interest Rate

The increase in the benchmark interest rate to 7.5% early 2014 put pressure on multifinance industry, as the financial sources of which are mainly banks.

The interest rates on car credits are around 5.49%--5.99 %, and those of motorcycle credits are from 21.5%-23.5% and the interest rates on credits for electronic goods are 1.5%--3.75%.

The interest rates are 16%--18% on leasing and the interest rates on factoring are 11% for dollar transactions and 20%-21% for rupiah transactions.

Marketing Strategy and Competition

Competition among finance companies is in services, interest rates, credit terms, number of dealers, promotion, etc. The services and interest rates have to be competitive, credit term must be flexible and number of dealers must be as many as possible and prizes need to be offered in promotion to attract consumers, etc.

In facing competition, finance companies need to have various strategies such as :

* Improvement of services for customers and potential customers. Multifinance companies offer facilities in installments such as through ATMs, guarantee for the security of certificate of ownership of motor vehicles (BPKB), facility to obtain motor vehicle license (STNK), quick service for customers and dealers.

* Expanding distribution networks

By opening branches as many as possible in large and small cities to be close to and facilitate customers. Most of the customers of finance companies are middle income and low income people.

* Customer relationship

Finance companies have to pay attention to customer relationship. Special prices are offered for old customers seeking new credits..

* Skip installment Package

This is a new breakthrough launched by ACC not yet ever offered by competitors. ACC is the first to offer skip installment package under which consumers are freed from paying installment in certain months such as during Idol Fire, Christmas and new academic years. Progressive installment is a system in which first installments are smaller than normal installment, digressive installment is one under which consumers are to pay less amount of installment every six months to prevent consumers from risks at the end of the installment contract and balloon payment is a system under which early installment is smaller than normal installment and remaining debt would be paid at the final installment. * *

* Customer to customer financing

Astra Credit Company (ACC) has expanded market by adopting the Customer to Customer Financing, which is a financing facility of ACC that helps in buying second hand motor vehicles from some individuals. The documents could be easier secured with approval would be given generally in less than 8 hours. More than 80% of consumers of Astra automotive products use credit from ACC.

Cooperation With Dealers

Multifinance companies need to cooperate with car or motorcycle dealers to guarantee supply of goods to be offered to customers wanting to buy cars or motorcycle with credits.

* Developing networks with banks

In order to facilitate payments of installments by customers, multifinance companies cooperate with banks that customers could make payment through the banks' ATM.

* Reducing interest rate

Multifinance companies would lower their interest rates charged on their customers if bank interest rate is cut lowered. Lower interest rate would draw customers and expand the market.

Competition between multifinance industry and banking industry will put pressure on financing business. Banks lately are more aggressive in expanding their business operation to financing in the car market so far the captive market for multifinance companies. A number of banks have offered cars credits such as Bank Mandiri, Bank BCA and Bank Danamon.

Sources of Fund

Multifinance industry still need capital support from financiers including banks. In the past two years, funds received by multifinance industry has increased 7% per year. In 2012, multifinance industry received a loan of Rp597.8 trillion, up to Rp639.9 trillion in 2013.

Sources of funds for finance companies include banks, non bank loans, bonds, private placement and other sources.

Bank Loans

Loans from local and foreign banks have continued to increase to reach Rp 227.8 trillion in 2013 from Rp211.1 trillion in 2012. Banks account for 35.6% of the total funds from all fund sources in 2013.

In 2013, domestic bank loans totaled Rp136.4 trillion or 21.3% of the total loans used by multifinance companies and foreign loans accounted for 14.3% or Rp91.4 trillion with other loans accounting for the rest.

Joint venture finance companies generally use foreign loans from their principals, financial agencies affiliated in the venture. Foreign joint ventures are the largest users of foreign loans.

Joint Financing

Multifinance companies finance their operation with joint financing or non joint financing. In joint financing a multifinance company has bank partners. Companies operating with non joint financing could strengthen their capital through issuance of bonds or syndicated loans.

Lately, banks are more aggressive in seeking cooperation with multifinance companies in channeling out consumer credits especially in the form of car and motorcycle credits. The cooperation scheme is known as joint financing or channeling. Under the scheme banks channel out their car or motorcycle credit through finance companies. Generally banks provide 90% of the fund with the multifinance company putting up the remaining 10%.

Consumers prefer to deal with multifinance companies than with banks as multifinance companies generally offer simpler procedure. Banks, therefore, need partnership with finance companies. Even currently many banks, especially ones oriented to expansion of consumer credits, seek to acquire multifinance companies. Generally banks are interested in acquiring finance companies having assets between Rp500 billion and Rp1 trillion. Multifinance companies having assets of more than Rp1 trillion would not need bank support as they generally have financially powerful shareholders.

Currently many banks consider it safer to increase consumer credits than corporate credit as there is less risk of non performing loan (NPL). A number of banks such as Bank Mandiri, Bank Danamon and BCA have succeeded in acquiring and expanding multifinance companies.

So far, multifinance companies have cooperated with banks under joint financing on in syndicated loans. BCA Finance finances its operation with 70% of fund needed from its parent company BCA and from Bank Mandiri.

FIF finances its operation with bank fund that makes up 65% of the fund needed under joint financing scheme. The rest would be covered with bond fund or loan. FIF has cooperated with 12 banks including Bank Permata, Bank Mega, Bank Mandiri and NISP. Under joint financing, Bank Permata provided 12% of the fund needed.

A multifinance company could also have joint financing scheme with other multifinance companies. APPI said syndication among finance companies have ever been used by 10 companies, but the scheme is more cost efficient.

Bonds

Funding with bond fund has increased from year to year. In 2013 bonds issued by multifinance companies reached Rp50.1 trillion up 14.6% from Rp43.7 trillion in the previous year.

Some of the multifinance companies have been aggressive in seeking to draw public fund through the sales of bonds. In 2013, a number of multifinance companies issued bonds such as BCA Finance, Adira Dinamika Multi Finace TBk, Astra Sedaya Finance, Artha Prima Finance, and Bima Multi Finace.

In 2014, multifinance companies have issued bonds such as BII Finance Centre, CIMB Niaga auto Finence, BFI Finance Indonesia Tbk, Mandiri Tunas Finance, Wahana Ottomitra Multiartha and Mandala Multifinance Tbk.

Government Regulation and Policy Regulation on multifinance business

The first government regulation on multifinance industry was issued in 1974. The regulation concerns only on leasing. Later the regulation was revised and amended.

The government issued regulations under a decision of the Finance Minister No. 448/KMK.017/2000 per October 2000 and No. 178/LMK.06/2002 per April 2002. The two decisions regulated the activities of multifinance companies including their establishment, capital, ownership and board of directors, opening of new branches, loan and investment and restrictions on activities and other aspects.

* Activities of multifinance companies

Based on a decision of the Finance Minister No. 448/KMK.017/2000, the scope of financing business include multifinance which includes :

--Leasing

--Factoring

--Consumer finance, including motor vehicle and electronic goods credits and KPR

* Establishment of finance companies

Finance companies could be established and owned by:

--Indonesians and / or Indonesian companies

--Foreign companies and Indonesians and /or Indonesian companies (joint venture). A company is required to have the status of Limited Company or cooperatives

Proposal for license to establish financing company is addressed the Finance Minister.

The decision of the Finance Minister No. 185/KMK.06/2002 in April 2002, banned issuance of license for new finance companies in Indonesia. However, the ban was lifted in 2006 through a new decision of the minister No.84/PMK.012/2006 per September 2006.

* Ownership

Foreign companies are allowed to have shares in a finance company not more than 85% of the paid up capital.

The maximum capital participation of corporate shareholders is 50% of the equity.

The equity capital of the shareholders in the status of limited company (PT) is the total of paid up capital, additional paid up capital, reserves and profit/loss balance.

Equity capital of shareholders of multifinance industry in the form of cooperative is the total of savings, including obligatory savings, reserves and grants.

* New Regulation of the finance minister No. 84/2006

The regulation of the Finance Minister No. 84/2006 issued in September 2006, contained a new policy on capital and concerned private placement.

Under the policy, paid up capital or initial saving and obligatory savings for a finance company were set as follows:

--The paid up capital for an Indonesian private company or joint venture was at least Rp100 billion and the savings for a cooperative was at least Rp 50 billion .

--Private placement is a form of debt agreement or medium term note (MTN) that could serve as an alternative source of fund in various real sectors including housing credits (KPR). With the alternative source of fund, finance companies could offer a lower price for the people.

* Capital participation

The capital market and finance agencies watchdog (Bapepam-LK) is now more selective in licensing multifinance business. Based on the regulation of the Finance Minister (PMK) No. 84/ 2006 on finance companies, the pair up capital for a multifinance company is at least Rp100 billion to prevent license from being traded.

Conclusion and Prospects

In general multifinance industry in 2013 grew fairly strong and was still dominated by consumer finance service. Total value of financing in 2013 was Rp 348 trillion, up from Rp302 trillion in 2012. In 2013, consumer finance accounted for 64% or Rp 222.7 trillion of the total market value of multifinance industry. Financing for the automotive sector contributed around 80% to the total value of consumer finance, with the rest financing for electronic goods. Leasing accounted for Rp118.7 trillion (34.1%) and factoring for Rp 6.6 trillion (1.9%).

With the increase in the BI rate now 7.5%, business in multifinance industry is under heavier pressure as finance companies have to adjust their interest rate on their credit for their consumers. Averagely a finance companies have raised their interest rate by 1-2 percentage points for motor vehicle credits. The increase in interest rate is predicted to result in a decline in the growth of income of multifinance companies to 9% in 2014 from 14% in 2013.

In 2014, consumer finance is expected to continue to dominate the market of multifinance business mainly in financing the purchases of cars and motorcycles. According to the Indonesian Association of Motorcycles Industry (AISI), sales of motorcycles in 2014 is predicted to rise to 7.7 million units, and the Association of Motor Vehicles Industry (Gaikindo) said car sales in 2014 would also increase to a new peak at 1.25 million units. The increase in sales of motor vehicles would push up demand for credits as around 90% of purchases of motor vehicles in the country are with credits.

Leasing service is predicted to continue to grow with growing demand for heavy equipment such as tractors, excavators, and loaders. Heavy equipment is needed mainly in coal mining and general mining (nickel and iron ore mining) and oil palm plantations.

With expected annual growth of 9%-12%, total financing in the next five years is predicted to reach Rp379 trillion in 2014 and Rp 576 trillion in 2018. Car and motorcycle credits would contribute mainly to the total credits of finance companies.
Table--4
Number of multifinance companies, 2009-2013

Year      Number (companies)    Growth (%)

2009              198                -
2010              192                -2
2011              195               1.6
2012              200               2.3
2013              202                1

Source : OJK/ICN, processed

Table--5
Multifinance industry by business sectors, 2014

Type of business    Number of companies   Share (%)

Consumer finance            112             55.4
Leasing                     66              32.7
Factoring                   24              11.9
Total                       202              100

Source: Finance Ministry

Table--6
Multifinance companies banned from operation,
2012--2014

Companies                                Status        Period

PT Patra Multifinance                License revoked    2012
PT Metro Finance                     License revoked    2012
PT Semesta Citra Dana                License revoked    2012
PT Cahyagold Prasetya Finance.       License revoked    2013
PT Tata Internasional Multifinance   License revoked    2013
PT Siantar Top Multifinance          License revoked    2014
PT Diamon Jaya Multifinance          License revoked    2014

Source : Bapepam-LK

Table--7
A number of recipients of new multifinance license
2013

No                Name of companies             Line of business

1        PT Takari Kokoh Sejahtera              Consumer finance
2        PT Indonesia Internasional Finance     Consumer finance
3        PT Karunia Multi Finance.              Consumer finance

No        License issued

1              2013
2              2013
3              2013

Table--8
Multifinance companies by status, 2014

Status                          Number of Companies   Share (%)

State company (BUMN)                     1               0.5
Indonesian private companies            156             77.3
Joint venture companies                 45              22.2
Total                                   202              100

Source: Financial ministry

Table--9
Owners of multifinance companies, 2014

Owners               Number of Companies    Share (%)

Banks                         63              31.5
Group of ATPMs                14               6.7
Foreign principals            9                4.6
Other                        116              57.2
Total                        202               100

Source: ICN, processed

Table--10

Multifinance companies and owners

Groups of    Shareholders             Name of multifinance companies
owners

Banks

             Bank BII                 Wahana Ottomitra Multiiartha

             Bank BNI                 --BNI Multifinance
                                      --Financing Arta Negara
             BCA                      BCA Finance

             Bank CIMB Niaga          --Saseka Gelora Finance
                                      --Niaga International Factor

             Bank UFJ Indonesia       U Finance Indonesia
             Bank Permata             --Bali Tunasfinance
                                      --KDLC Bancbali Finance

             BRI                      UFJ BRI Finance
             Bank Sumitomo            Exim SB Leasing
             Mitsubishi Indonesia

             Bank Mandiri             Koexim Mandiri Finance
             ABN Amro Bank            ABN Amro Finance Indonesia

             Bank Panin               --Clipan Finance,
                                      --DKB Panin Finance
                                      --Verena Oto Finance
                                      --Dai-Ichi Kangyo Panin
                                      Leasing

             BRI                      --BRI Finance

Groups of    Shareholders             Name of multifinance companies
owners                                --BTMU- BRI Finance

             Citibank                 Citigroup Finance Indonesia
             Maybank                  --Wahana Ottomitra
                                        Multiartha Tbk
                                      --BII Finance Centre

             Bank of Tokyo            Bumiputera BOT Finance
Group
             PT CT Corpora            --Mega Auto Finance
                                      --Mega Central Finance
                                      --Para Finance

             PT. Bhakti               Bhakti Finance
             Investama Tbk
Group of
ATPMs
             Astra                    --Astra Auto Finance
                                      --Astra Multi Finance
                                      --Stacomitra
                                      --Toyota Astra Finance
                                      --Federal International
                                        Finance Tbk
                                      --Surya Artha Nusantara
                                        Finance
                                      --Komatsu Astra Finance

             Indomobil                --Indomobil Finance Indonesia
                                      --Suzuki Finance Indonesia
                                      --Swadharman Indotama Finance
                                      --Swadharma Surya Finance
             Mitsubishi               --Tiga Berlian Auto Finance
                                      --Dipo Star Finance

Foreign
principals
             Credit Suisse-Morgan     BFI Finance Indonesia Tbk
             Asia Financial Pte Ltd   --Adira Dinamika
                                        Multifinance Tbk
                                      --Adira Quantum Multifinance

             Sumitomo Corp            --Summit Oto Finance
                                      --Oto Multiartha

             Fuji Ltd                 Jaya Fuji Leasing Pratama
             Caterpillar Financial    Caterpillar Finance
             Mitsui Corp              --Mitsui Leasing Capital
                                      --Bussan Auto Finance

Source: OJK

Table--11
Growth of assets of multifinance industry, 2009-2013

Year              Total assets (Rp trillion)   Growth (%)

2009                         174.0                  --
2010 *                       230.3                 32,4
2011                         291.4                 26,5
2012                         341.8                 17,3
2013 *                       398.9                 16,7
Average growth                                     23.2

Source: BI

Note * until September

Table--12
20 largest multifinance companies in assets
worth more than Rp1 trillion, 2014

Multifinance                       Assets (Rp trillion)   Share (%)

Central Java Power                         38.9              9.8
Astra Sedaya Finance                       31.0              7.8
Adira Dinamika Multifinance                30.9              7.7
Federal International Finance              21.1              5.3
Oto Multiartha                             14.0              4.7
Toyota Astra Financial Services            12.7              3.2
Bussan Auto Finance                        10.9              2.7
Summit Oto Finance                         8.9               2.2
BFI Finance Indonesia                      7.7               1.9
Surya Artha Nusantara Finance              6.9               1.7
BCA Finance                                5.8               1.5
Clipan Finance Indonesia                   4.8               1.2
Wahana Ottomitra Multiartha                3.9               0.9
Mandala Multifinance                       3.7               0.9
Buana Finance Tbk                          3.5               0.9
Mitra Pinasthika Mustika Finance           3.4               0.9
Sinar Mas Multifinance                     3.0               0.8
Multindo Auto Finance                      2.1               0.5
Verena Multifinance                        2.1               0.5
Artha Prima Finance                        1.97              0.5
Andalan Finance Indonesia                  1.95              0.5
Sasana Artha Finance                       1.37              0.3
Armada Finance                             1.3               0.3
Dipo Star Finance *                        18.9              4.7
Orix Indonesia Finance *                   4.9               1.2
Chandra Sakti Utama Leasing *              3.2               0.8
Suzuki Finance Indonesia *                 3.1               0.7
Caterpillar Finance Indonesia *            5.5               1.4
Komatsu Astra Finance                      4.7               1.2
Sub total                                 262.2             65.7
Other                                     136.7             34.3
Total                                     398.9             100.0

Source: OJK

Table--13
20 largest multifinance companies with assets less than Rp 1 trillion
2012

Multifinance                            Asset (Rp miliar)   Share (%)

Mizuho Balimor Finance                        951,7           0,29
Swadharma Indotama Finance                    947,8           0,28
SMFL Leasing Indonesia                        939,7           0,28
Internusa Tribuana Citra Multifinance         885,9           0,27
Bima Multifinance                             869,4           0,26
Central Sentosa Finance                       858,7           0,26
Bumiputra BOT Finance                         787,9           0,24
Bentara Sinergies Multifinace                 763,2           0,23
Sahabat Finasial Keluarga                     734,8           0,22
Bringin Srikandi Finance                      714,2           0,21
First Indo American Leasing                   663,0           0,20
Clemont Finance Indonesia                     624,7           0,19
Al Ijarah Indonesia Finance                   605,4           0,18
Karya Technik Multifinance                    604,9           0,18
Dharmatama Megah Finance                      553,9           0,17
Equity Finance Indonesia                      553,1           0,17
Batavia Prosperindo Finance                   529,2           0,16
IBJ Verena Finance                            497,7           0,15
Permata Finance Indonesia                     488,1           0,15
Sub total                                   13.573,3           4,1
Lain-lain                                   319.955.7         95,9
Total                                        333.529           100

Source : Ministry of Finance

Table--14
Developments of finance industry, 2009-2013

Year    Value of financing     Growth (%)
           (Rp trillion)

2009           137.2               -
2010           186.4              35.9
2011           245.3              31.6
2012           302.8              23.4
2013           348.0              14.9
Average growth                    26.5

Source: BI, ICN processed

Table--15
20 largest multifinance companies in value of credits
2012 and 2013

Multifinance                       Value of financing   Share(%)
                                     (Rp trillion)

Adira Dinamika Multifinance               48.3            13.9
BCA Finance                               30.0            8.6
Astra Sedaya Finance                      24.0            6.9
Federal International Finance             21.5            6.2
Toyota Astra Financial **                 9.36            2.7
BFI Finance                               8.9             2.6
Wahana Ottomitra Multiartha               5.6             1.6
Clipan Finance                            5.6             1.6
Mandala Multifinance                      4.8             1.4
Bussan Auto Finance                       3.7             1.1
Surya Artha Nusantara Finance             3.5             1.0
Komatsu Astra Finance                     3.5             1.0
Mitra Pinasthika Mustika Finance          3.17            0.9
Suzuki Finance Indonesia                  2.9             0.8
Oto Multiartha *                          11.6            3.3
Dipo Star Finance *                       16.7            4.8
Summit Oto Finance *                      8.2             2.4
Andalan Finance Indonesia                 2.3             0.7
Sinar Mas Multifinance                    2.1             0.6
Verena Multifinance                       1.7             0.5
Caterpillar Finance Indonesia *           5.5             1.6
Orix Indonesia Finance *                  4.3             1.2
Chandra Sakti Utama Leasing               1.8             0.5
Sasana Artha Finance                      1.25            0.4
Sub total                                230.3            66.2
Other                                    117.7            33.8
Total                                     348             100

Note: *) 2012

Source: Finance Ministry

Table--16
NPL of multifinance companies, 2013

Description       June 2013   December 2013

NPL                  1.4          1.62

Source: ICN processed

Table--17
Value of financing business by types, 2012-2013
(Rp trillion)

Types of multifinance        Financing        Market share
                         (Rp trillion) 2012       (%)

Consumer finance               191.8              63.5
Leasing                        105.1              34.8
Factoring                       5.1               1.7
Total                          302.0              100

Types of multifinance        Financing        Market share
                         (Rp trillion) 2013       (%)

Consumer finance               222.7              64.0
Leasing                        118.7              34.1
Factoring                       6.6               1.9
Total                          348.0              100

Source: BI, ICN processed

Table--18
Multifinance companies posting largest profit
2013

Multifinance                         Profit (Rp billion)

Adira Dinamika Multifinance Tbk             1,695
Federal International Finance Tbk           1,200
Astra Sedaya Finance                        1,086
BCA Finance Tbk                             935.2
BFI Financial Indonesia                     252.5
Oto Multiartha **                           249.2
Toyota Astra Financial Services **          233.7
Surya Artha Nusantara Finance ***            181
Summit Oto Finance **                       180,4
Buana Finance Tbk                            112

Source: OJK

Note: * March, ** June, *** September

Table--19
Performance of publicly traded multifinance companies
2013

Name of companies                   Value of financing (Rp trillion)

Adira Dinamika Multi Finance Tbk                  48.3
BCA Finance Tbk                                   30.0
Federal International Finance Tbk                 21.5
BFI Finance Tbk                                   8.9
WOM Finance Tbk                                   5.6
Mandala Finance Tbk                               4.8
Clipan Finance Indonesia Tbk                      5.6
Verena Oto Finance Tbk                            1.7
Buana Finance Tbk                                0.754
Batavia Prosperindo Finance Tbk                  0.218
Trust Finance Indonesia Tbk *                    0.192
Amstelco Indonesia Tbk **                         3.4

Source: ICN processed

Note : * June 2013, ** 2012

Table--20
Interest rates on multifinance credits
2014

Types of multifinance service   Interest rate (%)

Consumer finance :
Car credits                        5.49-5.99
Motorcycle credit                  21.5-23.5
Electronic goods credits            1.5-3.75
Leasing                           13.12-13.47
Factoring                           10%-20%

Source: ICN processed

Table--21
Funds received and sources of funds for
multifinance industry 2012-2013
(Rp trillion)

Source                   2012    2013

1. Domestic loans :      124,5   136,4
  a. Bank                115,3   132,2
  b. Other financiers    9,2     4,2
2. Foreign loans:        86,6    91,4
  a. Banks               76,4    79,7
  b. Other financiers    10,2    11,7
Total loans              211,1   227,8

3. Bonds                 43,7    50,1
4. Subordinated Loans    343     362
  a. Domestic            323     307
  b.Foreign              20      55
Total fund               597,8   639,9

Source: OJK

Table--22
Bonds issued by multifinance companies, 2013-2014
(Rp. billion)

Companies                              Year of issuance

                                        2013     2014

PT. BCA Finance                        1,800
PT Astra Sedaya Finance                1,800
PT Adira Dinamika Multi Finance Tbk.   1,500
PT BII Finance Center                           1,500
PT CIMB Niaga Auto Finance                      1,000
PT BFI Finance Indonesia Tbk                     700
PT. Artha Prima Finance                 300
PT Bima Multi Finance                   125
PT Mandiri Tunas Finance                         600
PT Wahana Ottomitra Multiartha Tbk               600
PT Mandala Multifinance Tbk                      211

Source: BEI, ICN

Table--23
Estimate of total financing
2014-2018

Year     Total financing
          (Rp trillion)

2014            379
2015            417
2016            467
2017            523
2018            576

Source: ICN processed
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Title Annotation:OUTLOOK MULTIFINANCE INDUSTRY
Comment:Development of multifinance industry in Indonesia.(OUTLOOK MULTIFINANCE INDUSTRY)
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Apr 1, 2014
Words:7709
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