The contribution of micro, small, and medium enterprises (SMEs) to national exports remains relatively low. The Ministry of Cooperatives and Small and Medium Enterprises (SMEs) reported that SMEs contributed only 15.7 percent to national exports in 2023. This has drawn the government's attention, which aims to increase the contribution of SME products in export commodities to 17 percent by 2024.

One of the challenges SMESs face when exporting goods or products is often related to costs. To address this, local entrepreneurs apply for export financing loans from authorized financial institutions. However, these financial institutions do not immediately provide the required financing, which is often substantial.

Financial institutions require a guarantee, known as the Export Financing Guarantee, to ensure that the loan will be repaid within the specified time frame.

When a business applies for export financing, one of the requirements to obtain a loan from financial institutions is the provision of a guarantee. The debtor (the borrower) provides the guarantee to the creditor (the lender) to assure the creditor that the debtor will fulfill their obligation to repay the borrowed funds.

As reported by ukmindonesia.id, this guarantee is secure for both the debtor and the creditor because it is regulated under the Republic of Indonesia Law Number 2 of 2009 concerning Export Financing Institutions.

The law outlines several types of guarantees, including:

• Guarantee for Indonesian exporters for payments received from foreign buyers is protected.
• Guarantee for Indonesian importers abroad for payments made to Indonesian exporters for export contract financing conducted in Indonesia.
• Guarantee for financial institutions, which provides coverage for banks involved in providing export financing.
• Guarantee for tenders related to the implementation of projects aimed at supporting export activities.

There are three types of export financing guarantees, namely:

1. Export Working Capital Guarantee (EWCG)

The guarantee facility provided by the guarantee institution to financial institutions covers risks that may occur if an exporter who has received an Export Working Capital Guarantee (ECWG) fails to meet their loan repayment obligations.

2. Import Letter of Credit (L/C) Guarantee

The guarantee facility, in the form of a letter of credit issued by financial institutions, is used to finance export activities. A letter of credit is a payment method used in international trade to ensure that exporters receive payment directly once the goods and documents have been delivered to the foreign buyer.

3. Standby Letter of Credit Issuance (SBLC) Facility

Indonesia Eximbank provides this issuance facility to exporters. This facility involves issuing a guarantee to cover the risk faced by the beneficiary if the importer defaults on the contract or obligation that serves as the basis for the issuance of the SBLC. It acts as a security measure, ensuring that the exporter will be compensated if the importer fails to meet their contractual commitments.

When providing financing and export financing guarantees, the government designates the Indonesia Eximbank (LPEI) as the institution responsible for offering these facilities. This includes providing support to businesses and individuals both within and outside the territory of the Republic of Indonesia.

Indonesia Eximbank provides these services:

• Offers assistance to support and facilitate export activities, including financing and guarantees.
• Provides financing for Micro, Small, and Medium Enterprises (MSMEs) wishing to engage in export activities but unable to secure financing from financial institutions (feasible but not yet bankable).
• Helps address challenges faced by financial institutions in providing export financing.
• Offers various export financing guarantee services, including indirect financing facilities such as issuing SBLC from financial institutions and confirming L/C documents issued by foreign banks.
• Appoints guarantee institutions, namely PT Asuransi Kredit Indonesia (Askrindo) and PT Jaminan Kredit Indonesia (Jamkrindo), to provide export financing guarantees.

Financial institutions typically require collateral that consists of assets owned by the business. However, not all assets are eligible to be used as collateral. Here are some assets that can be used as collateral for export financing:

• Land and Buildings
• Time deposits held by the business with a bank.
• Commercial property, such as kiosks or stores, supported by business licenses such as the Business Location Permit (SITU) and ownership certificates from the local market authority or insurance policies.
• Ownership of vehicles, such as cars.

Workflow for the export financing guarantee process:

• The business owner, as the Prospective Borrower, applies for a loan to the Bank, which acts as the Prospective Lender. The Bank then checks and assesses the Prospective Borrower's creditworthiness and the loan agreement.
• The Bank submits a written guarantee application to the Guarantee Institution, attaching the Prospective Borrower's data and proof of payment for the Guarantee Fee (IJP).
• The Guarantee Institution verifies the application and the payment of the Guarantee Fee (IJP). At this stage, the Guarantee Institution also issues a Guarantee Certificate (SP) and provides the Guarantee Certificate (SP) to the Prospective Creditor.
• The Financial Institution will submit a request for KUR (microcredit program) interest subsidies to the Proxy Budget User (KPA) through the Program Credit Information System (SIKP).
• KPA pays the interest subsidy to the financial institution.
• The financial institution disburses the KUR to the Debtor.
• The Financial Institution pays the Guarantee Fee (IJP) to the Guarantee Institution.

Writer: Kristantyo Wisnubroto

Editors: Ratna Nuraini/Elvira Inda Sari/Wilda Stiana

Translator: Wisnu Wardoyo