Problem overview:

     Policies and measures: To develop an institutional support to SME in handling environmental problem caused by their production process through incentives systems, IEPC loan was established for SMEs to use in their environmental investment.

     Integrating all stakeholders: The IEPC-project is a pilot project established by the Indonesian government and the cooperation from various organizations, both private and public.

Background:

     Industrial pollution is a big problem in Indonesia due to the rapid industrialization and urbanization process, which is taking place in this country. Water and air pollution caused by industrial enterprises has reached dangerous levels in several cities and densely populated areas, especially on Java.

     According to the Central Bureau of Statistics (CBS), Indonesia has more than 39 million micro and small enterprises. 99.85 % of those micro and small enterprises have an annual turnover less than Rp. 1 billion while medium-sized enterprises have an annual turnover between one and 50 billion Rupiah (about 55,000 units or 0,14% of all enterprises in Indonesia). Those 3 enterprises; micro, small and medium, employ 73.5 million workers (82 % of total employment), and their contribution to the gross domestic product (GDP) is around 58 %.

     Most SMEs, which applied for IEPC loans, are industrial enterprises. Food processing and wood processing industries were the dominant industrial borrowers followed by metal industries. Twenty-two SMEs, which recycle and reuse waste applied for loans. Eleven private hospitals applied for IEPC loans to finance waste water treatment plants and incinerators. In addition, only one small hotel on Bali was granted an IEPC loan to finance construction of a wastewater treatment plant. (See table 1)

     Summary of the environmental investments, which were financed with IEPC project sub loans including the total number of investments and their investment value, can be seen in table 2. Almost 60 % of the loan amounts financed cleaner production investments, 22 % financed 3 R investments and 17 % of the loan amounts financed waste treatment plant and equipment. The 3 R investments loans were granted to small firms engaged in solid waste management such as recycle and reuse of paper, metal scrap, plastic waste etc. These investments must be considered as investments in solid waste management. The majority of waste treatment plants and equipment investments (71 % of investments value) were investments in wastewater treatment plants. (See table 2)

     SMEs in Central Java were granted the largest number of IEPC loans followed by Bali. The average IEPC loan size was highest in West Java closely followed by East Java. (See table 3)

     In starting the program, MoE assisted by TAU consultants started to compile a project manual namely Guidelines for Project Implementation of the IEPC Project in April 1999. The guidelines describe the project and the role of each of the major stakeholders: i.e MoE, MoF, KPKN VI, participating Banks and IEPC TAU related to project implementation. The guidelines have been submitted to the participating banks and other stakeholders to make their staff familiar with the IEPC Project.

     The following subject are covered in the project manual:

• Project description with definitions of technical and environmental terms
  
  
• Detailed sub loan regulations
  
  
• Detailed disbursement procedure of IEPC funds from MoF to participating Banks
  
  
• Procedures for Project identification and project appraisal
  
  
• MoE regulations of eligible investment items
  
  
• Description of production process and waste disposals in selected industries (tapioca, tofu, textile, metal plating, hotel/hospital)
  
  
• Detailed project appraisal procedures for technical aspects of project proposals
  
  
• Detailed project appraisal procedures for financial aspects of project proposals
  
  

     Participating Banks involved in this project are as follow:

1. BPD Bali
   
   
2. BPD Central Java
   
   
3. BPD West Java
   
   
4. BPD West Sumatera
   
   
5. BNI
   
   

See also: Indonesia example: Industrial Efficiency and Pollution Control Project (IEPC-project)