Indonesia to Repay Village Cooperative Loans as First Instalment Falls Due

Indonesia's government has said it will honour repayments on bank loans financing a nationwide village cooperative programme, with the first instalment falling due on Friday.

Finance Minister Suahasil Nazara, appointed to the post last week, said late on Thursday that payments would be made once the government confirms the funds were used for their intended purpose, including the construction of cooperative stores in thousands of villages.

"This has been budgeted, the fund is ready, we will definitely pay," Suahasil said, adding that 37 trillion rupiah, equivalent to about $2.1 billion, has been set aside in the 2026 budget. He said a validation process would establish what has been built and how many structures are involved.

The loans form part of the financing structure for the "Red and White" village cooperative programme, an initiative of President Prabowo Subianto aimed at stimulating rural economies as part of efforts to raise national growth to 8%. Prabowo has said the cooperatives should sell government-subsidised goods such as fertiliser and cooking gas, purchase local produce, and extend cheap credit to villagers.

Four state banks extend $13.6 billion

Under the arrangement, state company PT Agrinas Pangan Nusantara is building 80,000 stores across the archipelago, backed by 240 trillion rupiah in low-interest loans with six-year tenures from four state lenders: Bank Rakyat Indonesia, Bank Negara Indonesia, Bank Mandiri and Bank Syariah Indonesia.

Once construction is complete, the government, rather than Agrinas Pangan, will repay the loans, and ownership of the cooperatives will eventually pass to local communities. The Cooperative Ministry and state auditors are responsible for verification.

Officials have argued the financing model will produce better results than earlier schemes that allocated funds directly to villages for discretionary use.

Questions over rollout

Bank Mandiri and BNI have each disbursed 55 trillion rupiah to Agrinas Pangan, representing 3% and 6% of their respective gross loans, according to a September 22 note from research firm CreditSights, a unit of Fitch Group. The note did not provide figures for the other two lenders.

CreditSights said that while the risk of non-payment is low, administrative delays are possible and could cause the loans to be classified as underperforming, potentially triggering temporary provisions and weighing on earnings.

The firm said the long-term viability of individual cooperatives remains uncertain, citing concerns including a top-down rollout with a uniform operating model, limited feasibility testing, and reports of poor site selection for some buildings. It added that Agrinas Pangan is difficult to assess because it is a newly formed state company with a limited track record.

The government aims to build 35,000 cooperatives this year, with the remainder scheduled for 2027. As of Thursday, 25,977 cooperative stores had been completed, according to a government monitoring dashboard.