Thu, 12 Feb 2004

ADB signs $85m loan to help SMEs

Dadan Wijaksana, The Jakarta Post, Jakarta

The Asian Development Bank (ADB), one of the country's major lenders, said on Wednesday it had signed a US$85 million export credit agreement with six local banks -- including Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI).

The credits, to be extended by the banks to small and medium- size enterprises (SMEs), were scheduled to be given earlier but were delayed primarily because of lending scandals at the two banks.

David J. Green, ADB country director in Indonesia, said the bank resumed the export credit facility after receiving assurances that the lending problems at BNI and BRI had been corrected.

"Bank Indonesia has given us the assurance that corporate governance at banks has improved," said Green.

BNI and BRI, the country's second and fourth largest lenders, respectively, have made headlines in recent months because of lending scandals.

BNI became involved in a Rp 1.7 trillion lending scandal, while BRI has been investigated for suspicious loans valued at Rp 294 billion. The cases exposed the poor internal control mechanisms at the banks.

After receiving assurances from the central bank, Green said he felt "comfortable" that the credit program could resume, although the disbursement of the credits was still pending further administrative work.

Aside from BNI and BRI, Bank Mandiri, Bank Danamon, Bank Niaga and Bank Bukopin are also included in the program.

Shamshad Akhtar, ADB director general for Southeast Asia, said the program was part of the bank's integrated efforts to empower SMEs across Indonesia.

The SME sector not only has the resilience to weather various shocks -- it was able to grow during the economic crisis when larger businesses suffered -- but it can also absorb huge numbers of workers. Millions of people has been sent jobless since the economic crisis hit the country. The economy needs to grow by around 6-7 percent per year (compared to the average growth of 4 percent during the past years) to be able provide enough jobs.

Government data says that at present, there are more than three million SMEs in the country employing about 12 million workers.

The export credit program will allow the six banks to obtain inexpensive credit export facilities from the ADB, which they will then extend to SMEs as working capital.

Law No. 9/1995 on small enterprises defines small-scale enterprises as those with net assets of up to Rp 200 million and maximum annual sales of Rp 1 billion. The law does not provide a definition of medium-scale enterprises.

According to a government publication, however, medium-scale companies are those with annual sales of between Rp 1 billion to Rp 50 billion.