ADB urges govt to easy licensing for SMEs

ADB urges govt to easy licensing for SMEs

JAKARTA (JP): The Asian Development Bank's technical
assistance team on Tuesday recommended the government to cut down
on the number of licenses needed for establishing small and
medium-sized enterprises (SMEs) to encourage growth and
simultaneously kickstart the economy.

The team said that only three kinds of document should be
needed compared to the dozens currently required by the
government, namely a tax registration certificate (NPWP), company
registration, and licenses related to health, safety, city
planning, and environmental matters.

With only three kinds of documents needed, the government
could save a considerable amount of money in administrative
costs, and would relieve SMEs of unnecessary and hidden expenses
arising from license applications, it said in a report
distributed during a media conference here.

The team said that a large number of SMEs were reluctant to
obtain licenses and were currently operating illegally due to the
huge amount of time, expense and bureaucratic difficulties
involved in obtaining the necessary documents.

The cost of obtaining the necessary documents could reach as
high as 30 percent of the company's start-up costs, it said,
adding that this constraint had resulted in 80 percent of the
total 242,030 SMEs in 1996 running their businesses without the
necessary licenses.

"The complexity of licensing procedures discourages SMEs from
even attempting to obtain the necessary licenses," the team said.

Without the proper licenses, SMEs were under threat of
government closure and would be unable to gain access to certain
kinds of information, markets, and to governmental and financial
assistance.

"There are many instances where SMEs have been unable to
submit a bid for a government or state-owned enterprise project
because they cannot produce the required permits, licenses, or
certificates," the report said, adding that the same problem also
arose when such SMEs tried to obtain loans from banks and other
financial institutions.

The technical assistance team explained that the major
concerns of SMEs were the ease of licensing procedures, the ease
of access to information on formal licensing fees, certainty as
to the length of time during which licenses would be processed,
and the existence of "additional" fees and levies.

The bureaucratic difficulties and the need to deal with the
informal payment system had forced many SMEs to use
intermediaries, whom they claimed could make the process simpler
and faster, it said.

Furthermore, the team found that many licenses were
overlapping or unnecessary, and that there was also duplication
and inefficiency in the kinds of documents required to support
license applications.

"An SME may need to obtain the same letters for different
kinds of licenses," the team pointed out in the report.

It said that enabling SMEs to obtain the required documents
easily would encourage them to operate legally, and contribute
significantly to SME development.(tnt)