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)