Banking sector starts turning its attention to SMEs
A'an Suryana, The Jakarta Post, Semarang, Central Java
Two years ago, jobless Arifin Tanjung walked out of a large garment company with an unexpected business opportunity that was to change his fortune. He was offered a garment export order worth US$125,000 by a U.S. acquaintance.
He was very excited, but at the same time confused because he had no business experience. Unfortunately, he only had Rp 100 million ($11,000) in savings and calculated that he needed at least three times that amount to start a small garment firm to fulfill the export order.
He had no knowledge on how to obtain bank lending, and how to make a credit proposal. And, like any other business newcomer, he was afraid that he could not pay back the bank loans.
Arifin was lucky when he bumped into a lawyer friend, who introduced him to a credit officer at state-owned Bank Mandiri. A bank employee then assisted him with the proposal, and within just a few days, the credit proposal was approved.
He then set up his first garment company called PT Goldri Putra Agung, in Semarang, Central Java, employing 13 people and seven machines, enough to meet the U.S. export order.
Two years later, the company now employs 400 workers and has an annual turnover of Rp 10 billion.
"Bank credit is important. But, we are also proud of our hard work," said Arifin at his factory, during a visit by journalists.
Arifin's company is just one example of a small and medium- sized enterprise (SME) that has thrived with the help of bank loans.
After being badly burned by the late 1990s financial crisis, domestic banks are increasingly turning their attention to SMEs, many of which have shown resilience during times of economic hardship.
According to Bank Indonesia data, the growth of bank lending to the SME sector during the first five months of this year reached 10.9 percent, compared to the same period last year. This was very significant growth, because during the same period total bank lending grew by only 3.3 percent.
The central bank said that during the first five months, bank lending to the SME sector amounted to Rp 11.4 trillion or 35 percent of the total amount of lending commitment made by the banks to SMEs.
"SMEs can be trusted and are potential creditors for banks," said Frans Mardi Hartanto, ex-commissioner at Bank Danamon.
"Unlike big business, SMEs are flexible in decision making and are very adaptive to the business situation," he added.
According to a survey by the Central Bureau of Statistics (BPS) in 2001, Indonesia's 37 million SMEs contributed 54.59 percent of the country's gross domestic product (GDP), and were a major employer.
Unfortunately, there are still many SMEs that do not have access to bank-lending facilities.
The problems are various. SMEs usually have no access and knowledge on how to get credit. Some might have knowledge and access to get credit, but they do not have the ability to create good credit proposals. Lack of managerial, marketing and technical skills also prevent banking sectors from channeling credit to SMEs.
"We often only receive a one-page proposal," said Sri Harjanto, an executive from Bank Mandiri, one of the country's major banks, which has been aggressive in lending to SMEs.
According to him, the bank wants to allocate some 40 percent of total outstanding credit of around Rp 5.8 trillion this year to the SME sector.
Bankers have said that SMEs must now be more proactive in seeking information on credit. They should enhance their managerial abilities to convince banks they can yield better revenues.
The government can also play a role, by providing additional collateral to further encourage banks to lend to SMEs.
Actually, there is a company called Perum Sarana Pengembangan Usaha, which helps SMEs to obtain bank loans by providing additional collateral.
"However, it is not enough, because the company's coverage and financial capital is limited. Therefore, a similar new company, with strong financial capital, should be established by the government," Ventje said.