Banks called on to increase credit to small businesses

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono called on commercial banks yesterday to improve their role in helping small businesses by increasing the credit extended to them.

The central bank governor said that an increase in the volume of credit to small-scale companies was essential to narrow the financial gap in the Indonesian economy and to create a stronger base for the country's industries in the face of the international trend towards trade liberalization.

People's demand for an increase in the banking system's role in helping financially-weak companies reflected their growing concern over dangers inherent in the inequities in the distribution of wealth in the country, Soedradjad said.

He acknowledged that the banking system was not the only institution responsible for addressing the enormous task of reducing social inequality, but said that their role as financial institutions meant they bore a heavier burden.

"It is, therefore, undeniable that the financial agencies are the most decisive factor in narrowing the gap," he said.

Soedradjad was speaking at the inauguration of an inter-bank communications forum for the development of small businesses.

The government has introduced a number of policies, through the financial sector and through other aspects of the country's economy, to reduce the gap between small companies and the big economic players.

Bank Indonesia, for example, requires commercial banks to provide at least 20 percent of their lending portfolio to small businesses.

In addition, the central bank has established a number of workshops and training programs to help small businesses, not only in the allocation of funds, but also in the identification of potential projects.

Commercial banks' outstanding credits to small companies reached Rp 36 trillion (US$16.36 billion) as of April this year.

Complaint

Soedradjad complained that many banks are still unable to comply with the minimum 20 percent requirement, in spite of the existence of a number of training facilities to help them in participating in the small-scale credit scheme.

"It is understandable if the slow pace of the flow of credit to small businesses has drawn the people's criticism," he told over 100 business executives during the inaugural ceremony of the newly-established forum.

"The banks have been criticized, not only for being unable to meet the 20 percent requirement but also for unfair distribution of loans," Soedradjad said.

He said he hoped the new forum, which will not only provide information but also training to its members, would facilitate a smoother flow of credit to small businesses in the future.

At the inaugural ceremony, Soedradjad also encouraged banks to get involved in other similar forums to improve their knowledge and skills regarding small business operations.

In addition to the central bank's policies, the government also requires state-owned companies to set aside between one and five percent of their profits to support small businesses and cooperatives.

Several programs, including those initiated by the central bank, have been criticized by various parties.

The "semi-loan" scheme of the state-owned banks, for example, was criticized for being poorly managed, with funds being distributed in the absence of thorough and careful assessment.(hen)