Banks called on to increase credit to small businesses

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)