Banks focus more on lending to SMEs

Banks focus more on lending to SMEs

A'an Suryana, The Jakarta Post, Jakarta

The financial crisis that first gripped the country in 1997 could
be seen as a blessing in disguise for small and medium-sized
enterprises (SMEs). The banking sector, which allocated most of
its credit to huge corporations prior to the crisis, has turned
its attention to SMEs.

Its reasoning is simple. Lending to the corporate sector has
been considered extremely risky due to the high non-performing
loans (NPLs) owed by major companies. Bankers also regard SME
debtors as more honest and obedient in repaying their loans.

"The average NPL level of SMEs is only 2.3 percent," said a
staff member at the retail and micro-business planning division
of state Bank Rakyat Indonesia (BRI).

The SME sector is a strategic one in the economy as it could
employ some 37 million people out of the more than 100 million
that make up the country's work force.

According to data from Bank Indonesia, in the first five
months of this year, bank lending to the SME sector grew by 10.9
percent to Rp 11.4 trillion (US$1.3 billion) compared to the same
period last year.

This amounted to a significant growth as total lending growth
during the period was only 3.3 percent.

Even giant banks, such as state Bank Mandiri, is also
increasing its credit allocation to SMEs. The country's largest
bank previously allocated on average some 25 percent of its total
credit portfolio to the SME sector, but by 2002 it aims to
increase the allocation to 40 percent, or a total of Rp 5.8
trillion, said Sri Harjanto, the Bank Mandiri assistant director
for small businesses.

BRI has drastically cut its corporate credit portfolio, and is
boosting micro-lending. In December last year, some 84.35 percent
of its credit was allocated to the SME sector, but in June this
year, that figure rose to 89.65 percent.

The bank, which was assigned by the government to focus on
micro-lending since the government bailed out the bank in the
late 1990s, channeled some Rp 35.8 trillion in lending during the
first semester of this year

"Most of the credit went to farming, trading and agricultural
businesses," BRI's president director Rudjito said last week.

Despite the rise in lending for SMEs, bankers acknowledged
that they faced certain challenges when channeling money to small
businesses.

One difficulty is that not all banks have the experience or
enough staff to handle small volume retail credit.

Banks also complain that SMEs lack managerial, administrative
and technical skills in making loan proposals, forcing banks to
spend more time and allocate more staff to assist SMEs.

"This is quite a headache," said one staff member at a private
bank.

Ryan Kiryanto, a senior manager for media and government
relations at state Bank Negara Indonesia (BNI), said that his
bank adopted a strategy of making an agreement with cooperatives
and SME associations in channeling micro-loans.

"This is more efficient than signing the loan one by one with
SME debtors," Ryan said.