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.