Endy Bayuni, Jakarta

Endy Bayuni, Jakarta

In physics, the smallest particle of an element is called an
atom. In business, the smallest unit is called a micro-
enterprise. It's smaller than the conventional small business.
Like an atom, it is sometimes too small to be visible. Like an
atom, a micro-enterprise has vast potential energy.

Millions of such enterprises are scattered throughout the
Indonesian archipelago. The Central Statistics Agency estimates
there are at least 39 million of them. Typically, they are
cottage industries employing anything from one to 50 people.

Sometimes they are family-run units employing immediate family
members, but quite a number of them employ neighbors or members
of their community. Some have over time graduated to become
small, medium or even big enterprises and enjoy facilities that
come with such status.

But most remain the way they have always been.

Because they are so small, their role in the economy for many
years has long been underestimated, neglected, not recognized, or
simply taken for granted.

Yet, it is now widely acknowledged that they were saviors for
millions of people when Indonesia went through the most severe
stage of the economic crisis between 1998 and 2000.

Many of these micro-enterprises survived the crash unscathed
and continued to provide employment and thus income to millions
of people throughout that period. Some new micro-businesses even
emerged during this time as entrepreneurial spirits turned the
crisis into a business opportunity.

They played a far more effective role than the government's
social safety net program and the millions of dollars from the
World Bank.

These entrepreneurs are the unsung heroes of the country.

In contrast, heavily indebted conglomerates were laying off
workers by the hundreds of thousands, turning to the government
to bail them out, and passing on the huge costs of their gross
mismanagement and abuses of economic privileges to the people.

And in contrast to the big enterprises, most micro-enterprises
have managed by themselves with no or very little assistance or
subsidy from the government or the banking and financial system.

Slowly, the government is now realizing the role these micro-
enterprises play in the economy. As we emerge from the prolonged
economic crisis, the government is looking to micro-enterprises
to help in its campaign to eradicate poverty.

The role of micro-enterprises in the economy is also gaining
international recognition, and with it, hopefully, formal
assistance, including, most importantly, credit facilities.

On Thursday, United Nations Secretary-General Kofi Annan is
scheduled to officially pronounce 2005 as the International Year
of Microcredit. The goal is to encourage the development of an
affordable but commercially viable and thus sustainable
microcredit system to serve the needs of micro-businesses.

The United Nations recognizes the potential of such
enterprises in helping nations achieve the Millennium Development
Goals set out four years ago; in particular, the goal of halving
the number of poor people by 2015.

But in order to reach out to these micro-enterprises, they
should be brought into the fold of the financial system proper,
hence the emphasis on microcredit rather than the micro-
enterprise.

Most banks have simply avoided them like the plague because
they are too small and are too many in number to be administered
effectively and efficiently. Most such businesses have no
collateral to offer banks, nor can they come up with acceptable
business plans to secure even the smallest of loans.

Typically, when banks do extend loans to them, they charge a
high interest rate to cover the extra risks and administration
costs involved.

In Indonesia, it is not unusual for micro-enterprises to pay
between 2 percent and 4 percent monthly interest to the few banks
or financial institutions that do lend them money. They are
effectively paying annual interest rates of between 30 percent
and 40 percent in contrast to the 10 percent to 15 percent that
others pay.

Such shark loan-like interest rates and tough loan conditions
effectively preclude millions of micro-enterprises in Indonesia
from the financial system proper.

Access to inexpensive loans may not be sufficient in itself,
but it is a beginning. The problem lies more in creating and
managing the microcredit system rather than in the micro-
enterprises, many of which have managed well without credit.

The Indonesian financial system has already developed a
rudimentary microcredit mechanism. Bank Indonesia, the central
bank, has a division dealing with this question. Subsidized
government loans are also being parceled out through commercial
banks to help microenterprises.

The official old acronyms for small and medium enterprises,
UKM, has been expanded to UMKM, to denote macro, small and medium
enterprises.

State Bank BRI is the leading institution in providing
microfinance, and has a more than 100 years of experience in
extending small loans to small and micro businesses. Other
players include rural banks (BPRs), regional development banks
(BPDs), savings and loans, cooperatives, pawnshops and some non-
governmental organizations that actively provide help and loans
to micro-enterprises.

In spite of their huge number, BRI president Rudjito reckons
that only 15 percent of the 30 million-plus microenterprises have
access to credit. The rest remains outside the system.

The yearly announcement by the government to write off unpaid
microloans -- though the sum is nowhere near as large as that
written off for big debtors -- suggests something amiss with the
administration of these loans. And the subsidy provided by the
government also raises questions about the fairness and
efficiency of the system.

Plenty more needs to be done before Indonesia can come up with
a microcredit system that has a much wider coverage, and one that
is truly efficient and sustainable.

With international and national recognition and support, 2005
could become the defining moment for the establishment of
microcredit in Indonesia's financial system proper, and thus help
unleash the atomic potential of microenterprises.

The writer was a member of the Indonesian panel for this
year's Global Microentrepreneurship Awards organized by the
Management Institute of the University of Indonesia (LM-UI).