BI encourages setting up of 'guarantee funds' for SMEs

BI encourages setting up of 'guarantee funds' for SMEs

The Jakarta Post, Jakarta

The central bank plans to encourage the establishment of regional
credit insurance institutions and to guarantee funds to help
small and medium enterprises (SMEs) obtain much-needed financing.

Speaking on Wednesday at a workshop on SME banking, Bank
Indonesia deputy governor for banking Siti C. Fadjrijah said many
SMEs were eligible for loans to develop their businesses, but
unfortunately were not yet "bankable".

"What makes them `bankable' -- apart from implementing proper
accounting and financial administration -- is being able to
provide collateral for the loans they apply for.

"This has proven difficult for SMEs because many of them are
informal businesses," she said.

The workshop was sponsored by the World Bank's private arm,
the International Finance Corporation (IFC), and its Program for
Eastern Indonesia SME Assistance.

Siti said state loan insurance firm PT Askrindo was
established in 1971 for the purpose of helping SMEs obtain loans
from banks. Askrindo, however, is not in a position to expand its
operations throughout the country down to the regional level.

"That is why BI is now discussing with Askrindo how it can
open representative offices by cooperating with local credit
insurance firms to establish joint subsidiary companies," she
said.

Siti said another option was to encourage the establishment of
"guarantee funds" at the regional level, which could be used to
cover the liabilities of SMEs when they apply for bank loans.

"The funds could be collected from local administrations,
Askrindo branch offices and even from the local SME community,
and then managed collectively," she said.

IFC's director for the global finance market, Jyrki Koskelo,
said the government and the central bank could further support
SME banking by establishing credible credit scoring and
information bureaus that could help SMEs obtain land ownership
titles for use as collateral.

IFC, Koskelo added, has always tried to be a catalyst of SME
banking, having provided up to US$150 million for five banks in
the country as initial funds for the banks' SME banking schemes.

"We expect the funds can help encourage the banks to put up
their own funds as well to be channeled as loans to SMEs," he
said.

Small and medium enterprises play a vital role in the country
due to their high resilience and huge impact on the economy.

There are about 40 million SMEs, or 90 percent of the
country's businesses, employing some 37 million people, or 37
percent of the country's workforce.