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.