BI firm on lending to small businesses

JAKARTA (JP): The central bank, Bank Indonesia, plans to penalize banks that fail to disburse at least 20 percent of their total credits to small and medium businesses, an official said yesterday.

The central bank's director for credit, Mukhlis Rasyid, said the penalty was expected to increase bank lendings to small and medium businesses and encourage banks to achieve the government- set ratio quickly.

"The penalty is aimed at improving the current credit allocation system for small and medium enterprises. The penalty will probably be announced in a Bank Indonesia ruling," he said on the sidelines of a seminar on finance and credit allocation for small and medium businesses and cooperatives.

The seminar was held as part of a five-day national gathering of venture capital companies and their business partners.

Mukhlis refused to say when the ruling would be issued but indicated it would be sometime during the next (1997/1998) fiscal year.

He said that under the current system a bank's inability to reach the 20-percent mandatory lending to small and medium businesses was taken only as a negative point in the assessments of its soundness.

"But a bank's failure to meet the lending quota to small and medium businesses is actually irrelevant to its soundness," he said.

Mukhlis said that presently a bank could gain several credit points for having a high lending rate for small and medium businesses and boost its chances of becoming a sound bank even though it may be suffering from bad loans.

But a bank which is considered sound in terms of most prudential rulings usually has no motivation to increase its lending to small and medium businesses because the loss of a few credit points is insignificant compared to a bank's soundness.

"The bank thinks it's healthy anyway, so why work harder to give loans to small and medium businesses?" Mukhlis asked.

Such conditions made it difficult for the government to encourage banks to increase lendings to small and medium businesses, he said

Mukhlis said that under the new ruling a bank's ability to meet the mandatory lending ratio would not determine its soundness.

"We'll instead impose a fine on banks that cannot, or do not, meet the mandatory lending rate," he said.

The proceeds from these fines would be used to help banks that met the 20-percent lending ratio, Mukhlis said.

"Or maybe we could use them to pay part of the bank's risk premium, so the risk of these banks can be reduced," he said.

Mukhlis said if the ruling on mandatory lending was not changed, small and medium businesses would continue to develop slowly.

"The growth of credit allocations for big companies has far exceeded those for small and medium businesses," he said.

During yesterday's seminar, the Minister of Cooperatives and Small Enterprises, Subiakto Tjakrawerdaya, called on the business community and government officials to be serious in helping small and medium businesses.

"Government officials and businesspeople should act, and not talk only. It needs more than lip service," he said.

Subiakto said big businesses and government officials should give smaller businesses a fair chance to develop as business partners.

"Don't just give them money. It's not educational ... The help must be business-like and given in a professional manner," he said.

Mukhlis said providing loans to small and medium businesses was not easy because substantial risk was involved.

"So to a certain extent, it is understandable if the banks complain about having to set aside a proportion of their credit allocations," he said.

Such banks were currently allowed to buy money market certificates from banks with a high lending ratio to small and medium businesses, he said.

This arrangement injects funds from banks that have difficulty lending to small and medium businesses to those that do not have such a problem.

"But this system doesn't always work because many banks that have a high lending ratio also have trouble with bad loans," he said.

Mukhlis said about 30 percent of Indonesia's 239 banks had not met the 20-percent mandatory lending ratio. (pwn)

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