BI firm on lending to small businesses

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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