BI says loan program for SMEs running well

The Jakarta Post, Jakarta

Bank Indonesia said the loan scheme program for small and medium-sized enterprises (SMEs) had been progressing well, with banks allocating nearly half of their lendings to the sector.

"Data from the banks' financial reports received monthly by BI shows that the average amount of loans channeled each month by the banking sector totals around Rp 5 trillion (US$650 million), of which 48 percent goes to SMEs," Bank Indonesia spokesman Halim Alamsyah told The Jakarta Post on Friday.

Governor of Bank Indonesia Sjahril Sabirin signed in April a memorandum of understanding (MOU) on the empowerment and development of SMEs with the Poverty Eradication Committee, under which banks would allocate some Rp 30 trillion in funds this year to help SMEs.

The amount is not part of Rp 250 million worth of loans set aside by the state budget to be channeled for SMEs this year.

The Bank Indonesia loan program is seen to have the potential to reduce poverty as the loans can be used to finance labor intensive programs which can absorb plenty of workers.

The chairman of the Poverty Eradication Committee, Yusuf Kalla, who is also Coordinating Minister for People's Welfare, has stressed that the MOU was part of efforts to reduce the number of poor people to around 14 percent of the whole population in 2004.

Currently some 40 million are categorized as poor, accounting for some 19 percent of the population.

The role of the SME sector is seen as crucial to further reduce the figure, as they have been proven to be the most resilient even during the country's economic crisis.

Empowering them through capital injection will therefore be significant in igniting the economy, thereby helping eliminate poverty in the country.

As for the banks' point of view, lending more loans to SMEs are seen as less risky given their good track record in repaying the loans.

According to Gunarni, the chairwoman of the National Banking Association (Perbanas), the banks only have a small risk of having their loans to SMEs turning bad.

As of last year, non-performing loans (NPLs) channeled to SMEs amounted to less than five percent of their total loans.

Also stated in the MOU, which will be in effect for three years and could be extended thereafter, the central bank is also in charge of providing banking regulations to help push banks to lend to SMEs.