Credit guarantee fund
Credit guarantee fund
The credit guarantee fund company established by Indonesian
businessmen early this week after one year of preparations, is
expected to facilitate the disbursement of unsecured bank loans
to small and medium-scale enterprises. The new company will not
only help banks assess the credit risks of small-scale borrowers,
it also will secure credit repayment in case of bankruptcy or
default.
Although the initial paid up capital of the company, locally
known as PT Penjamin Kredit Pengusaha Indonesia, is only Rp 6.16
billion (US$2.7 million), far below the original target of Rp 50
billion, its presence alone is nonetheless a significant start.
We share the confidence of Aburizal Bakrie, chairman of the
Indonesian Chamber of Commerce and Industry, that more large-
scale businessmen can be expected to join the new company as
shareholders.
Supporting the guarantee fund is one of the most effective
means for large-scale businessmen to realize the commitment to
helping foster small firms stated in their Bali Declaration in
late August.
It is an encouraging and interesting development that while in
most other countries the establishment of guarantee funds for
small-scale firms has been sponsored mostly by state agencies,
Indonesia's version has been initiated and financed by the
private sector. Even more encouraging is the pledge of the
shareholders to fully apply business principles to the operation
of the guarantee fund. That means the fund will most likely be
managed professionally and thus can be expected to be
sustainable.
There are many things, besides guaranteeing credit, which
could be done by the guarantee fund company to help the
development of small-scale businesses. The fund company could
provide guarantees for leases and bills and for performance in
relation to bids for the supply of goods and services or
construction jobs. This diversity of services would also broaden
its sources of income.
To accomplish such a multitude of functions, the guarantee
fund company, besides building up capability in assessing the
credit-worthiness and commercial viability of small-scale
businesses, will need to develop competence in financial,
technical and marketing management, as well as an integrated
system of credit information.
In view of the diverse range of skilled professionals, who do
not come cheap, and the large sum of working capital required to
run the guarantee fund, it is imperative for the company to start
up with a larger sum of paid up capital. Aburizal expects to
raise its total paid up capital to Rp 30 billion by early next
year. But the original capital target of Rp 50 billion seems much
more feasible to start with.
There is another alternative that could increase the company's
capital more rapidly. The government could, for example, allocate
a portion of the funds, which are currently set aside by state
companies to foster small firms and cooperatives, for state
equity shares in the guarantee fund.
The present arrangement whereby state companies are obliged to
allocate at least five percent of their net profits annually for
the development of small-scale businesses is neither effective
nor efficient because their businesses are not related to those
of the small-scale enterprises they assist. In some instances a
fertilizer plant assists small-scale firms that produce charcoal,
or a cement company fosters small-scale producers of bamboo
baskets or hats.
It is really difficult to manage such programs because of the
absence of business inter-linkage. Since the programs smack of
charity operations, business accountability is often ignored. In
fact, state companies could easily hide any inefficiency or
incompetence by blaming failure of the program on the small-scale
businessmen. And the small-scale businessmen too often treat the
funds they receive simply as donations from the state.
Channeling the funds through the credit guarantee fund company
would make their use more accountable. After all, the target
beneficiaries of the guarantee fund and the state companies are
the same.