Foreign banks 'to help' small firms

JAKARTA (JP): Bank Indonesia, the central bank, plans to make it compulsory for joint ventures and foreign banks in Indonesia to allocate at least 20 percent of their overall credit to small businesses.

Bank Indonesia's director for credit, Mukhlis Rasyid, said the central bank would fine banks that failed to do this.

"They can choose either extending 20 percent of their credit to small businesses or pay the fines to Bank Indonesia," Mukhlis said.

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

Currently joint ventures and foreign banks do not have to meet any minimum requirement for credit to small businesses but have to allocate 50 percent of their total credit as export credit.

When the government brought in minimum small business credit requirements in 1990, foreign banks were given the option of following the minimum requirement or the minimum requirement for export credits.

"All foreign banks opted for minimum export credit requirements," he said.

Mukhlis said the central bank would also review minimum export credit requirements for joint venture and foreign banks in light of the minimum small business credit requirements.

He said that under the drafted ruling a bank's inability to meet the mandatory lending ratio would not affect its soundness because the penalty would be changed to fines.

"All of these things are still in a draft regulation to improve the current credit allocation system to small enterprises. We will announce it in detail when we make it into a regulation," Mukhlis said.

Small business credit is defined as credit to small businesses with a maximum credit ceiling of Rp 250 million (US$103,468) to finance productive business activities.

Small business credits from all commercial, development and rural banks reached Rp 48.3 trillion as of last December. This was 23.5 percent of their outstanding credits.

Overall banking credits grew 23.5 percent last year, while credits to small businesses grew 19.8 percent.

State banks extended 28.8 percent of their credit to small businesses as of last September, while private banks extended 18 percent.

Mukhlis said about 30 percent of Indonesia's 239 banks failed to meet the 20-percent mandatory lending ratio.

To help private commercial banks meet the mandatory lending ratio, the National Private Banks' Association signed yesterday a memorandum of understanding with the Rural Banks' Association to help channel credits from private commercial banks to small enterprises through rural banks.

The private bank association's chairman, Trenggono Purwosuprojo, said such cooperation was necessary because rural banks had more access to small enterprises than commercial banks did.

Indonesia has 2000 rural banks.

The two associations yesterday formed a foundation, called the National Bank Fund, with authorized capital of Rp 25 million, to foster cooperation between commercial and rural banks.

"As for banks which have their own model for extending credit to small enterprises, they may go on with their model. This foundation is to help banks which still face difficulties in accessing small enterprises," Trenggono said.

The foundation's chairman, Markus Permadi, said his first program would provide training packages for rural bank managers. (rid)