Foreign banks 'to help' small firms

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)