Government prepares scheme to push bank loans for SMEs

Government prepares scheme to push bank loans for SMEs

Fitri Wulandari, The Jakarta Post, Jakarta

The government has prepared a scheme to channel excess
liquidity in the banking sector to the business sector
particularly the small and medium-sized enterprises (SMEs), a
senior minister said.

Coordinating Minister of the Economy Dorodjatun Kuntjoro-Jakti
said under the plan, state-owned enterprises (SOEs) would be
asked to deposit a certain amount in banks as collateral to back
up loans for the SMEs.

"Bank Indonesia has approved the scheme," he told reporters
after a Cabinet meeting on the economy on Thursday.

Despite the current low domestic interest rate environment,
banks have remained reluctant to channel their money to the
business sector partly due to slow progress in corporate
restructuring, which makes lending to companies risky. This has
in turn has created excess liquidity.

Bank Indonesia has said that while bank lending prior to the
late 1990s financial crisis reached about 75 percent of gross
domestic product, the figure now is only around 25 percent of
GDP.

The central bank has also said that one of the major reasons
behind the current sharp drop in the value of the rupiah was the
excess liquidity as part of the funds had been used to speculate
against the rupiah. Bank Indonesia has raised the bank reserve
requirement to absorb the excess liquidity.

The SME sector plays an important role in the local economy as
it is a major job provider.

But Dorodjatun said that many SMEs were facing difficulties in
obtaining bank loans for business expansion due partly to lack of
collateral.

He pointed out as an example that when the government
increased credit allocation for the SME sector to Rp 42 trillion
in 2002, not all had been absorbed by the SMEs.

Dorodjatun did not give details about how much state
enterprises will put in banks as collateral for loans to SMEs or
when the scheme will take effect.

He said the scheme still needed tweaking before it could be
realized.

Further, Dorodjatun said central bank moves to prevent banks
from using excess funds to speculate against the local currency
has started to show results.

A creation of a seven-day "intervention rate" which allows
Bank Indonesia to borrow rupiah from banks at a 7 percent
interest rate has absorbed just under Rp 20 trillion in excess
liquidity.