Govt, ADB to channel $85m in loans for SMEs

Evi Mariani, The Jakarta Post, Jakarta

The government and the Asian Development Bank (ADB) will channel US$85 million in loans for small- and medium-scale exporters across the country by the end of this year, in a bid to promote economic growth and job creation.

Small and medium enterprises (SMEs) form the backbone of the Indonesian economy. Government records show that in 2002, SMEs totaled 3.03 million across the country, or equal to 95.78 percent of the country's total business units, and absorbed 11.89 million jobs.

The government has appointed Bank Ekspor Indonesia to administer the loans, said Agus Tjahajana, Director General for Small and Medium Enterprises at the Ministry of Industry and Trade.

"The loans will be channeled by the end of this year through a consortium consisting of several banks such as BNI, Bank Mandiri and (Bank) Danamon," he told reporters on Thursday.

He said that small and medium enterprises were each entitled to borrow a maximum of $600,000 at an interest rate of 1 to 2 percent below the average commercial lending rate. The commercial lending rate now stands between 15 and 16 percent.

ADB approved the $85-million loan for the Small and Medium Enterprise Export Development Project in December last year, which aims to assist Indonesian exporters in modernizing and expanding their business.

The bank expects the project, due for completion toward the end of 2007, to create 1.5 million jobs.

Aside from the loan, ADB will also grant $500,000 to support bank appraisals and small exporters' eligibility to apply for credit.

An ADB report shows only one in five SMEs has access to bank credit, leaving untapped a great potential to fund profitable small projects to create and sustain new jobs.

The bank estimates the total cost of the project at $113 million, 25 percent of which will be provided by participating banks and sub-borrowers.

According to Law No. 9/1995 on small enterprises, a small- scale enterprise is defined as one having net assets of up to Rp 200 million ($23,500) and maximum annual sales of Rp 1 billion.

The government is currently formulating a definition for medium-scale enterprises. For the time being, according to a government publication on SMEs, a medium-scale company is defined as one having annual sales of between Rp 1 billion to Rp 50 billion.