Govt funds allocated for micro, small businesses

The Jakarta Post, Jakarta

In another attempt to speed up the poverty eradication drive, the House of Representatives approved on Monday plans to set aside Rp 3.1 trillion (about US$365 million) of working capital for small- and micro-scale businesses.

The funds, taken from part of the government proceeds from its domestic bond sales, will be distributed through state banks and other state financial institutions which have networks across the country over a seven-year period.

The decision was taken during a hearing between legislators at the House Commission IX on financial affairs and a government delegation led by Darmin Nasution, Director General for Financial Institution at the Ministry of Finance.

The plan first emerged two years ago based on a recommendation from the ministry for cooperatives and small and medium enterprises.

According to Darmin, a business is categorized as micro if it has less than Rp 100 million (around US$ 12,000) of sales volume per year.

"As for small businesses, we categorize them as a productive business which are not affiliated with medium and huge business," he told the hearing, adding that annual sales should also be on or below Rp 200 million.

The state institutions appointed to distribute the low- interest funds are differentiated into two groups.

Bank Tabungan Negara (BTN), Bank Negara Indonesia (BNI), Bank Mandiri, Bukopin, Bank Rakyat Indonesia (BRI), Regional Banks Association (which groups regional lenders of Bank Perkreditan Daerah, or BPD), and Perum Pegadaian (state-owned pawnshop agency) are included in the first group. They will be allowed to directly extend the working capital to customers.

The second group, which consists of state-owned investment firm PT Permodalan Nasional Madani (PNM), will distribute the loans through other state banks -- notably Bank Perkreditan Rakyat (BPR), although consequently the two-phases of lending process would create higher interest rates than those of loans disbursed directly.

The program forms part of intensified efforts on part of the government to develop and empower small- and medium-scale enterprises (SMEs), which are expected to eventually boost economic activities and create more job opportunities, thus help reduce chronic poverty and unemployment problems.

It is different from another program set up by the government and Bank Indonesia which requires local banks to set aside a certain amount of lending to SMEs in their business plan.

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 12 million jobs.