Govt should allow full foreign ownership: APPI

The Jakarta Post, Jakarta

The pace of growth in the country's finance industry could further be accelerated if the government allowed full ownership in local financing firms, the industry's association says.

Chairman of the Indonesian Financing Firms Association (APPI) Susilo Sudjono said on Monday there was actually high interest from foreign investors to get into the country's financing business.

However, it has been hampered by the fact that the government had since 2002 prohibited full foreign ownership.

"It is ironic. While many foreign investors wanting to expand the industry cannot get the needed business permits, on the other hand, there are many licensed financing firms who are actually not doing any business at all," Susilo said.

There are currently 230 financing firms licensed at the finance ministry and members of APPI, but only 126 are active.

Susilo explained that for the time being, interested foreign investors could only enter the industry through joint venture schemes, by buying up to 85 percent of the shares of local financing firms.

Of the 230 APPI members, there are a total of 35 joint venture financing firms.

"Foreign investors can actually strike up a joint venture with dormant financing firms, but it would be too risky, as such firms are usually in an unhealthy financial condition," he said.

Concerning the prospects for financing firms in the country, Susilo cited data from APPI that shows the total assets of financing firms in the country rose to Rp 74.9 trillion (some US$7.8 billion) last year, up from Rp 47.2 trillion in 2003, or almost double 2002's Rp 39.9 trillion in assets.

The largest contributor to the financing firms' assets is funds channeled to consumer financing activities -- particularly for car loans -- reaching 90 percent or Rp 34.4 trillion of the assets.

Financing firms are also becoming the public's main financiers, as 90 percent of motorcycle loans and 70 percent of car loans are done through the firms, as compared to 10 percent and 30 percent, respectively, through banks, Susilo claimed.

Susilo however denied that financing firms promote consumptive behavior, as many of the car and motorcycle loans are used for productive purposes such as going to work or being rented for businesses.

APPI expects the figures to grow by another 10 to 20 percent this year, with more financing firms resorting to bond issuances as a source of their funds.

At least four financing firms have issued bonds worth Rp 3.1 trillion as of April, in addition to nine firms issuing Rp 5.2 trillion in bonds last year.