The House of Representatives endorsed Tuesday a law on micro-, small- and medium-sized enterprises (MSMEs) aimed at empowering the sector with partnerships with larger business.
Under the law, a partnership must be mutually beneficial and may not lead to an acquisition of the smaller business.
Medium and large businesses are only allowed to establish partnerships with micro and small enterprises based on nucleus partnerships, subcontract agreements, franchises, general trade and distribution agreements.
"This kind of partnership will help micro and small firms expand their businesses," State Minister of Cooperatives and Small and Medium Enterprises Suryadharma Ali said during the endorsement of the law at a plenary session.
Large businesses found to have violated the law face a maximum fine of Rp 10 billion (US$1.07 million) and the revocation of their business permits, while medium businesses risk a maximum Rp 5 billion penalty and the cancellation of their business permit.
The law also stipulates that local governments must establish credit insurance agencies to act as credit guarantors.
All clauses in the law will be effective once the government issues a regulation detailing practical guidance.
Securing financing remains one of the largest obstacles to sector's growth as many banks are reluctant to give out loans to MSMEs, which are considered high risk.
To remedy the problem, the National Commission on Indonesian Microfinancing Empowerment (Komnas PKMI) has built a linkage program between banks and micro businesses, which also involves state credit insurance company PT Asuransi Kredit Indonesia (Askrindo).
Under the program, the credit ceiling for micro businesses is set at Rp 5 million with Askrindo guaranteeing 70 percent of the loans.
The program covers six state banks: Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Negara Indonesia (BNI), Bank Syariah Mandiri, Bank Tabungan Negara (BTN) and Bank Bukopin.
Komnas PKMI expects banks to disburse up to Rp 15 trillion in loans this year to support micro businesses. Total outstanding loans to micro businesses stood at Rp 6.5 trillion as of the end of May. (alf)