Loans to SMEs still sluggish as of September: BI

The Jakarta Post, Jakarta

The central bank said on Thursday that the banking sector had extended some Rp 20 trillion in new loans to small- and medium- scale enterprises (SMEs) in the first nine months of the year, less than half the full-year target of Rp 42.3 trillion.

Nevertheless, Bank Indonesia deputy governor Maulana Ibrahim remained optimistic that the target was attainable, as banking loans were expected to increase significantly in the final quarter.

"The loan target is part of the banks' business plans. This is something that can affect their performance, so I'm upbeat that they will meet the target. Also, loans usually increase leading up to the year's end," Maulana said during a seminar here.

Two years ago, the Poverty Eradication Committee (KPK), which is headed by Coordinating Minister for People's Welfare Jusuf Kalla, signed a memorandum of understanding with the central bank to push banks to channel a certain amount of loans to SMEs and include the scheme in their annual business plans.

The agreement was meant to empower and develop SMEs via capital injection in an effort to boost economic activities and create more job opportunities and thus reduce chronic poverty. The program aims to reduce the poverty rate from the current 16 percent to 14 percent of the population by the end of next year.

Lending to SMEs is considered a high priority, given their strategic role in the country's economy. In 2002, there were 3.03 million SMEs across the country -- equal to 95.78 percent of the country's business units -- and absorbed 12 million jobs.

Under the loan scheme, banks extended Rp 30.7 trillion to SMEs last year, a 35.1 percent increase from 2001 and more than double the 15 percent growth of all banking loans that year.

This year's SME loan target comprises about 50 percent of the target for new loans in the banking sector.

Law No. 9/1995 on small enterprises defines small-scale enterprises as those with net assets of up to Rp 200 million and a maximum annual sales of Rp 1 billion. The law does not provide a definition for medium-scale enterprises.

According to a government publication on SMEs, however, medium-scale companies are those with annual sales of between Rp 1 billion to Rp 50 billion.