Micro-credits require no subsidy, say Mar'ie

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said yesterday the government would never subsidize credit to very small businesses, usually called micro-credit, as it could backlash.

Mar'ie said here yesterday that other countries' experiences had taught Indonesia not to subsidize micro-credit.

"Microfinance institutions that provide commercial financial services can become self-sufficient and sustainable without government subsidies," Mar'ie told a workshop on micro-credit financing held by state-owned Bank Rakyat Indonesia (BRI).

The minister said sound micro-finance institutions played a vital role in meeting the financial needs of micro businesses and low-income earners.

He said micro businesses and low-income earners did not care much about interest rates, but they cared more about the availability of funds.

Mar'ie gave as an example the popularity of pawn shops with the poor as a loan source, even though they charge very high interest.

"What is really needed by low-income earners and very small businesses is easy access to financial services. Therefore, credit for them must be processed quickly by officials at the lowest possible level," Mar'ie said.

He saw lending to micro enterprises as a profitable business. But the variety of micro businesses and their widely-spread out locations calls for a flexible credit system responsive to their diverse and specific needs.

He commended BRI's micro-credit scheme which has reached micro businesses and low-income earners in almost every sub-district in Indonesia.

"Financial services that are widely and easily accessible to the rural community and poor urban community allow small and micro businesses to take advantage of business opportunities and financing their growth," Mar'ie said.

BRI president Djokosantoso Moeljono said the bank's micro- credit had totaled Rp 23 trillion (US$9.44 billion) since 1983, reaching 18 million low-income people and very small businesses.

BRI offers micro-credit in the form of loans up to Rp 25 million, with annual interest rates of up to 32 percent. But customers who have good repayment records can get annual interest rates of up to 28 percent.

Djokosantoso said the interest rates were quite high compared with those corporate clients were charged, which are about 20 percent.

"But the administrations cost of micro-credit is also very high, " he said, adding that BRI micro-credit interest rates were lower than those charged by secondary banks.

Secondary banks usually charge interest rates of some 30 percent to 40 percent.

Djokosantoso said 96.2 percent of BRI's Rp 23 trillion micro credit went to those who needed loans of less than Rp 5 million.

He said that problem loans under BRI's micro credit scheme were below 2 percent.

Mar'ie said the success of BRI's micro-credit scheme had attracted banking communities from 89 countries to study it. (rid)