New government aims to promote SME development

New government aims to promote SME development

The Jakarta Post, Jakarta

The government promised on Thursday to put more focus on the
development of small and medium-sized enterprises (SMEs) in the
country given their contribution to domestic economic growth.

As part of a worldwide campaign sponsored by the United
Nations for 2005 to be the International Year of Micro Credit,
the government said it was determined to promote SMEs by
encouraging both financial and non-financial institutions to
provide more accessible lending.

"We plan to carry out many activities in the campaign, with
discussion groups and even a competition. But the main focus is
to encourage both banks and other financial institutions to
disburse more funds to SMEs considering the relatively small
proportion (currently) allocated to them," Dipo Alam, a deputy at
the Office of Coordinating Minister for Economic Affairs and the
chairman of the Indonesian Micro Credit Year Committee, said.

Bank Indonesia (BI) defines a micro-sized loan as one under Rp
50 million (about US$5,500). The bank's data shows that as of
August, loans channeled to SMEs totaled only Rp 119.5 trillion
out of Rp 510.6 trillion of the total loans disbursed by banks.

"Furthermore, figures by BI show the rate of non-performing
loans channeled to SMEs is only (small) at about 0.01 percent.
This is an advantage," Dipo said.

Unlike large banks that focused large businesses, most banks
whose major debtors were SMEs, survived the financial crisis that
hit the country in the late 1990s due to the small amount of non-
performing loans accrued by the debtors.

Banks have been enjoying handsome profits during the past few
years because of the central bank's low benchmark interest rate,
currently at 7.41 percent, allowing banks to lend more and get a
higher interest return.

Rudjito, the president director of Bank Rakyat Indonesia --
which disburses nearly all of its loans to SMEs -- said more
efforts could include optimizing the works of financial
consultants as the partners for banks to assist SMEs in local
areas.

"The government must also foster banks to collaborate with
rural banks in disbursing micro credits and by obliging banks to
lay out their strategies to develop SMEs in their business
plans," he said.

Rudjito said at present only 15 percent of SMEs in the country
were financed by banks, while the rest were financed by non-
banks, such as cooperatives and non-governmental organizations.

"To be even braver, giving a maximum amount of loan without
collateral is also an option worth exercising," he said.

Elsewhere, director of state investment firm PT Permodalan
Nasional Madani (PNM) B.S. Kusmuljono said PNM was prepared to
help disburse more loans to SMEs, both provided by the government
and international donors.

"We've just been assigned by the Ministry of Finance to manage
a $17 million worth of loans by the Asian Development Bank to
upgrade low-cost houses into business locations. Hopefully, more
donors will follow suit," he said.

Kusmuljono said that no interest rates had yet been determined
for the loans that held a 20-year tenure.

As part of the International Micro Credit Year, the government
will select businesspeople considered to have succeeded in
developing SMEs for an entrepreneur's award.

The winner would be given their award by President Susilo
Bambang Yudhoyono and be sent to the UN Year of Micro Credit
meeting in New York on Nov. 18.