Partnerships will help loan prospects

JAKARTA (JP): Solid partnerships between small enterprises and their larger counterparts could provide a good basis on which banks would be willing to approve collateral-free loans to small businesses, a senior bank executive said yesterday.

The president of the privately-owned Bank Bukopin, Indra Kesuma, said yesterday that banks would feel more confident about extending collateral-free loans in circumstances where the borrower had a captive market. Indra was commenting on the government's new plan to allow small businesses to obtain collateral-free bank loans of up to Rp 50 million (US$22,000).

Up to now, all bank loans in Indonesia have had to be supported by a guarantee, making funds difficult to obtain for small entrepreneurs.

"The lack of a captive market is the main weakness of small businesses. But if they can be supported by a buyer, such as a larger industrial firm, banks will feel more secure in extending collateral-free loans," Indra said.

He suggested that big businesses should open up their streams of business, which often run from the uppermost to the lowest levels of an industrial sector, and allow small players to take part.

"After their products meet certain quality standards, for instance, small businesses can take over the job of 40 percent of a large company's activities and gradually bring it up to 60 percent," Indra said.

Minister of Finance Mar'ie Muhammad said last week that the plan to provide collateral-free loans would first be implemented by state-owned banks, while private banks would be involved in the future.

Mar'ie emphasized, however, that it was up to the lending bank to assess a business and determine whether or not it was eligible for such a loan.

Indra, who was accompanied yesterday by Bukopin's Director of Operations Nasrah Mawardi, said that, irrespective of a business's viability, banks would still feel queasy about extending a loan in the absence of collateral.

"If borrowing businesses have collateral, they feel more responsible about managing a loan," he said.

Bank Bukopin has been conducting a similar program to the government's proposed scheme, Indra said, under its Village Credit Pilot Project.

Through the project, which began in 1987, Bukopin disburses collateral-free loans of up to Rp 5 million to groups of small businesses.

The loans carry an annual interest rate of 48 percent, he said, adding that, so far, the bank has extended, cumulatively, a total of Rp 12 billion in such loans.

"The level of bad debts under this project is very low, accounting for only about one percent," he said.

Indra said that, as of June, about 56 percent of Bukopin's borrowers were small businesses, with total outstanding credits of Rp 1.2 trillion. (pwn)