Small firms not viable for banks

Small firms not viable for banks

JAKARTA (JP): Most small-scale industrial companies still face difficulties in obtaining credit from commercial banks, said an executive of the Ministry of Industry yesterday.

Atih Suryati Herman, the head of the board for the development of small-scale industries, said most small-scale companies are still considered unacceptable for bank loans due to their inability to provide sufficient collateral and to meet other lending requirements.

"That's why only a handful of small-scale industrial companies can acquire bank loans," Atih said in a workshop on credits to small-scale industries.

She said that the outstanding credits given to small-scale industrial companies as of last October reached around Rp 3.09 trillion, accounting for less than 10 percent of the total loans extended to all small businesses in the country.

Atih said that the Ministry of Industry has cooperated with other government institutions, such as the central bank, state- owned companies and the Ministry of Education and Culture to improve their skills in management, financing and marketing.

"We, as well, have asked a number of state-owned firms to act as guarantors of loans for small businesses," she said about her office's program in widening the access of small businesses to bank funding.

Commercial banks are required to set aside at least 20 percent of their credit portfolios to small-scale companies as part of the government's program to help financially weak businesses in the country.

However, Riyanto, a noted banking analyst, said that many commercial banks face obstacles in meeting the requirement.

Certain banks consider providing credit to small businesses not only carries high risks but also offers less gains, Riyanto said, adding that the high transaction costs could be the main reason why many banks are still reluctant to finance small businesses. (hen)