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)