SMEs in Aceh finding it difficult to start over

SMEs in Aceh finding it difficult to start over

Urip Hudiono, The Jakarta Post, Jakarta

Despite their eagerness to get back on their feet and start anew
after last year's tsunami, small and medium enterprises (SMEs) in
Aceh are apparently still finding it hard to seek the necessary
capital.

The SMEs are facing difficulties in obtaining new credit and
servicing their previous liabilities, when all their assets and
belongings were devastated by the Dec. 26 disaster, a seminar
held on Tuesday by the World Bank's International Finance
Corporation (IFC) and Bank Indonesia (BI) revealed.

"There is actually a lot of enthusiasm for economic activities
in Aceh nowadays, particularly among SMEs. Unfortunately,
challenges remain on how to provide financing for these SMEs,"
said Chris Richards, general manager of IFC's Program for Eastern
Indonesia SME Assistance (PENSA).

"One of the main issues was how SMEs can obtain new credit to
restart their businesses, when their previous outstanding loans
have yet to be resolved, leading to discussions on a debt write-
off scheme for SMEs."

Data from the Ministry of Cooperatives and SMEs shows that
some Rp 1.1 trillion (US$112 million) of SME loans in Aceh have
turned insolvent due to the tsunami, including Rp 543 billion
from Aceh's Regional Development Bank, Rp 408 billion from BRI,
Rp 82 billion from Bank Bukopin and Rp 55 billion from BNI.

Nearly 4,000 SMEs in Aceh and North Sumatra, that had a
combined sales revenue of Rp 35 billion and employed some 18,000
people, have been affected by the tsunami.

In light of this, BI has issued a regulation on special
treatment for SME loans in tsunami-affected areas, which includes
allowing banks to write off such debts, and exempting SMEs from
BI's uniform collectibility policy on loans from more than one
creditor.

However, several lenders have found it difficult to implement
the regulation, particularly the debt write-off scheme, on
concerns it would hurt their own financial condition.

Richards said BI, IFC and related lenders might exempt loans
that turned bad because of the tsunami and not because of
mismanagement.

Head of BI's credit bureau, Ratna E. Amiaty, suggested the
establishment of a credit insurance agency in Aceh to help
encourage lenders to provide loans to SMEs that lack collateral
to guarantee their loans.

Richards also welcomed the idea, suggesting the insurance
agency and lenders coordinate with each other so that it does not
add to the chain of bureaucracy for SMEs in obtaining credit. He
also cautioned subsidizing credit costs for SMEs, as it may lead
to an unhealthy credit environment in the future.

BI Senior Deputy Governor, Miranda S. Goeltom, separately said
that the central bank objected to SME subsidies such as lower
credit interest rates, arguing the potential moral hazard to the
banking industry and the SMEs themselves. She, however,
acknowledged the need of more financial access to SMEs, stressing
the need to empower their management skills.