Ventura capital alternative for SMEs: Analyst
The Jakarta Post Jakarta
With most small and medium enterprises (SMEs) lacking the financial capacity to obtain commercial bank loans, venture capital investment could become a viable alternative for providing much-needed financing for SMEs, an analyst said.
Speaking at a workshop on SME financing, the chairman of the Indonesian Association of Muslim Intellectuals, Muslimin Nasution, said on Monday that venture capitalists (VCs), who place more consideration on businesses' prospects and productivity rather than their assets and collateral, could fill the financing gap for SMEs.
"Venture capital investments would benefit SMEs as they are free from principal and interest payments that would burden their limited cash flow," he said.
"Meanwhile, VCs also have an interest in making sure that the SMEs run their businesses properly, thus helping the SMEs build their managerial capacity," he said.
The workshop was sponsored by venture capitalist PT Bahana Artha Ventura (BAV), a subsidiary of the government and central bank-owned SME empowerment firm, PT Bahana Pembinaan Usaha Indonesia.
Venture capital investments work by co-funding a business with its owner and sharing the profits afterward. Originating in the United States, India and China have been encouraging VCs to facilitate SME financing, and both countries saw more than US$1 billion of such investments last year.
Indonesian SMEs can also benefit from venture capital investment schemes, Muslimin added, but what is needed is a paradigm shift away from the banking sector's established 5C principles of "character, capacity, capital, condition and collateral" in providing credits, toward the venture capitalists' 4P principles of "purpose, personality, productivity and payment".
"For this, strong political will is needed by the government to support SMEs, which have shown that they are drivers of the economy and provide employment," he said.
BAV president Parman Nataatmadja agreed with Muslimin, and said the government should help to find sources of financing for SMEs.
"We would hope the government could divert a portion of the budget ... to develop the economy-driving businesses of SMEs," he said.
As of June 2005, BAV had channeled a total of Rp 2.63 trillion (some $268 million) to 14,053 SME partners through its 26 regional jointly owned venture capital firms throughout the country.
"We hope to be able to increase this to Rp 3 trillion next year, extending it 15,000 SMEs," Parman said.
For this, BAV has prepared an initial fund of Rp 539 billion, more than half of which was provided by Germany's Kreditanstalt fur Wiederaufbau and the Asian Development Bank.