Ventura capital alternative for SMEs: Analyst

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.