Venture capital, OTC could narrow gap

JAKARTA (JP): Economists suggested here yesterday that the country further develop venture capital businesses and the Over- the-Counter (OTC) stock market in a bid to narrow the gap between large and small companies.

They also called for the establishment of an independent body to help small- and medium-scale companies locate financial sources outside the banking system and the capital market.

Marzuki Usman, the chairman of the Association of Indonesian Economists, said narrowing the ever-widening gap between small and medium companies on the one hand and conglomerates on the other should be more pragmatic.

"Pragmatic approaches, such as giving more of a push to the development of the venture capital and the OTC markets, will be more effective in financing activities of small- and medium-scale companies," he said.

Speakers at yesterday's business seminar included Bacelius Ruru, the chairman of the Capital Market Supervisory Agency (Bapepam), Hafiz Arief, the director of the state-owned PT Bahana Artha Ventura, and Mahfud Jakile, the head of the monetary department of the Indonesian Chamber of Commerce and Industry (Kadin), Hasan Zein Mahmud, the president of the Jakarta Stock Exchange (JSX), and Tito Sulistio, the president of the OTC stock market.

Mahfud, however, said that developing OTC and venture capital would not be enough if no agency is assigned to improve their management and marketing.

He said that most small- and medium-scale companies have failed to obtain bank loans not only due to lack of collateral but also because of their poor business administration.

Improvement

If there is no improvement in their administration systems such as in managing financial reports, the companies will still face the same handicaps in raising funds outside the banking system, said Mahfud, the former president of the state-owned Bank Tabungan Negara (BTN).

"No investors will be interested in their shares if their financial reports are not audited or if their operations have no legal bases," he said.

The government has introduced a number of instruments over the past few years to help financially weak companies, but most of the approaches do not run as expected. Many banks, for example, still fail to meet the central bank's requirement to provide at least 20 percent of their loans to small and medium companies. State-owned companies, which are also obliged to set aside between one to five percent of their net profits for small- and medium-scale companies, also face difficulties in channeling their funds.

Critics say that the gap continues to widen as the financial institutions prefer providing loans to big companies because lending costs are generally lower than when providing loans to small- and medium-scale firms.

Mahfud said that an immediate solution, such as utilizing billions of rupiah of funds raised from the contribution of state-owned companies, is needed.

"The solution could be the creation of an independent body to specifically handle the funds and distribute them to a feasible company," he said, adding that the body should also be responsible fro providing the company with management and marketing skills.

Tito Sulistio said a number of approaches are being hammered out to make the OTC a more affective financial instrument for small- and medium-scale companies.

"The trading system will be improved to make shares more liquid," Tito, the newly appointed president of the OTC.

He said that the face value of the shares will be reduced to around Rp 500 from Rp 1,000 to attract retail investors.

Tito expects the new trading mechanism to make the market more attractive for both the investing public and share issuers. (hen)