Jakarta – Outstanding loans to small and medium enterprises amount to Rp 426 trillion (about US$47.33 billion), or more than 50 percent of the total loans extended by the banking industry,
However, the impact on job creation has been minimal as most of the loans are extended to trading businesses, which pose less risks than industrial enterprises, says Bank Rakyat Indonesia (BRI) commissioner Aviliani.
"The banks are reluctant to give loans to the productive sector as the risks are higher compared to the trading sector," Aviliani said Thursday during a seminar on microfinance.
She said that for many banks, the risks posed by the industrial sector were too high as manufacturing businesses still had problems as regards marketing and securing raw materials.
"The government must establish a clearly defined structure for the industrial sector so that upstream and downstream industries can support one another," she explained.
According to Bank Indonesia figures, outstanding loans to micro, small and medium-scale businesses rose by 15.6 percent to Rp 426 trillion in 2006. The greater part of the overall loans in value terms went to trading businesses.
Loans to micro, small and medium-enterprises accounted for 52.9 percent of the total of Rp 832.9 trillion lent out by the country's banks in 2006.
In BRI's lending portfolio, for example, the trading sector secured 26.01 percent of total-loan value for micro, small and medium-enterprises, while the industrial sector only received 8.27 percent of the total.
Bank Indonesia Deputy Governor Muliaman D Hadad said that the country's current macroeconomic stability would not be sufficient on its own to alleviate the unemployment and poverty problems.
"We predict that our economy will grow by between 5.9 and 6.3 percent this year, but this will not be enough to overcome the unemployment and poverty problems as growth is being driven by consumption, rather than by new investment," he explained.
He said that the strengthening of the micro, small and medium-enterprise sector would be one effective way of overcoming unemployment and poverty.
Unfortunately, he said, these types of enterprises faced various intractable problems, such as a lack of capital. Meanwhile, it was difficult for them to access bank loans due to their inability to provide collateral and satisfy other loan requirements.
"Lending to micro, small and medium industrial enterprises is still far from satisfactory as the banks lack sufficient information on prospective sectors in these industrial categories," he explained.
Therefore, he said, it was essential that bankers had access to better information on prospective businesses. "In addition, the use of insurance should be also promoted in order to help reduce the risks for micro, small and medium enterprises."