In search of new ap­proach in help­ing mi­cro and small busi­nesses

The Jakarta Post - JPlus - - Between the Lines - HENDARSYAH TARMIZI

Many vil­lagers have turned to fish farm­ing to gen­er­ate ad­di­tional in­come for their fam­i­lies. It is rel­a­tively easy and gives high re­turns too.

An­ton, a vil­lager liv­ing in the out­skirts of Bo­gor, West Java, is one of them. He has been in­volved in fish farm­ing for many years. But, he is un­able to ex­pand his fish­farm­ing busi­ness be­cause of a lack of funds. The eas­i­est way for farm­ers to ob­tain funds is to go to loan sharks, which of­ten of­fer in­ter­est rates four times higher than those charged by banks. He has de­clined of­fers from loan sharks, be­cause ob­tain­ing money from them could in­stead kill his busi­ness.

An­ton was once in­formed about a fi­nan­cial pro­gram es­pe­cially in­tended for farm­ers, fish­er­men and the own­ers of mi­cro, small and medium busi­nesses. He wants to ap­ply for the cheap loans but does not know how to do so.

An­ton is not alone. Many farm­ers and own­ers of small busi­ness such as tofu and tem­peh mak­ers or food sell­ers have the same fate. The lack of knowl­edge and ac­cess to bank­ing ser­vices has pre­vented them ben­e­fit­ing from such spe­cial lend­ing fa­cil­i­ties.

The govern­ment has, for more than nine years, of­fered the sub­si­dized lend­ing fa­cil­ity called KUR to em­power mi­cro, small and medium com­pa­nies. Un­der the spe­cial lend­ing pro­gram, the in­tended re­cip­i­ents can re­ceive funds rang­ing from Rp 25 mil­lion (US$1,875) to Rp 500 mil­lion, de­pend­ing on the scale of their busi­ness.

The KUR loans not only of­fer a low in­ter­est rate of only 9 per­cent per an­num but also have rel­a­tively longer ma­tu­rity pe­ri­ods of up to three years.

The govern­ment has as­signed a num­ber of banks to dis­trib­ute the sub­si­dized loans. They in­clude Bank Rakyat In­done­sia (BRI), Bank Ne­gara In­done­sia (BNI), Bank Mandiri (Mandiri), Bank Cen­tral Asia (BCA), Bank OCBC NISP, Bank May­bank In­done­sia, Bank Per­mata, Bank Panin, Bank Artha Graha, Bank Si­n­ar­mas, BPD Bali, BPD West Kal­i­man­tan and BPD East Nusa Teng­gara.

The re­quire­ments to ob­tain the loans are not as tight as those ap­plied to reg­u­lar com­mer­cial loans, which of­fer far higher lend­ing rates of up to 16 per­cent per an­num.

In or­der to be able to ben­e­fit from cheap loans, bor­row­ers only need to sub­mit ap­pli­ca­tion forms to the ap­pointed banks, ac­com­pa­nied by copies of iden­tity cards, fam­ily cards, tax reg­is­tra­tion num­bers (NPWP), as well as col­lat­eral doc­u­ments, and busi­ness per­mits for those who have for­mally es­tab­lished com­pa­nies.

The amount of funds al­lo­cated for the KUR lend­ing fa­cil­ity has con­tin­ued to in­crease since its in­cep­tion in 2007. This year, the KUR loan al­lo­ca­tion has been in­creased to Rp 100 tril­lion, al­most five times the Rp 22.7 tril­lion re­al­ized in 2015.

The re­al­iza­tion of the KUR loans is also ris­ing thanks to ex­tra cam­paigns launched by re­lated govern­ment agen­cies such as the Co­op­er­a­tives and Small and Medium En­ter­prises Min­istry (UKM).

Ac­cord­ing to the min­istry, the dis­burse­ment of the KUR loans reached a to­tal of Rp 64.7 tril­lion as of the end of Au­gust, or about 65 per­cent of the full-year tar­get. About 70 per­cent of the to­tal was dis­bursed to the trad­ing sec­tor, mostly medium-scale re­tail­ers, while the farm­ing sec­tor only re­ceived about 15 per­cent.

Co­or­di­nat­ing Eco­nomic Min­is­ter Darmin Na­su­tion could not hide his dis­ap­point­ment upon find­ing out that farm­ers and fish­er­men, among the main re­cip­i­ent tar­gets of the lend­ing fa­cil­ity, only re­ceived a small por­tion of the sub­si­dized loans.

Darmin said the loan dis­burse­ment mech­a­nism should be changed so that the lend­ing fa­cil­ity not only ben­e­fited medium-scale re­tail­ers. The dis­burse­ment of the cheap loans to the farm­ing sec­tor re­mains low not be­cause they do not need the fund­ing, but be­cause they are un­able to meet the re­quire­ments and the ad­min­is­tra­tive pro­ce­dures for such loans.

If the govern­ment is se­ri­ous in em­pow­er­ing mi­cro and small busi­ness in­clud­ing farm­ers and fish­er­men, it should give them spe­cial treat­ment. It is cer­tainly un­fair if they are treated the same as medium-scale com­pa­nies, which ab­sorbed most of the cheap funds. The farm­ers and own­ers of small busi­ness should be given eas­ier re­quire­ments.

Un­like medium-scale re­tail­ers who al­ready use mod­ern man­age­ment in run­ning their busi­nesses, the small busi­nesses are mostly still poorly man­aged. With such a sit­u­a­tion, it will be dif­fi­cult for the small and weak com­pa­nies to meet the ad­min­is­tra­tive pro­ce­dures to get the lend­ing.

The em­pow­er­ment of mi­cro and small busi­ness should, there­fore, re­ceive spe­cial at­ten­tion from the govern­ment, es­pe­cially the Co­op­er­a­tives Min­istry and the UKM, which is in charge of pro­mot­ing the role of small and medium com­pa­nies in the econ­omy.

The em­pow­er­ment of the mi­cro and small com­pa­nies should, for ex­am­ple, be car­ried out un­der an in­te­grated pack­age that in­cludes not only the pro­vi­sion of ba­sic knowl­edge about busi­ness and man­age­ment but also fi­nan­cial coun­sel­ing. The tech­ni­cal as­sis­tance should also in­clude guid­ance in ob­tain­ing nec­es­sary busi­ness per­mits and in es­tab­lish­ing good book keep­ing, the main re­quire­ments that have to be ful­filled when ap­ply­ing for bank loans.

Only with such an ap­proach, can the em­pow­er­ment of mi­cro and small busi­ness be ef­fec­tively achieved.

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