In search of new approach in helping micro and small businesses
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.