Easing Loans for Small Businesses, OJK to Set Low Interest Rates for Microfinance

 
Fathan Qorib, Robert Sidauruk
 
In an effort to enhance the development of small and medium enterprises (SME) and improve their access to financial services, the Financial Services Authority (OJK) is promising low interest rates loans to the microfinance sector .
 
“Efforts to increase public access to the financial services sector will be useless if it not followed by actions to provide low interest rates on loans to SMEs,” said Muliaman D. Hadad, Chairman of OJK’s Board of Commissioners, in Jakarta on Wednesday.
 
Mr. Hadad further explained that the development of the microfinance sector to support SMEs has been implemented in China and Vietnam. Both countries, according to Mr. Hadad, are focusing their financial inclusion policy on allocating and disbursing credit to SMEs. Similar actions are equally applicable to Indonesia, as the three countries share similar characteristics.
 
“They [China and Vietnam] have similar financial challenges as Indonesia. However, they continue to target prosperity for their SMEs,” added Mr. Hadad.
 
Mr. Hadad hopes that state-owned banks can be pioneers and involved in developing SMEs. Mr. Hadad recognizes, however, that there are three substantial challenges for State owned banks to contribute in this capacity.
 
First, is a lack of access to funding by low-income members of society. The next is a lack of interconnection between banks and big enterprises to provide funds to SMEs. Finally, is the slow development of technology to reduce costs, such as the implementation of branchless banking.
 
Maximum Loans by Rural Banks
In line with the OJK’s objective to improve the microfinance sector, Joko Suyanto, Chairman of the Indonesian Rural Banks Associations (Perbarindo), suggests the government increase the maximum levels for the Microcredit Scheme (KUR) that can be granted by rural banks to SME from the current IDR 2 billion to IDR 10–12 Billion. He also suggests that rural banks should be directly involved in disbursing KUR.
 
Responding to this idea, Agus Muharram, Secretary at the Ministry of Cooperatives and Small-Medium Enterprises, said that this idea will be discussed at an internal meeting of the Ministery as the proxy for KUR budget.
 
“It is possible to increase the maximum loan to IDR 5 billion,” said Mr. Muharram.
 
However, Mr. Muharram indicated that the government is unlikely to approve the direct involvement of rural banks in disbursing KUR, as the credit scheme under the KUR is under similar constraints as regular credit schemes organized independently by rural banks.
 
(hot/kc)