Economically speaking, the role of small and medium enterprises (SMEs) including micro enterprises and cooperative is very significant in Indonesian economy. This is because SMEs are not only able to react flexibly and sensitively during the period of economic crisis, but also increase competitiveness and expedite the economic growth. Furthermore, SMEs are playing an important social–political role by creating more jobs and helping to distribute income to the poor.
According to the data from the Ministry of Cooperatives and SMEs, in the year 2000 the number of SMEs was amounting to 38.7 million business units and this number grew very vast that in 2004 the number was about 44 million or 99% from the total number of Indonesian business units. In quantity, the number of the SMEs is such powerful resource for the economic growth. But in reality, this number is not yet supported by excellent capability for further growth and development. This is because generally SMEs have some limitations such as marketing, product development and quality; business management, technological improvement and especially, SMEs are really poor in access to finance.
Access to Finance
Although it is not the main reason, for the time being in general, SMEs could not increase their performance because they do not have adequate capital to support their business plan. On one side, credit or loan is a very important thing that needed by SMEs to finance their working capital or investment, in order to boost their productivity and increase their capability for assets capitalization. However from the SMEs’ point of view, access to finance is one big obstacle for their greater profit and sustainability. The problem is arising when SMEs have to fulfil some credit requirements from the banks and other formal lenders. Although SMEs have such feasible business, they mainly experience challenge to provide sufficient assets to comply with the collateral requirement.
On the other side, banks and other credit providers have repeatedly listed some following arguments to explain their reluctance to give credit to SMEs. Those creditors believe for some reasons such as (1) the excessive unit cost for evaluating the credit application, (2) the lack of SMEs’ credit record, (3) the high degree of risk resulting from the unpredictability of repayment, and (4) lack of collateral, primarily real property to cover the risk of credit default.
From both side, there is one similar problem faced by banks/financial institutions and the SMEs, namely the sufficient credit collateral.
Credit Guarantee
Credit guarantee is a solution for the SMEs to get access to finance, in which the SMEs do not have to provide full collateral that usually amounted to 125% of the credit sum. Credit guarantee is a service that ensures the repayment of a loan, in order to motivate lenders to lend to the SMEs with feasible business but would not have access to credit under normal circumstances (not bankable).
Credit guarantee is an activity to provide guarantee to the creditor for the credit that given to the SMEs because they are not fulfilling collateral requirement. The general aim of credit guarantee is to provide SMEs with the collateral they need to become fully creditworthy. The guarantee can and will provide additional security if, to the best of their belief, SMEs have some particularly high level of creditworthiness. The collateral provided jointly by the SMEs themselves and the guarantor, satisfy the bank’s requirements and the loan could be disbursed. During the credit period, if SMEs got their credit default, guarantor will pay the SMEs’ obligation to the bank, and to the bank’s point of view, this kind of payment is quicker than physical collateral execution.
Basically, credit guarantee has several principles that are (1) supplementary system; that credit guarantee is the complementary of the credit and is given if only agreed by the guarantor and the creditor, (2) business feasibility; that credit guarantee is only given to the project/business that feasible based on the guarantor’s and creditor’s evaluation, (3) three parties involvement; that credit guarantee involves guarantor, guarantee receiver (creditor) and the guaranteed (SMEs), (4) collateral substitution; that credit guarantee is provided if the SMEs has collateral but not sufficient to fulfil the creditor’s collateral requirement, (5) subrogation payment; that credit guarantee emphasizes to the temporarily risk taking since the SMEs are failed to settle their loan to the bank. After the payment by the guarantor to the creditor, the SMEs’ credit obligation moves to the guarantor. This is called as subrogation payment, and the creditor is obliged to actively collect it.
Credit Guarantee Corporation (CGC)
Credit guarantee corporation (CGC) firstly settled in Basel, Switzerland as a regional credit guarantor (Gewerbliche Burgschafts-genossenschaft or GB) in 1923, to guarantee the credit for the carpenters and construction sector. Learning from the significant role of CGC in Basel, similar institution was established in other countries including Germany, America, Austria, France, Italy, Netherlands, Belgium, England and Spain. The success was also happened in Asia as the countries of Japan, Taiwan, Thailand, Korea, Philippines, Malaysia, PNG and Indonesia (currently gathered in the Asian Credit Supplementation Institutions Confederation/ACSIC) developed such system.
In practice, CGC are playing some roles such as (1) increasing SMEs’ access to credit, as CGC decreases the worry of the banks for the credit repayment, (2) encouraging banks to increase credit lending activity, (3) enhancing the banks’ intermediary function, (4) supporting some government policies in the priority sector such as agriculture, remote areas development, micro entrepreneurs, etc. This is because credit guarantee is a form of subsidy that given by the government without disturbing the common credit mechanism.
CGC Revitalisation
As in many countries, Indonesia has CGC that established in 1970 with the first name was Cooperatives’ Credit Guarantee Institution (Lembaga Jaminan Kredit Koperasi). This body then settled as one of stated owned company with the name of Perum Sarana Pengembangan Usaha (Perum SPU) since 1981 with the task is to provide credit guarantee to the SMEs. Up to the end of 2006, the amount of credit guaranteed by Perum SPU was IDR 22 Trillion, such a small amount compare with the national credit for SMEs.
Further Perum SPU as the only government’s pure credit guarantor and established for more than 25 years since is less popular than the Indonesia Deposit Insurance Corporation/IDIC (Lembaga Penjamin Simpanan), even the assets of Perum SPU is just only IDR 406 billion or 8,6% compare with the assets of IDIC that IDR 4,7 trillion; are the facts that credit guarantee is not recognized by people and government. At the point of economic growth, poverty eradication and job creation through the empowerment of the SMEs, the revitalization of Perum SPU, is one action to consider.
This could be done by optimally support the role of Perum SPU that already exists. The policy makers need to think the additional capital for Perum SPU in order to increase the capacity to guarantee. The capital could come from the national budget as a government share in the corporation, or from the national asset in the form of the fund for corporate social responsibility by other state owned enterprises. This kind of fund could be managed by Perum SPU as a guarantee fund to support the SMEs access to the financing/banks.
Jakarta, 17 Januari 2007
By Nina Kurnia Dewi
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