About 75 percent of 4.2 million small and medium enterprises (SMEs) in East Java have yet to receive bank loan facilities, mostly due to lack of required collateral, Governor Soekarwo said.
However, according to Soekarwo, the sector strongly factored in the province's economy contributing nearly 50 percent to East Java's GDP.
"It proves the sector's resilience regardless of whether it has support from the banking sector," Soekarwo said here Monday.
In a bid to help improve the SMEs' economic growth, he added, his administration would set up a regional credit guarantor institution (LPKD) in the near future, which, together with the banking sector, would provide the SMEs with easy access to loans.
"According to the regulation, the establishment of an LPKD requires an initial fund of Rp 50 billion," Soekarwo said. "But we will add an additional Rp 25 billion and hopefully it will keep increasing in the following years."
Separately, chairman of the East Java SME Forum Nur Cahyudi said apart from collateral, there were a number of factors that had halted the easy access to bank loans for the SMEs.
Other factors included the formal legal status of the SMEs as business entities.
Of the 4.2 million SMEs in the province, he added, 3.7 million had no formal legal status.
"As a result, they don't have the necessary documents including the NPWP *taxpayer registration number*, SIUP *business license* and TDP *company registration card* needed to apply for a bank loan," Nur said.
The remaining factors, he added, included the relatively high interest rates assigned by banks.
"The affordable interest rate for an SME is less than 10 percent. That's why we expect the government to issue pro-SME macroeconomic policies," he said.
He expressed appreciation for the East Java administration that last year provided subsidized credit to the SMEs in the province for a loan of Rp 50 million each, with an interest rate of 6 percent a year.
"Hopefully such soft loans will keep pouring in over the next couple of years so all the SMEs in the province will be able to benefit," he said.
He also expressed hope the es-tablishment of the LPKD would not be a burden to the SMEs, especially in relation to administrative fees.
He said the proposed institution was also expected to provide information to the SMEs about available bank loan facilities given the sector so far had limited access to such knowledge.
In a related development, Bank Jatim director Moeljanto said banks had been very prudent in providing loans, especially because of the relatively high rate of bad debts.
"Collateral is still required, especially for big loans," he said.
Bank Jatim had disbursed Rp 9.6 trillion in loans by the third quarter of this year.
Of them, 82 percent went to the SMEs and the remaining 18 percent went to corporate firms.
"We plan to disburse Rp 10 trillion of loans by the end of this year," he said.
