Indonesian regional development and rural banks strengthen their financial support to SMEs

The ILO supports Indonesian regional development banks (BPD) and rural banks (BPR) in several provinces to provide SMEs a greater access to financial services.

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West Java and East Nusa Tenggara, Indonesia (ILO News) – Indonesia’s small and medium enterprises (SMEs) are an essential driver of the country’s future development. They are also an important source of employment and contribute significantly to the national output.

Despite their importance, SMEs still often find it difficult to access finance from banks and other formal financial institutions. Many of them are unable to provide collateral to secure loans, procedures are too complex for them, or the administrative cost of serving them is too high for banks to consider them as a profitable market.

We have supported BPD and BPR in improving their digital capabilities so that they can provide fast and affordable financial services to their SMEs’ clients. Our support ranging from upgrading of core banking to developing a loan assignment system or creating a dashboard monitoring for loan portfolios.

Djauhari Sitorus, Programme Manager of ILO’s Promise II Impact

To improve greater access for SMEs to finance and digitalization, the ILO’s Promoting Small and Medium Enterprises through Entrepreneurs’ Access to Financial Services Programme Phase 2 (Promise II Impact), funded by the Swiss State Secretariat for Economic Affairs (SECO), has collaborated with 10 regional development banks (BPD) and rural banks (BPR) in several provinces of Aceh, West Java, Central Java, East Java and East Nusa Tenggara (NTT).

“In addition to the SME’s financial empowerment, we also closely work with BPD and BPR to strengthen their services to SMEs leveraging the use of digital technology. We have supported BPD and BPR in improving their digital capabilities so that they can provide fast and affordable financial services to their SMEs’ clients. Our support ranging from upgrading of core banking to developing a loan assignment system or creating a dashboard monitoring for loan portfolios,” said Djauhari Sitorus, Programme Manager of ILO’s Promise II Impact.

This collaboration was also aimed at strengthening the roles of BPD and BPR as major lenders in their respective regions amidst stiffer competition from other institutions. “We cannot deny that BPD and BPR know the local context better and shall take a greater share in supporting local SMEs with affordable and easy-to-access loans,” Djauhari added.

Digital transformation for dairy farmers in West Java

One of the BPRs that has closely worked with the Promise II Impact is BPR Bandung Kidul in West Java. The main challenge faced by BPR Bandung Kidul to provide loans for dairy farmers under the South Bandung Livestock Cooperative (KPBS) was the lack of business visibility, balance sheets and business management. As a result, BPR Bandung Kidul could not provide the farmers with loans that they need to improve their dairy business.

We greatly appreciate the support given by the ILO that allows our members to benefit more from the use of digital technology and gained new skills that enhance their productivity, knowledge and financial access.

H. Aun Gunawan, Head of KPBS