Linking BDS and Finance, Swisscontact in Indonesia, Peter Bissegger, 2004

    This working paper describes Swisscontact's efforts to develop BDS and finance for SMEs together. Swisscontact has over 10 years of experience implementing SME projects in Indonesia.

    Most surveys on SME needs and constraints in Indonesia clearly indicate that lack of, or difficult access to, finance is a key constraint to SME development and growth and over 30% of SMEs know they need finance to develop their businesses. However, none of them have ever gone to a bank. And, the opportunity for banks to expand their SME portfolios is there, but they are unsure how to address these potential customers. When Bank Indonesia and the government initiated a program to partner financial consultants with banks, Swisscontact was invited to participate. SC developed two approaches to link service providers with financial institutions and is now testing them...
    - Indirect facilitation: the project establishes a facilitation unit within a bank to identify and train and certify service providers in SME lending; and
    - Direct facilitation: the project identifies banks & service providers based on bank needs and provides quality assurance and monitoring services.

    Summary of results
    Initial conclusions of the project to date reveal that:
    - The timing is right for the initiative as the banking industry is characterized by over liquidity and increased competition and they are beginning to consider SMEs potential customers;
    - Banks have limited knowledge about service providers - most are unaware of the variety of providers and services and are positively surprised once they connect with them;
    - Relations between banks and service providers must be built on mutual trust and requires time. An institution such as SC with a good reputation and links to service providers can accelerate the process considerably;
    - Banks are most interested in providers with technical and sector expertise as they lack know-how on opportunities and risk of specific SME sectors;
    - Banks face difficulties in conducting efficient credit monitoring and need help with post-credit services such as monitoring and customer support.