BNI spies growing e-banking needs among Indonesian SMEs

Iwan Kamaruddin, Bank Negara Indonesia’s general manager of transactional banking services, highlights some key developments in the mammoth Indonesian SME market.

How are Indonesian SME cash requirements changing? Does BNI provide cash management services to clients as they expand overseas?  

Our SME clients tend to manage their financial cash flow in conservative and traditional ways, and only a limited number of them require cash management or electronic banking (e-banking) systems. Their suppliers are also managed in a cash basis payment system. Most SMEs in urban areas have recently started moving to e-banking, while SMEs in rural areas tend to be more reluctant to use paperless banking services and prefer traditional bricks and mortar banks. In the case of export activity, they only limit the service on remittances. Their buyers are usually their long-term relationships where the level of trust has been built up over a long time. They do not need any letters of credit (LC) or trade finance services.

However, for the larger, expanding businesses that have major links with large corporates, there is increasing demand for e-banking services primarily for informational purposes. There is a gradual demand for e channels for selected types of payments, for example payroll and vendors.

How big is BNI’s SME cash business and how fast is it growing?  

The SME business size in Indonesia is relatively large, with the government quoting at end-2010 that SME players in Indonesia numbered approximately 52 million, of which 60% are located in Java. They range in size from IDR250 million ($28,000) in annual sales revenue up to IDR5.5 billion per annum. Lower sales revenue SMEs (ie, below IDR250 million per annum) are classified as micro, of which 70% are farmers or other agriculture sector players.

Our SME lending portfolio (excluding commercial lending) reached approximately IDR30 trillion by the end of 2010, which accounted for 21% of our bank-wide lending portfolio. We managed to grow at 20% annual growth, and expect to grow by the same percentage for 2011.    

How are you competing for business, and how do you differentiate your products and services from other banks?  

As one of the oldest and premier state-owned banks in Indonesia, we have enjoyed a strong reputation as a corporate bank for decades.  When BNI entered the SME market, we pursued linkage programs with many micro-finance agencies and other financial services bodies to reach remote areas where BNI did not have any outlets. We also strengthened our outlets in urban areas to cater for lending to key SME players in these areas, and which account for almost 40% of the SME market in Indonesia. 

We have also invested in an electronic loan origination (ELO) system that allows our account officers to process loan applications in not more than seven working days. Speed is the key to our success story so interest rates are not an issue. We managed to keep interest rates relatively low as a result of operational efficiency using ELO system.

From a transactional banking service platform, for cash management we will provide a fully functional e-banking service dedicated to this segment's profile and other related support services and applications.

Are you seeing more business from SMEs in the cash management sphere?  

Yes, we do, especially for SMEs in the fashion, handicraft, furniture and tourism sectors as their exposure has grown due to globalisation. They have expanded from local to global buyers which also forces them to globalise their banking services. We have observed that more and more of our clients require internet banking services to support their businesses.    

Is cash management is broadly perceived by SMEs as being the preserve of larger companies?

There is a segment of owners and operators in the SME space that perceive cash management services as expensive given the preconceived notion that they are mainly electronic, too complicated, and are therefore more suitable for larger companies which can meet the cost. This fallacy is being resolved with active solicitation and clarification of services in major customer gatherings and presentations.

Given that SME relationships with local banks can be very sticky, how tough is it to expand the business?

For the micro segment, they definitely will have only a single bank as they are also classified as ‘feasible but non-bankable’ with only a limited amount of money to bank. So they tend to stick with the first bank which trusts them. As they grow and become classified as ‘feasible and bankable SMEs’, they will appoint one bank as their main bank for their business, and another one or two banks for their personal needs. At this time banks tend to give them more trust and lend them more.      

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