OPTIMAL FINANCING SYSTEM FOR INDONESIAN SMES

Indonesian SMEs have become the main target of investment worldwide due to its massive 57 million units operating in economy that contribute in the making of 60% of Indonesia GDP and absorption of 98% of the nation labor force. Rate of return of SMEs is above the average banks interest rate, thus results in a higher rate of return for direct investment to SMEs compared to investment in banks and/or other financial institutions. From banks perspective, credit to SMEs is considered to be risky due to the high risk nature embedded in SMEs itself, thus results in a higher interest rate charged to credit to SMEs compared to other credit arrangement forms. SMEs, however, have other option in financing the needs of fund from cooperatives, microfinance institutions, and government subsidy. Another important source of fund for SMEs comes from private sector via CSR initiatives. The study describes current condition of financial system in the context of SMEs in Indonesia, analyzes the gap, and suggests solution in realizing the optimum financial system for SMEs financing in Indonesia. We conclude that the optimal financing for SMEs requires a structured and integrated data base, so that all parties, both borrowers and lenders, should access to the system before executing the finance. Therefore very intense IT involvement in building the data base system is a must. Keywords: SMEs, financial system, IT involvemen