Washington D.C., November 12, 2002
—The International Finance Corporation, the private sector development arm of the World Bank Group, today announced the launch of the Indonesia Enterprise Development Facility (IEDF), a new initiative to support the growth of small and medium enterprises (SMEs) in eastern Indonesia. IFC, the Dutch government, and other partner donors will fund the initiative of up to US$25 million, which will be used to strengthen small businesses in eastern Indonesia.
Most industries in Indonesia’s private sector have relatively few formal, medium-sized enterprises. Instead, they generally are dominated by a small number of large firms at one extreme, and an abundance of informal micro and small businesses at the other. IEDF’s services will be geared toward local businesses with 20-100 employees, which typically have the agility to adjust to the volatile economic, political, and business climate of Indonesia, yet are not well-served by existing markets and institutions.
Financial and business development services providers have rarely contributed to improved performance of local SMEs. The problems are especially acute in eastern Indonesia, where incomes and access to high-quality business services lag far behind Jakarta and other wealthier regions.
IEDF will develop a full range of products to address these issues. The focus will not be on offering financing itself, but rather carefully targeted technical assistance and capacity building initiatives that draw on IFC links with the business community, the World Bank Group, donors, NGOs, and other partners.
“Indonesian SMEs clearly face some challenges, but in designing this initiative over the last two years, we think we have found some good ways to move ahead,” said Harold Rosen, director of the World Bank Group SME Department. “In doing so, we will be transferring successful models from other small business development programs around the world, including the IFC-managed SME facilities.”
IFC will provide $5 million of IEDF’s budget over the next five years, with the remainder coming from the Netherlands and other donors. The facility will have a commercial orientation, seeking to recover up to 30 percent of its operating costs from fees charged for its services.
IEDF will focus on three broad issues:
Improving access to capital
—working with local financial institutions to upgrade viable SME lending skills and products; assisting SMEs in improving their ability to present qualified lending proposals to banks.
Improving business performance
—working with SMEs, NGO partners, other service providers, and large firms to improve the skills and knowledge base of entrepreneurs and managers; and to develop supply chain small firm linkage programs.
Improving the business environment—
working with local governments, business associations, and other stakeholders to improve transparency and the regulatory framework.
IEDF is the ninth IFC-managed SME facility, joining the Africa Project Development Facility, the African Management Services Company, the Mekong Project Development Facility, the China Project Development Facility, Southeast Europe Enterprise Development, the SouthAsia Enterprise Development Facility, the South Pacific Project Facility, and the upcoming North Africa Enterprise Development Facility. Managed by the SME Department (a joint initiative of IFC and the World Bank), together these facilities have more than 330 field-based staff and a combined annual budget of $31 million.
IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through FY02, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY02 was $15.1 billion for its own account and $6.5 billion held for participants in loan syndications. More information is available at http://www.ifc.org and http://www.ifc.org/sme.
