Small and medium enterprises (SMEs) form a core sector of the Indonesian economy (Source: jakartaglobe.id)

Jakarta (VNA) - Small and medium enterprises (SMEs) form a core sector of the Indonesian economy and contribute significantly to economic growth, job creation and innovation, stated an article of the Jakarta Globe online newspaper.

The author, Ernest Saudjana, Managing Director at Jakarta-based Boston Consulting Group, said given the importance of this segment to the country's economy, the Indonesian government has promoted growth of SMEs by encouraging banks to increase their SME portfolio.

Notably, a digital strategy will especially allow banks to build smarter sales operations and streamline processes, generating unexpected rewards and gaining significant commercial advantage.

Since 2000, financial technology (fintech) providers have poured more than 50 percent of their investments into corporate banking, including the SME segment. Meanwhile, some banks have started to offer more digital solutions for smaller businesses.

Choosing the right digital strategy has also become even more crucial, since a stronger deposit and payment franchise can generate valuable transaction data from customers.

Analysing data will also enable banks to improve credit risk modelling and loan tracking, helping them to resolve the historical bugbear of SME banking: high levels of non-performing loans.

Income from SMEs accounts for almost 20 percent of Indonesian banking revenue.

Boston Consulting Group’s Corporate Banking Performance Benchmarking report showed banks have a significant opportunity to improve their performance in the sector.

Banks can expect to boost their SME revenues by 20 percent to 25 percent, reduce costs to serve customers by 30 percent to 50 percent and pare down the number of their nonperforming loans from SMEs if they take all four actions recommended by the report, including tailor products and services; improve and expand their digital platforms; optimize pricing; manage and control discounting and waivers; and digitise processes and speed up credit applications.

Banks can obtain returns that are comfortably over the cost of capital in the SME segment, with some caveats.Only banks that realise the SME segment’s value and crucial role will be able to create and maintain a competitive advantage.-VNA