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Bank Borrowing and Financing of Medium-sized Firms in Indonesia

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  • Hamada, Miki

Abstract

The improvement of financial intermediation functions is crucial for a robust banking system. When lending, banks have to cope with such problems as information asymmetry and adverse selection. In order to mitigate these problems, banks have to product information and improve their techniques of lending. During the 1998 financial crisis, Indonesia's banking system suffered severe damage and revealed that the country's banking intermediation functions did not work well. This paper examines the financial intermediation functions of banks in Indonesia and analyzes the importance of bank lending to firms. The focus is on medium-sized firms, and "relationship lending", one of the bank lending techniques, is used to examine financial intermediation in Indonesia. The results of logit regressions show that the relationship between a bank and a firm affects the probability of bank lending. The amount of borrowing and collateral are also affected by a firm's relationship with a bank. When viewed from the standpoint of relationship lending to medium-sized firms, Indonesian banks cannot be criticized for any malfunction of financial intermediation.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/736/3/ARRIDE_Discussion_No.144_hamada.pdf
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 144.

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Date of creation: Mar 2008
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Publication status: Published in IDE Discussion Paper. No. 144. 2008.3
Handle: RePEc:jet:dpaper:dpaper144

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Related research

Keywords: Relationship lending; Financial intermediation function; Medium-sized firms; Indonesia; Banks; Finance; Small and medium-scale enterprises;

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  1. Ramakrishnan, Ram T S & Thakor, Anjan V, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 415-32, July.
  2. Ricardo N. Bebczuk, 2004. "What Determines the Access to Credit by SMEs in Argentina?," Department of Economics, Working Papers 048, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
  3. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
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