Interest Margin versus Small-Medium Enterprise Financing: Does Bank Ownership Matter?

摘要

The Indonesian government wants to promote small and medium enterprise financing as a type of relationship lending while at the same time reducing interest margins. Otherwise, relationship lending tends to lead into high levels of interest margins. This paper examines the relationship between SME financing and interest margin in Indonesia using panel data on 124 banks in Indonesia from 2008 to 2014. Furthermore, we also identify the direction of SME financing in relation to the ownership of banks. We use panel data regression and GMM methods to ensure the robustness of the result. The overall results suggest that SME financing positively increases the interest margin since relationship lending charges greater margins for each transaction. The results confirm the regulatory conflict between the interests of promoting small/medium enterprise financing and reducing the interest margin. However, we find a difference in sign and significance level of SME financing for each type of bank ownership as the result of SME financing readiness.