Abstract

Formal Indonesian lenders see small firms in particular as the main opportunity for expanding their financial services business. How does this translate into the experience of a small firm owner who applies for a loan?  This question is addressed by 52 “mystery shopping” visits to 26 lenders in the Jakarta region.  Three areas are investigated: service quality, competition and cross selling.  The results show that service quality has significant room for improvement. While there is considerable scope for competition among lenders, with substantial variation across banks in terms of products offered and loan requirements, there is very little variation within a bank branch, i.e., most banks offered just one product to the customer. Very little cross-selling is done, indicating a real opportunity for improvements in service.  Overall, the lack of proactive service by lenders places the burden of identifying superior financial products squarely with small firms.

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