Indonesia’s micro, small, and medium enterprises (MSMEs) are calling for urgent reform in bank lending procedures, citing rigid requirements as a key barrier to accessing much-needed capital. Despite government policies that waive collateral for loans under Rp100 million, many MSMEs report being denied financing due to continued demands for guarantees. With credit growth stagnating and informal lending on the rise, the gap between policy and practice is becoming increasingly costly.
Key Facts & Background
- MSME credit growth (YoY, August 2025): 1.35%, significantly below broader credit expansion.
- Share of MSME loans in total bank credit: Declined to 19% of Rp8,075 trillion.
- Non-performing loan (NPL) ratio for MSMEs (August 2025): 4.7%, up from 4.53% in July, but still below the 5% risk threshold.
- Government policy: Loans under Rp100 million should not require collateral.
- Reported practice: MSMEs still face collateral demands, even for loans as low as Rp25 million.
- Alternative financing: MSMEs increasingly turn to fintech, peer-to-peer (P2P) lending, and informal lenders due to rigid banking procedures.
- Government liquidity support: Rp200 trillion placed in state-owned banks (Himbara) to stimulate credit distribution.
- Stakeholder response: Akumindo (Indonesian MSME Association) welcomes the liquidity injection but stresses the need for procedural reform to ensure real impact.
Strategic Insights
The disconnect between Indonesia’s pro-MSME credit policies and their implementation on the ground reveals a deeper structural challenge in the country’s financial ecosystem. While the government has made significant strides in allocating liquidity—most notably through the Rp200 trillion injection into state-owned banks—the effectiveness of such measures is undermined by procedural rigidity and risk-averse lending behavior.
The persistence of collateral requirements, even for small-ticket loans, contradicts the spirit of inclusive finance. For many MSMEs, especially those operating informally or without fixed assets, such conditions are insurmountable. This not only limits their ability to scale but also pushes them toward high-risk alternatives like unregulated lenders, which can exacerbate financial vulnerability and undermine formal sector development.
The slow growth in MSME credit—just 1.35% year-on-year—stands in stark contrast to the sector’s role as a backbone of the Indonesian economy, contributing over 60% to GDP and employing the majority of the workforce. This stagnation signals a missed opportunity to harness MSMEs as engines of post-pandemic recovery and inclusive growth. Without accessible financing, productivity gains, job creation, and innovation in this segment will remain constrained.
To address these bottlenecks, a multi-pronged strategy is essential. First, banks must be incentivized to adopt risk-based lending models that assess creditworthiness beyond traditional collateral. This includes leveraging digital transaction histories, tax records, and alternative data sources. Second, regulatory bodies like the Financial Services Authority (OJK) should enforce compliance with collateral-free lending policies and enhance transparency in loan approval processes.
Third, the government can expand and refine credit guarantee schemes to de-risk MSME lending for banks. Programs like Kredit Usaha Rakyat (KUR) should be made more responsive, with streamlined application processes and real-time monitoring to ensure timely disbursement. Additionally, partnerships with fintech platforms can be formalized to bridge gaps in last-mile credit delivery, especially for underserved regions.