Indonesia’s micro, small, and medium enterprises (MSMEs) remain the backbone of the national economy—but many are still trapped under the weight of unresolved bad loans. With credit growth stagnating and restructuring costs outpacing debt values, policymakers are turning to a revived write-off mechanism to unlock financing. The move could reshape the future of MSME lending and restore momentum to a sector vital for inclusive economic recovery.
Key Facts & Background
- The Financial Services Authority (OJK) has formally requested the reinstatement of the bad loan write-off policy for MSMEs, aiming to accelerate credit recovery in a sluggish financing environment.
- The proposal was submitted to the Coordinating Ministry for Economic Affairs, which will coordinate with the Ministry of Finance to determine implementation mechanisms.
- The policy is anchored in Government Regulation No. 47/2024, which allows for the elimination of non-performing loans (NPLs) for MSMEs in agriculture, fisheries, livestock, and other sectors.
- As of October 2025, only 67,668 MSME debtors with a combined debt of Rp 2.7 trillion have qualified for restructuring—far below the 1 million targeted beneficiaries.
- OJK Chairman Mahendra Siregar emphasized the urgency of immediate implementation, citing the policy’s potential to deliver more effective and timely impact.
- OJK data shows MSME credit growth slowed to 1.82% year-on-year as of July 2025, driven by weak demand and fragile economic conditions among MSME segments.
- Persistent NPLs in state-owned banks (Himbara) and regional development banks (BPD) continue to hinder MSME credit expansion.
- Minister of MSMEs Maman Abdurrahman noted that restructuring costs often exceed the value of MSME debts, making write-offs a more viable solution.
- The revised State-Owned Enterprises Law (UU BUMN) now provides legal grounds for debt elimination without restructuring, enabling BP BUMN and Danantara to manage the process.
Strategic Insights
The revival of Indonesia’s MSME bad loan write-off policy reflects a pragmatic shift in financial governance—one that prioritizes economic inclusion over rigid fiscal orthodoxy. With MSMEs accounting for over 60% of employment and contributing significantly to GDP, their recovery is not just a sectoral concern but a national imperative. The sluggish 1.82% credit growth underscores the urgency: traditional restructuring mechanisms are proving inadequate, especially when costs outweigh the debts themselves.
By enabling direct write-offs without restructuring, the revised legal framework removes a critical bottleneck. This approach aligns with global best practices in post-crisis recovery, where speed and simplicity often trump procedural perfection. It also signals a deeper institutional maturity: the government is willing to recalibrate its tools to match the realities of microenterprise financing, especially in agriculture, fisheries, and informal sectors where formal credit access remains limited.
The involvement of BP BUMN and Danantara introduces a new layer of accountability and operational clarity. These entities can act as specialized vehicles to manage legacy debts, monitor compliance, and ensure that write-offs do not incentivize moral hazard. If executed transparently, this could restore trust between MSMEs and financial institutions, paving the way for renewed lending and investment.
From a macroeconomic perspective, the policy could unlock dormant capital within banks, especially Himbara and BPD, allowing them to reallocate resources toward productive MSME segments. It also complements broader fiscal strategies aimed at stimulating the real sector, particularly in rural and peri-urban economies. Over time, this could catalyze a more resilient and diversified credit landscape, reducing Indonesia’s vulnerability to external shocks.
For stakeholders—banks, regulators, MSME associations, and investors—the key will be balancing speed with safeguards. Clear eligibility criteria, robust monitoring, and public communication will be essential to ensure the policy’s credibility and effectiveness. As Indonesia navigates its post-pandemic recovery, this initiative may well become a cornerstone of its inclusive growth agenda.