Jakarta. The Otoritas Jasa Keuangan (OJK) has urged the government to extend the loan write-off program for bad debts among the micro, small and medium enterprises (MSMEs) sector, cautioning that the recovery in financing remains weak and the backlog of non-performing loans (NPLs) poses a systemic risk.
Key Figures & Current Status
According to data from the Kementerian Koperasi dan UMKM (Ministry of Cooperatives & MSMEs), of some 1 million MSME borrowers whose loans qualify, only 67,668 have successfully had their debts restructured, representing a total of IDR 2.7 trillion.
This is a tiny fraction of the target, and indicates that over 90% of the at-risk MSME book remains unresolved.
Meanwhile, credit growth to MSMEs remains sluggish — as of July 2025, bank lending to MSMEs rose only 1.82% year-on-year, the weakest pace in recent years.
What the OJK is Requesting
OJK’s Chairperson, Mahendra Siregar, said the regulator has formally submitted a proposal to the Kementerian Koordinator Bidang Perekonomian (Coordinating Ministry for Economic Affairs) and the Kementerian Keuangan (Ministry of Finance) to review and extend the policy under Peraturan Pemerintah Nomor 47 Tahun 2024 (PP 47/2024) on the write-off of non-performing loans for MSMEs in agriculture, plantations, fisheries and other sectors.
According to Mahendra, “the sooner this policy is implemented, the more effective its impact will be for MSMEs”.
Underlying Challenges
Several structural issues hamper the roll-out:
- Restructuring costs outweighing the debt size: Many micro-loans are small (e.g., under IDR 50 million), making the cost of restructuring greater than the potential recoverable amount.
- Remaining bad loans in state-owned banks: Especially in the banking group known as Himbara and regional development banks (BPDs), the legacy of bad credits still constrains new financing.
- Regulatory and operational bottlenecks: Although PP 47/2024 enables write-offs, operational regulations, approval mechanisms, and oversight frameworks still lag behind.
- Moral hazard concerns: There is the risk that firms able to pay may just await write-off rather than normalise their debt—raising fairness and credit discipline concerns.
Government Response & Next Steps
The Maman Abdurrahman, Minister of MSMEs, confirmed that about 50,000 MSMEs have so far had their debts written off without undergoing full restructuring, thanks to recent amendments to the Undang‑Undang BUMN (SOE Law) which permit certain write-offs via state-owned enterprise investment vehicle Danantara.
Nonetheless, the gap remains large: the target universe is said to be up to 1 million MSME debtors.
Why This Matters for the Economy
- MSMEs represent a backbone of Indonesia’s economy, in terms of employment and grassroots economic activity.
- Weak credit growth in the MSME sector signals a slowdown in domestic consumption and small-business investment, which can drag on broader economic recovery.
- High levels of NPLs in the MSME segment can erode bank balance-sheets, reducing capacity for fresh credit and undermining financial sector resilience.
What to Watch
- Whether the government formally agrees to extend and enhance PP 47/2024, including possible relaxation of eligibility criteria.
- Timeline for implementing the new rules under SOE law and for banks to execute write-offs (“hapus buku” / “hapus tagih”).
- Impact on bank credit to MSMEs in coming quarters—whether the fresh liquidity space created by write-offs can translate into new loans.
Summary
With only about IDR 2.7 trillion of MSME debts restructured out of a much larger universe, the OJK is pressing the government to extend the write-off program as a key lever for rebooting credit flows in Indonesia’s micro-economic base. Without timely action, the backlog of bad loans could become a drag on both the MSME sector and the banking system.
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