Indonesian Banks Continue to Require Collateral for Small Business Loans

Regulatory Non-Compliance Persists Despite Clear Guidelines

Many Indonesian banks are maintaining a practice that contradicts existing regulations regarding Kredit Usaha Rakyat (KUR) loans. Despite clear guidelines from Peraturan Menteri Perekonomian Nomor 1 Tahun 2023 stating that KUR loans below Rp 100 million should not require collateral, numerous banking institutions continue to demand additional guarantees from borrowers.

Underlying Reasons for Continued Collateral Requirements

Minister of UMKM Maman Abdurrahman addressed this issue during a parliamentary hearing, explaining that the primary reason behind banks' insistence on collateral lies in their need for psychological assurance against potential moral hazard. According to Maman, bank officials are aware of the regulations but continue to request collateral as a means of verification and psychological pressure on debtors. This practice is observed across major state-owned banks including BRI, Mandiri, and BNI, as well as private banking institutions.

Impact on Small Borrowers and Market Dynamics

The continued requirement of collateral for small KUR loans creates significant challenges for micro, small, and medium enterprises (UMKM) that often lack the necessary assets to provide as security. This practice potentially stifles economic growth at the grassroots level by limiting access to credit for the most vulnerable entrepreneurs. The persistence of this practice despite regulatory clarity suggests a deeper systemic issue within the banking sector's risk assessment and lending practices.