Indonesian MSMEs Face Growing Credit Challenges

Economic Pressures Mount on Small Businesses

Indonesian micro, small, and medium enterprises (MSMEs) are experiencing significant credit challenges as banks adopt a more cautious lending approach amid economic uncertainty. The situation reflects broader economic pressures affecting both lenders and borrowers in the MSME sector.

Credit Contraction and Economic Factors

The growth of MSME credit contracted by 0.64% year-on-year in November 2025, according to Bank Indonesia Governor Perry Warjiyo ¹

. This contraction is attributed to weak domestic demand and rising operational costs that have constrained MSME growth. The banking sector has become increasingly selective, particularly in consumer and MSME segments, due to heightened credit risk concerns.

Banking Sector Response

In response to these challenges, banks are implementing a more prudent lending strategy. Efdinal Alamsyah, Director of Compliance at Bank Oke Indonesia, noted that the non-essential segment of MSMEs is particularly affected due to weak consumer purchasing power. Banks are focusing on cash flow analysis, payment history, and business performance when evaluating loan applications. The use of collateral as a secondary repayment source remains a key risk management strategy.

Government and State-Owned Enterprise Initiatives

State-owned enterprises are playing a crucial role in supporting MSMEs through government credit programs. PT Jamkrindo, the state-owned credit guarantee company, is strengthening its governance and risk management practices to better support the Kredit Usaha Rakyat (KUR) program ²

. Jamkrindo's Acting President Director, Abdul Bari, emphasized the importance of digital innovation and synergy in accelerating financial inclusion.

Future Outlook

The MSME sector is expected to remain under pressure in 2026, particularly in segments sensitive to consumer spending. However, opportunities exist in sectors providing essential goods and logistical services. The banking sector is likely to maintain its cautious approach while focusing on portfolio quality and data-driven decision-making. Government support through guarantee schemes, financial literacy programs, and incentives for productive financing will be crucial in maintaining balanced credit growth.