OJK Proposes Enhanced MSME Bad Debt Write-Off Policy

Strengthening Legal Framework for Credit Write-Offs

The Financial Services Authority (OJK) is advocating for a more robust legal foundation to support the write-off of non-performing loans (NPLs) associated with micro, small, and medium enterprises (MSMEs) at state-owned banks. OJK Chairman Mahendra Siregar emphasized the need for a stronger regulatory framework compared to previous policies during a press conference on November 8, 2025.

Key Proposals and Stakeholder Engagement

Siregar revealed that the OJK has been engaging with various government officials, including the Coordinating Minister for Economic Affairs, Finance Minister, Minister of Cooperatives and SMEs, Minister of Law and Human Rights, and the Minister Secretary of State. The objective is to ensure that the forthcoming government regulation will be more effective in facilitating the write-off process for MSME loans at state-owned banks.

Current MSME Credit Landscape

As of August 2025, the proportion of MSME credit in the banking sector has moderated to around 19% of total credit. Moreover, the growth of MSME credit has slowed to 1.35% year-on-year, indicating a significant deceleration. Siregar highlighted that this trend underscores the importance of expanding financial access to support MSMEs and reduce reliance on informal lending channels with high interest rates.

Policy Rationale and Expected Outcomes

The proposed policy aims to enhance the effectiveness of credit write-offs for MSMEs, particularly at state-owned banks. By providing a stronger legal basis, the OJK hopes to encourage banks to extend new financing to viable MSMEs that have previously been burdened by non-performing loans. This initiative is part of a broader effort to promote financial inclusion and support economic growth through the MSME sector.