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MSMEs debt forgiveness won’t come cheap for small banks
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Coordinating Economic Minister Airlangga Hartarto waves from inside a car after attending a limited Cabinet meeting at the State Palace in Jakarta on July 10, 2023. (Antara/Akbar Nugroho Gumay)
T
he government is planning intervene in the credit market to address nonperforming loans to micro, small and medium enterprises (MSMEs) and free up banks to lend further to the group, but experts say the move could have a dire impact on small banks’ balance sheets.
President Joko “Jokowi” Widodo’s Cabinet is discussing a plan to restructure MSME loans involving debt waivers or write-offs, Coordinating Economic Minister Airlangga Hartarto told reporters after a meeting at the State Palace on July 17.
He said both types of intervention were outlined in the 1998 Banking Law, as well as in Bank Indonesia (BI) and Financial Services Authority (OJK) rules from 2012 and 2019, respectively.
“We have a prerequisite: [The loans] must be restructured first, then if they remain unpaid, we can write them off or waive them,” Airlangga said in a statement, adding that the government was still discussing the tax rules that would apply.
The President wants 30 percent of bank lending by value to go to MSMEs by 2024.
However, as of May, only 19.6 percent of nationwide bank lending was to MSMEs, according to BI data, some Rp 1.28 quadrillion (US$85.42 billion) of the Rp 6.5 quadrillion disbursed.
At the current rate, the National Development Planning Agency (Bappenas) says, the country will miss its MSME lending target. It predicts that only 24 percent of the country’s total loan value will be held by MSMEs by 2024.
