by supari
Micro, small and medium enterprises (MSMEs) are the backbone of Indonesia’s economy, accounting for over 60% of the gross domestic product (GDP) and almost 97% of the workforce.
However, the amount credit banks lend to this sector does not represent its importance. Only 7% of Indonesia’s credit goes to MSMEs. This is because the sector’s low financial literacy and poor business management and accounting prevent banks from conducting credit feasibility analyses.
To provide MSMEs with subsidized financing access and support financial inclusion, business empowerment, and national economic growth, Indonesia launched the Credit Usaha Rakyat (National Business Loan) Program (KUR) in 2007. did. The program’s ultimate goal is to enable MSMEs to “graduate” from government-subsidized loans to commercial loans, allowing them access to better interest rates, more stable financing, and higher credit limits, thereby improving their financial It is about increasing independence and growth potential.
The program aims to reduce the financial access gap by building financial literacy and digitizing MSMEs, and strengthen MSMEs as the main drivers of growth and economic equity in Indonesia. That’s it.
Evolution of business loans
Over the past decade, KUR has focused on expanding financing access for MSMEs, strengthening their competitiveness and supporting economic growth. To achieve this mission, Indonesia modified its program in three stages.
In the first phase, Indonesia will gradually lower the KUR interest rate, expand the number of recipients, open the door to MSMEs who are underserved by financial institutions, increase the loan volume, and increase the confidence of MSMEs to use KUR loans for business expansion. increased.
When the pandemic hit in 2020, KUR shifted its priority to sustaining MSMEs through the resulting recession by further reducing interest rates and providing additional subsidies to serve the most vulnerable business segments. did. The KUR significantly increased lending, spurring domestic economic recovery and maintaining employment levels.
In the recovery phase starting in 2023, the KUR returned to its pre-pandemic policy goal of optimizing loan disbursements, including targeting digital-based production sectors.
Through policy shifts over the past decade, KUR has accelerated economic growth, reaching 57 million business owners by 2023 and improving the socio-economic conditions of MSMEs.
The average sales of MSMEs receiving these loans increased by 60%, and employment absorption increased by more than 25%. Companies that received KUR loans significantly increased their spending on education and health, and the GDP of their districts and cities rose more rapidly than for companies that did not receive loans.
Future challenges
After nearly a decade of being the backbone of MSME financing, KUR is currently facing five structural challenges to sustainability.
1. Limited loan eligibility
According to the BRI Institute, the number of people eligible for KUR benefits is decreasing and will reach saturation point by 2029. Currently, only 7.6 to 300 to 4 million beneficiaries are eligible for the loan.
2. Deterioration of credit quality
The non-performing loan (NPL) rate, which includes loans that are 90 days or more past due or classified as substandard, questionable, or non-performing, has risen to more than 1 million since the pandemic began. Better risk management is required to maintain the viability and sustainability of KUR.
3. Increase in warranty claims
According to BRI, the number of claims against KUR guarantees is increasing. With the increasing trend of non-performing loans, the pressure is increasing the risk bearing of lending banks and their guarantee institutions, and if this trend continues, their leverage and risk-bearing capacity may be exhausted. The domino effect could lead to higher guarantee costs and higher loan interest rates for MSMEs.
4. Graduation rate of small and medium enterprises
More than 45% of KUR recipients have graduated to commercial credit, but debtor unpreparedness reduces the program’s effectiveness.
5. Victim mindset
Since the pandemic, some KUR recipients have struggled with payment discipline, leading them to view the program primarily as a safety net rather than a stepping stone to business growth and financial independence. This mindset limited the program’s intended effects in promoting independence and preparing recipients for commercial credit.
new policy strategy
After implementing pandemic and post-pandemic policies, KUR now needs to refine its spending strategy to ensure greater economic and social impact. Appropriate approaches include focusing on targeted recipient selection to prioritize MSMEs that are ready for digital productivity and growth, strengthening risk mitigation through robust monitoring and evaluation systems; This includes integrating advanced digital tools to streamline processes and expand support.
These more adaptive and sustainable policy strategies include:
1. Develop business competency-based graduation plans and provide technical assistance to help debtors prepare for the transition to commercial credit.
2. Optimize credit limits and use a risk-based approach to maintain payment quality.
3. Strengthen stakeholder synergies by improving coordination between governments, spending banks and guarantee institutions to develop effective policies.
4. Empowering MSMEs with digital tools such as online single submission platform and pre-employment portals.
KUR has proven its value as a strategic instrument to support the growth of MSMEs and the economy. Since its introduction, the program has expanded financial access and produced significant social and economic impacts, particularly in rural areas.
However, a more adaptive approach is needed to address challenges such as recipient saturation and declining credit quality. With the right strategy, KUR can continue to strengthen MSMEs, empower more people, and advance financial inclusion in Indonesia.
supari I am Director of Micro Enterprises at PT Bank Rakyat India (BRI) Tbk.. He oversees the implementation and management of the Kredit Usaha Rakyat program at BRI, with a focus on expanding financial inclusion for Micro, Small and Medium Enterprises (MSMEs) in Indonesia. His work focuses on digital transformation, financial literacy and risk management to support sustainable economic growth.
For more information on Kredit Usaha Rakyat (KUR) and Micro, Small and Medium Enterprises (MSME) financing, please visit: Bank Rakyat Indonesia (BRI).
