Growth in credit for Micro, Small, and Medium Enterprises (MSMEs) experienced a sharp slowdown in April 2026. According to Bank Indonesia (BI), rising Non-Performing Loans (NPL) are the primary driver behind this trend, forcing financial institutions to adopt a more cautious approach toward lending in this sector.
Latest data from the central bank reveals that MSME credit grew by only 0.16 percent year-on-year in April 2026, while the NPL ratio for the sector climbed to 4.62 percent. This tightening of credit conditions reflects a broader shift in how banks are managing risk.
Dhaha P. Kuantan, Director of the Macroprudential Policy Department at Bank Indonesia, explained that the surge in credit risk has led banks to practice selective lending. Speaking in Makassar on Saturday (May 22), Dhaha noted, “Credit risks have increased, prompting banks to be highly selective. Because banks are carefully vetting borrowers, overall credit growth in the MSME sector has remained relatively stagnant.”
This rise in bad debt has left banks hesitant to extend financing to real-sector businesses, which are currently perceived as high-risk investments. Compounding the issue is the weakened purchasing power of the lower-middle-class population, which continues to exert downward pressure on small business performance.
Bank Indonesia is closely monitoring these developments. As the regulator, the central bank is preparing further measures to stimulate MSME financing. “This is certainly a major concern for us,” Dhaha stated. “We are developing policies to foster growth. Our focus remains on addressing the rising NPLs and the limitations in consumer spending among lower-middle-income households.”
Despite the current deceleration in credit growth, Bank Indonesia maintains an optimistic outlook for the remainder of 2026. The central bank believes that various government initiatives aimed at supporting lower-income communities will bolster consumer purchasing power and, in turn, help lower the NPL ratio.
Strategic programs such as the Free Nutritious Meal (MBG) initiative, the Red and White Village Cooperative (KDKMP), and the continued distribution of People’s Business Credit (KUR) are expected to serve as pillars for future financial recovery. “We are hopeful that with these government programs targeting the lower-middle class, the outlook for 2026 will improve,” Dhaha concluded.
Summary
Micro, Small, and Medium Enterprise (MSME) credit growth slowed significantly to 0.16 percent in April 2026, primarily due to an rising Non-Performing Loan (NPL) ratio of 4.62 percent. Consequently, financial institutions have adopted more selective lending practices to mitigate increased credit risk. This cautious approach is further exacerbated by declining purchasing power among the lower-middle-class population, which negatively impacts small business performance.
Bank Indonesia is actively monitoring the situation and developing new policies to stimulate MSME financing and address the NPL challenges. The central bank remains optimistic about an economic recovery in 2026, relying on government initiatives such as the Free Nutritious Meal program and People’s Business Credit (KUR). These strategic programs are expected to boost consumer spending and eventually help stabilize the MSME credit sector.