Prudential Banking Strategy in Indonesia for Implementing MSME Debt Write-Off Policy 2025

By: Setyawati Fitrianggraeni, Taufik Nuariansyah*

Introduction

The Indonesian government has announced a debt write-off policy for Micro, Small, and Medium Enterprises (“MSMEs”) as part of the post-pandemic economic recovery strategy. This measure is regulated in Government Regulation (PP) No. 47 of 2024 Concerning the Write-Off of Non-Performing Loans to Micro, Small, and Medium Enterprises (“PP No. 47 of 2024”). This regulation provides the legal foundation for state-owned banks under the Association of State-Owned Banks (Himbara) to write off MSME debts that meet certain criteria. This write-off policy is derived from Articles 250 and 251 of Law Number 4 of 2023 Concerning the Development and Strengthening of the Financial Sector. In principle, the policy of writing off and releasing non-performing loans aims to provide easier access to financing for micro, small, and medium enterprises.

The implementation of this policy requires a careful and prudential approach from banks to maintain financial stability and prevent moral hazard risks. This article will discuss strategic measures that banks should implement to ensure this policy is effective while maintaining the principle of prudence.

Details of the Non-Performing Loan Write-Off Policy

PP No. 47 of 2024 regulates the mechanism for writing off MSME debts covering the agricultural, fishery, and creative industry sectors. This regulation governs the write-off of non-performing loans by state-owned banks and/or non-bank financial institutions to MSMEs through Accounting Write-Off and Collection Release with the following provisions:

• Non-performing loans must have undergone restructuring efforts in accordance with applicable regulations at state-owned banks and/or non-bank financial institutions;
• Banks and/or state-owned non-bank financial institutions have made optimal collection efforts including restructuring attempts, but the loans remain uncollectible.

The accounting write-off of non-performing loans does not eliminate the collection rights of the bank and/or state-owned non-bank financial institution.

Collection release of written-off non-performing loans is conducted by banks and/or state-owned non-bank financial institutions for:

• MSME loans or financing that are government programs funded by banks and/or state-owned non-bank financial institutions, where the programs have been completed when this Government Regulation comes into effect.
• MSME loans or financing outside government programs disbursed using funds from the respective banks and/or state-owned non-bank financial institutions; or
• MSME loans or financing affected by natural disasters such as earthquakes, liquefaction, or other natural disasters designated by the central government, local government, and/or authorized agencies.

Article 7 of PP No. 47 of 2024 emphasizes that losses incurred by banks and/or state-owned non-bank financial institutions in implementing the Accounting Write-Off as referred to in Article 4 and/or Collection Release as referred to in Article 6 constitute losses of the respective banks and/or state-owned non-bank financial institutions. These losses do not constitute state financial losses as long as actions can be proven to have been taken in good faith, in accordance with statutory provisions, articles of association, and principles of good corporate governance. Therefore, Directors who conduct accounting write-offs and collection releases cannot be held accountable for losses incurred and experienced by banks and/or state-owned non-bank financial institutions. After debtors or customers who have been granted loan write-offs are categorized as settled in accordance with government policy, they may apply for new MSME loans or financing.

Prudence and Supervision in Non-Performing Loan Write-Offs and Collection Releases

While this regulation aims to alleviate and assist MSMEs, the policy allegedly risks missing its target as it could potentially be exploited by parties who do not meet the criteria or are not even related to MSMEs. This targeting error can occur if strict supervision is not implemented, allowing the emergence of parties seeking personal gain from this program. Furthermore, Article 7 paragraph 3 of PP 47 of 2024 does not automatically eliminate the obligations of Directors under the fiduciary duty principle as stipulated in limited liability company law.

Prudential verification mechanisms and processes, Banks must implement rigorous verification processes, including:

1. Identification of debtors who meet the criteria, based on internal and external data.
2. Field inspections to ensure business feasibility.
3. Regular internal audits to ensure transparency.

To ensure prudence, banks are required to conduct periodic monitoring, train officers about signs of misuse, and actively collaborate with local governments in data verification.

In implementing moral hazard risk mitigation strategy, banks and regulators must implement:

• Regular and in-depth internal supervision.
• Collaboration with local governments to ensure the validity of debtor data.
• Continuous education for MSMEs regarding financial management and credit obligations.

The implementation of prudential principles in MSME debt write-offs is crucial to achieve policy objectives without disrupting national financial stability. Banks need to adjust internal SOPs, strengthen collaboration with the Financial Services Authority (OJK), and coordinate with local governments for the effectiveness of this policy in supporting MSME sustainability.

Bibliography

1. Peraturan Pemerintah Republik Indonesia No. 47 Tahun 2024 tentang Penghapusan Piutang Macet UMKM. Tersedia di: https://peraturan.bpk.go.id/Details/306923/pp-no-47-tahun-2024

2. Otoritas Jasa Keuangan. “Statistik Perbankan Indonesia 2024”. Tersedia di: https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/default.aspx

3. Sekretariat Kabinet Republik Indonesia. “Presiden Prabowo Tandatangani PP Penghapusan Piutang Macet UMKM”. Tersedia di: https://setkab.go.id/presiden-prabowo-subianto-tandatangani-pp-tentang-penghapusan-piutang-macet-umkm

4. Antara News. “Indonesia Begins MSME Debt Cancellation Program”. Tersedia di: https://www.antaranews.com/berita/4610442/ojk-himbara-petakan-debitur-umkm-yang-utangnya-akan-dihapus-tagih

5. “Menteri UMKM Janjikan Penghapusan Utang Macet UMKM, Tuntas Mei 2025”. Tersedia di: https://ekonomi.republika.co.id/berita/4607586/penghapusan-kredit-macet-umkm

6. “Surat Edaran OJK Terkait Restrukturisasi Kredit”. Tersedia di: https://www.ojk.go.id/id/regulasi/Pages/Surat-Edaran-OJK.aspx

7. Lembaga Penyelidikan Ekonomi dan Masyarakat FEB UI. “Dampak COVID-19 pada UMKM di Indonesia”. Tersedia di: https://www.lpem.org/id/research

8. Jatim Antara News. “Penghapusan Kredit Macet UMKM Tak Berdampak Buruk Bagi Perbankan”. Tersedia di: https://jatim.antaranews.com/rilis-pers/4607586/penghapusan-kredit-macet-umkm-tak-berdampak-buruk-bagi-perbankan

9. “Statistik Restrukturisasi Kredit UMKM”. Tersedia di: https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik

10. Peraturan Pemerintah Republik Indonesia No. 47 Tahun 2024 tentang Penghapusan Piutang Macet UMKM. Tersedia di: https://peraturan.bpk.go.id/Details/306923/pp-no-47-tahun-2024

11. Sekretariat Kabinet Republik Indonesia. “Presiden Prabowo Tandatangani PP Penghapusan Piutang Macet UMKM”. Tersedia di: https://setkab.go.id

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Setyawati Fitrianggraeni serves as Managing Partner at Anggraeni and Partners in Indonesia and Assistant Professor at the Faculty of Law, University of Indonesia, while pursuing her PhD at the World Maritime University in Malmö, Sweden and Taufik Nuariansyah Tanjung is an Associate in the Practice Group Advisory and Commercial Transaction at Anggraeni and Partners.

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