Can Sharia Banks Rescue MSMEs?

Global economic pressures are once again testing the resilience of the Indonesian economy. The weakening of the rupiah exchange rate, which recently exceeded Rp18,000 per dollar, rising global energy prices, and high geopolitical uncertainty are driving continuous increases in production and distribution costs. Meanwhile, to maintain exchange rate stability and control inflation, interest rates remain at relatively high levels.

For large corporations, these pressures can still be anticipated through efficiency, market diversification, or broader access to financing. However, the situation is different for millions of micro, small, and medium enterprises (MSMEs). MSMEs are facing rising raw material prices, logistics costs, and operational expenses, while public purchasing power has not yet fully recovered. As a result, MSMEs are trapped in a cost-price squeeze: production costs are increasing faster than the market’s ability to absorb price hikes.

This issue is extremely serious. MSMEs contribute more than 60 per cent of the national Gross Domestic Product (GDP), absorb approximately 97 per cent of the workforce, and consist of over 65 million business units. When MSMEs weaken, it is essentially the foundation of the Indonesian economy that is weakening.

So far, the most frequently offered solution has been to expand access to financing, either through the People’s Business Credit (KUR) or various interest subsidy schemes. The government, through Finance Minister Purbaya Yudhi Sadewa, even strengthened banking liquidity by placing approximately Rp200 trillion in Himbara banks, hoping that credit distribution would increase.

Unfortunately, the problem is not solely a lack of capital. Banking liquidity is currently relatively adequate. The greatest obstacle is the decline in market demand. When sales weaken, MSME profits are also pressured, causing banks to become more cautious in distributing financing. Increasing credit to business owners who are struggling to access markets is not a solution that addresses the root of the problem.