CORE: MSMEs Need Easier Access to Financing More Than Lower Interest Rates

Jakarta - The Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, assesses that ease of access to financing remains the primary need for micro, small, and medium enterprise (MSME) actors, more so than reductions in credit interest rates.

“From studies that have been conducted on small and micro businesses, their main concern regarding financing is actually the ease of obtaining it first. Access and requirements, not the interest rate,” Faisal said when contacted in Jakarta on Monday.

Faisal made this statement in response to President Prabowo Subianto’s initiative to lower the people’s business credit (KUR) interest rate to 5 per cent per year, from the previous 6 per cent.

According to Faisal, the interest rate level is still a consideration for business actors, but it is not the main factor in obtaining financing.

The KUR interest rate was previously set at 6 per cent for the first application and increases by 1 per cent for subsequent applications, with a maximum interest of 9 per cent.

By 2026, the government has set the KUR interest rate to be fixed or flat at 6 per cent.

Faisal explained that many small and micro business actors struggle to meet bank credit requirements, including those related to collateral or guarantees.

This is because, he continued, the KUR scheme distributed through banks generally still requires certain collateral, so it is not yet fully accessible to all MSME actors.

He said that limited access to formal financing so far has trapped some small and micro businesses in non-bank loans such as from moneylenders or illegal online loans that offer quick processes with high interest rates.

For this reason, Faisal views the existence of credit guarantee institutions as important to help expand access to affordable financing for MSMEs while reducing the risks borne by banks.

Nevertheless, he noted that banks will still consider the risk of bad debts in distributing loans.

“If given a low interest rate but the requirements are also easy, it depends on whether the borrower is disciplined or not, worthy or not, at risk of bad debt or not,” he said.

Meanwhile, Acting Deputy for Micro Enterprises at the Ministry of Cooperatives and SMEs, Riza Damanik, said the government continues to encourage easier and cheaper access to financing for MSME actors.

“The principle is that the government continues to encourage easier and cheaper access to financing for MSMEs,” Riza said when contacted separately.

According to him, although not the only factor, access to financing remains an important element in supporting the growth and sustainability of MSME businesses.

He acknowledged that there are still several challenges faced by MSMEs in accessing formal financing, ranging from financial information service system (SLIK) status, high credit interest rates, limited guarantees, to financing gaps or financial gaps.

According to him, these challenges are the government’s attention in expanding access to financing for MSME actors.