Prabowo Issues New Regulation for Local Governments to Supervise Savings and Loan Cooperatives and Similar Entities
President Prabowo Subianto has signed a regulation for the supervision and nurturing of Incubation Microfinance Institutions and small-scale Microfinance Institutions by local governments. This is enshrined in Government Regulation No. 6/2026, which was promulgated on 4 February 2026.
It is explained that UMKM activities play an important role in Indonesia’s economy. This is because UMKM dominate up to 90% of the total business actors in Indonesia.
However, many UMKM actors still face difficulties in obtaining financing access because they lack collateral, so this role is filled by Microfinance Institutions (LKM) instead of banking.
In practice, there are LKM that carry out lending or financing activities, both those established to implement government programmes and those established by the community that do not collect funds, are not yet able to obtain a business licence from the Financial Services Authority (OJK) but are still operating.
For this reason, the government has issued this regulation for the nurturing and supervision of Incubation LKM so that they can become financial service institutions with a business licence from the OJK.
The regulation of Incubation LKM and the strengthening of local government duties in carrying out nurturing and supervision of Incubation LKM, among others, aims to:
provide business legality for Incubation LKM before they are able to become Financial Services Institutions with a business licence from the Financial Services Authority;
protect community revolving funds and reduce the potential for misuse;
ensure the sustainability of providing microfinance services to the poor in a legal, professional, accountable, and sustainable manner;
increase opportunities for broader business development activities; and
ensure the implementation of nurturing and supervision by local governments with support from competent stakeholders.
Article 2 of this regulation states that this Government Regulation regulates nurturing and supervision by local governments towards: a. Incubation LKM; and b. Small-scale Business LKM.
“To support the development and strengthening of the financial sector through the organisation of LKM, local governments carry out nurturing and supervision of Incubation LKM and Small-scale Business LKM in accordance with their authority,” states Article 3, quoted on Tuesday, 12 May 2026.
This policy also contains regulations regarding the nurturing of Incubation LKM, the form of Incubation Institutions, the transformation of Incubation LKM, as well as the protection of Incubation LKM and Business Users.
In addition, it is explained that Microfinance Institutions, hereinafter abbreviated as LKM, are financial institutions specifically established to provide business development services and community empowerment, either through loans or financing in micro-scale businesses to members and the community, management of savings, or provision of business development consultation services that are not solely profit-oriented.
Incubation LKM are LKM, both those established to implement government programmes and those established by the community that do not collect public funds and are not yet able to meet the minimum requirements as LKM as regulated in the law on microfinance institutions. Small-scale Business LKM are LKM as referred to in the Financial Services Authority regulation on microfinance institutions.