SME Lending Growth Remains Subdued as Banks Adopt More Selective Approach

REPUBLIKA.CO.ID, JAKARTA – Banking sector lending to micro, small, and medium enterprises (MSMEs) continues to show limited growth at the beginning of 2026. The Financial Services Authority (OJK) assesses that banks are now more cautious in disbursing financing amid increasing global and domestic economic risks.

Executive Director of Banking Supervision at OJK, Dian Ediana Rae, said that banks are implementing stricter credit selection standards as a risk mitigation step. “Currently, banks tend to be more selective in disbursing credit to the MSME segment as one form of risk management implementation amidst existing economic dynamics,” said Dian in a statement on Sunday (17/5/2026).

Dian explained that changes in consumer patterns due to purchasing power pressures, especially among lower and middle-income groups, also affect the turnover and cash flow of MSME actors. This condition impacts their ability to repay credit, while the post-pandemic recovery process for MSMEs is slower compared to the corporate sector.

“Several banks have begun shifting their focus from simply pursuing high disbursement volumes to productive credit based on improving business capacity and resilience,” said Dian.

OJK data records that MSME credit in the first quarter of 2026 reached IDR 1,498.64 trillion or grew by 0.12 percent year-on-year. This growth improved compared to February 2026, which had experienced a contraction of 0.56 percent. The ratio of non-performing loans (NPL) for MSME credit was recorded at 4.60 percent and is considered well-maintained amid purchasing power pressures and domestic economic dynamics.

The growth in credit mainly came from micro and medium enterprise credit, which grew by 0.20 percent and 0.90 percent year-on-year, respectively, while small enterprise credit experienced a moderation of 0.49 percent. Economic activity during Ramadan and Eid al-Fitr in March 2026 also supported credit growth in the agriculture, forestry, and fisheries sectors, financial and insurance activities, provision of accommodation and food services, to the arts, entertainment, and recreation sectors.

Although growth is still limited, OJK remains optimistic that MSME lending will increase by the end of the year. “OJK remains optimistic in projecting that MSME credit will grow positively until the end of 2026, which is reflected in the continued optimism of the Consumer Confidence Index at the beginning of 2026, which is expected to boost MSME productivity,” said Dian.

The OJK together with the government continue to encourage strengthening the MSME sector through various inclusive financing policies. One of them is through the issuance of POJK Number 19 of 2025 concerning Ease of Access to Financing for MSMEs, which aims to expand access to credit easily, quickly, cheaply, and inclusively.

Dian added that banks are encouraged to strengthen the financing ecosystem through supply chain approaches, digitalization of credit processes, cooperation between financial service institutions, and increased financial literacy for business actors.

“Several strategies that can be carried out by banks to increase MSME credit include a supply chain approach, digitalization of credit processes, and cooperation with other LFIs as well as supported by increased financial literacy for MSMEs,” said Dian.