UMKM Association: Market Pressured by Imports, Businesses Avoid Bank Loans

The market for micro, small, and medium enterprises (UMKM) is being pressured by imported goods, causing them to avoid bank financing, according to the Chairwoman of the Indonesian UMKM Industry Association (AKUMANDIRI), Hermawati Setyorinny. “The reason UMKM take bank loans is because their market is shrinking,” Hermawati said when confirmed in Jakarta on Monday. She explained that UMKM players currently have to compete with imported goods that are priced much cheaper than domestic products. As a result, UMKM players prefer to use personal funds rather than bank financing, considering the high risk of default when using external financing. She noted that the influx of imported goods competing with UMKM products has been increasing year on year, becoming the biggest challenge for small industries. “The flow of imported products entering Indonesia has continued to grow. There is no prevention or braking of imported goods that UMKM also produce,” she said. Hermawati hopes the state can help ensure UMKM products do not have to compete with imports that have much lower production costs. She pointed out that in other countries, local products are protected; when domestic products exist, imported goods are priced higher, and countries also ban the import of similar goods. “In other countries, imported products that enter are priced higher than local products,” she said. Furthermore, UMKM players face many obstacles when trying to develop their businesses by applying for bank financing. She cited the example of the People’s Business Credit (KUR) scheme, which is supposed to be unsecured, but in practice, applications still require collateral, creating another barrier. “Additionally, the Value Added Tax (PPN) is also quite high, and this is another trigger,” she added. Previously, the National Banks Association (Perbanas) stated that 88 per cent of informal UMKM players prefer using personal funds over bank credit. Perbanas Head of Research and Economic Studies Aviliani said this preference for personal funds has affected credit distribution from banks, with research over recent years showing a slowdown and even contraction in UMKM credit growth. According to the Perbanas survey, 88 per cent of UMKM players use personal funds, while 12 per cent use external funds, which include banks (49 per cent), friends or relatives (9 per cent), micro finance institutions (32 per cent), and others (11 per cent).