UMKM Bank: Empowering the Ecosystem, Not Just 'Selling Money'

It is common knowledge that micro, small, and medium enterprises (UMKM) form the backbone of the national economy. However, behind the narrative of “economic heroes” that is often touted, UMKM are still positioned as the “stepchild” in the formal banking ecosystem.

The data speaks volumes: at the beginning of 2026, the Ministry of Cooperatives and SMEs presented the bitter fact that 69.5% of UMKM remain untouched by bank credit. Referring to data from the Financial Services Authority (OJK), the realisation of UMKM credit disbursement by commercial banks and rural banks by the end of 2025 only reached 18.42%—still far from the mark compared to the government’s ambitious target of 30%.

The discourse on establishing a dedicated UMKM bank is not new. However, its urgency remains absolute as long as this financing gap has not been bridged. The issue is that setting up a dedicated UMKM bank is not merely a matter of changing the nameplate or adding a new entity. Without a radical paradigm shift, the new bank will only get stuck in the same “eye of the needle” failure.

The existence of a dedicated UMKM bank must be based on the deconstruction of three fundamental aspects that have long been banking dogmas: the selection system, the interest/margin logic, and the collateral paradigm.

From Individual Selection to Ecosystem Strength

The main weakness of current banking in serving UMKM lies in its customer selection system. Individual feasibility analysis creates a classic dilemma: if criteria are tightened, UMKM access shrinks; if loosened, the risk of non-performing loans looms.

The solution is to transform service units from an individual approach to groups based on one type of business that achieves economies of scale. By serving groups, the bank not only reduces operational costs but also strengthens the bargaining position of UMKM.

In this model, the bank no longer passively waits for credit applications. Instead, the bank must actively design a profitable business ecosystem first, then recruit UMKM to join it. Through interventions such as training and market access, risk mitigation occurs organically. The bank no longer merely “selects” successful UMKM but “facilitates” UMKM to succeed.

This approach changes the selection system, namely building a feasible business first before recruiting UMKM. With this approach, more UMKM will be recruited or become bank customers. This is because the requirements are not based on business feasibility or customer success history, but on the customer’s sincerity and willingness.

Beyond the Narrative of Cheap Interest/Margin

There is a strong assumption that an UMKM bank must offer low interest (conventional) or margin (sharia) because its customers have low incomes. However, the fundamental problem of UMKM is not high funding costs, but low productivity and limited market access.

Instead of getting trapped in the “addiction” of interest/margin subsidies that often do not educate, the bank must focus on empowering UMKM that can disrupt the value chain. As an illustration, aren sugar craftsmen who are accustomed to selling to middlemen with thin margins can be facilitated by the bank to penetrate export markets or modern retail.

When UMKM income jumps due to efficiency and market access, the amount of interest or margin no longer becomes a burden but a rational investment cost. In this ecosystem, UMKM and the bank grow together because the value created is far greater than just the interest differential.

Risk Mitigation Without Collateral

The collateral requirement is a thick wall separating UMKM from banking. We must dare to encourage the UMKM bank to disburse financing without physical collateral. However, the absence of collateral is only possible if there is a strict and real-time monitoring mechanism.

Through the group ecosystem model, the bank can place dedicated staff to oversee financial governance, procurement processes, and professional payment receipts from buyers. When business processes are transparently monitored and directly controlled, the potential for fraud and moral hazard can be completely suppressed. In this condition, land certificates or vehicle ownership documents become irrelevant as risk guarantors.

Partnership Philosophy

A dedicated UMKM bank must position itself as a growth partner, not just a passive creditor. As a partner, the bank’s orientation is the success of the customer’s business. From successful businesses, cash flow for repayments will flow sustainably.

In this partnership spirit, profit-sharing patterns become the fairest instrument. The main performance indicator (KPI) for the UMKM bank is no longer just the bank’s profit level, but how much class improvement of the nurtured UMKM. Essentially, this is consistent sharia banking practice—prioritising justice and empowerment—without getting trapped in mere symbols.

This model is not just discourse. The ecosystem-based approach and value chain disruption have been practised in various countries through facilitation by the Islamic Development Bank (IsDB) in the Value Chain Project Group Financing (VCPGF) scheme. The National Committee for Sharia Economy and Finance (KNEKS) often refers to this pattern as Beyond Murabahah, reducing the dominance of murabahah contracts (sales) to profit-sharing and salam contracts that have rarely been used in sharia finance.

Bringing a dedicated UMKM bank is an effort to seize our economic destiny. We need a financial institution capable of embracing millions of business actors with simple requirements—discipline and hard work—but managed with global professionalism standards. It is time for banks to be present to empower, not just “sell money”.