Indonesia gives small, medium businesses six-month window for loan forgiveness

Indonesia has opened a six-month window until May 2025 for certain businesses to receive full loan forgiveness from state banks, a policy that aims to boost loan and economic growth, according to details of a new regulation.

Indonesia's President Prabowo Subianto last week signed off on a government regulation that allows state lenders to fully write off bad debts of certain micro, small, and medium enterprises (MSMEs), which are major contributors to Indonesia's gross domestic product.

"We hope this could help our brothers and sisters who work in agriculture, MSMEs, and as fishermen who are very important food producers. They can continue their businesses and they can be

more useful for the nation," Prabowo said in a statement. Prabowo has pledged to lift Indonesia's annual economic growth by 3 per centage points to 8 per cent under his current presidential term, which will last until 2029. Boosting food production is one of his key programmes.

The beneficiaries of the new regulation are MSMEs with bad debts of up to 500 million rupiah ($31,887.76), and the loans need to have been written off by banks at least five years before the forgiveness policy took effect, according to the regulation.

Under the policy, the affected MSMEs can now tap new loans. Previously, even though their bad debts had been written off, the banks were still holding the right to collect, prohibiting the MSMEs from accessing financing.

State bank Rakyat Indonesia (BRI), which focuses on MSME lending, said the policy will open new loan opportunities, while Bank Mandiri said the policy will have no financial impact.

The regulation also ensures state banks and their boards of directors would not be charged with creating state losses, an offence that can lead to jail time, when writing off the bad debts.