Credit restructuring, a cause for tentative UMKM optimism

Eko Listiyanto INDEF Vice Director

IO – The long duration of the COVID-19 pandemic is of great concern for the health and safety of all citizens. However, physical health is not the only thing being threatened here. Micro, Small, and Medium- Sized Enterprises (Usaha Mikro, Kecil, Menengah – “UMKM”) are trebly hit hard by the pandemic. Not only has their income decreased, their physical production capacity is halved and their ingredients/ material supply are also impaired. UMKM businesses’ troubles both cause and affect Indonesia’s economic recession. 

Ministry of Cooperatives and UMKM data (2020) records at least 300,000 reports from UMKMs affected by the pandemic. Bank Indonesia corroborates this: 72.6% UMKMs are strongly affected by the pandemic. 41.5% are badly hit, 95.4% being exporters and 89.9% crafts and tourism support institutions. 

The Government has responded with various policies to assist UMKMs, including a credit restructuring policy implemented by the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”). It helps to protect Indonesia’s economy by strengthening the contribution of the financial services sector, issues various policies to stimulate and encourage national economic recovery, sets the financial services industry as a catalyst of the economy, and supports the real sector. OJK has issued at least 11 OJK Regulations in banking, non-banking financial institutions, and capital market in order to mitigate the impact of COVID-19, calm financial volatility, and defend the stability of the financial services sector. 

UMKM Optimism 

One of OJK’s policies is credit restructuring. From March to November 2020, the total of credit restructuring from banks is IDR 932.4 trillion, borrowed by 7.53 million debtors, while total credit restructuring in the UMKM sector is IDR 369.8 trillion owed by 5.84 million debtors. The program, which started in March 2020, has succeeded in reviving the self-confidence of UMKM entrepreneurs. Even though UMKM credit in March-July 2020 initially declined, it has rallied and continued to grow since August 2020. in July 2020, UMKM credit distribution was only IDR 1,013.75 trillion throughout the country. However, it increased throughout August and September to a total of IDR 1,023.6 trillion. The effort to keep credit distributed smoothly to the UMKM sector is a key factor in the quest to pull Indonesia’s economy out of recession. 

OJK will continue its credit restructuring program to March 2022. This is a positive step that helps to ensure that policies being issued can maintain the stability of the financial services sector against economic pressures deriving from  COVID-19 pandemic. This policy also helps entrepreneurs, and especially UMKMs, survive despite economic uncertainty in 2020, and even alleviates the shock for banks and their clients. A survey performed by Mandiri Institute (2020) shows that the extension of credit restructuring is supported by UMKM entrepreneurs, because it helps them keep their hopes up in surviving COVID-19 and recovering. 

In view of the current situation, UMKM entrepreneurs must transform their sales process by employing digital technology. According to the Ministry of Cooperatives and UMKM (2020), so far only 13% of UMKM entrepreneurs make use of digital technology. Therefore, OJK is launching the digital marketplace platform “UMKM-MU” on its ninth anniversary, in order to provide access to bigger online markets for advanced UMKM products. UMKM businesses can access materials and buyers, and they can sell their products on the platform free of charge. They will also get guidance for its usage from all OJK regional offices throughout Indonesia. Why all this effort for UMKM? Because it is an extremely important sector of the Indonesian economy that absorbs 117 million workers and contributes 61.1% to our economy. Therefore, UMKM in Indonesia must always be treated as a prima donna and supported by everyone. Indonesia’s economy is practically dependent on UMKM. Therefore, recovering UMKM activity is the key to recovering Indonesia’s economy. 

OJK, Bringer of Hope 

Credit restructuring for Indonesia’s economy is an effort that needs to be maintained until the effects of the COVID-19 pandemic end. As nobody knows when it will die down, the pandemic can simply wipe out everyone’s hopes. Therefore, everyone – especially the OJK – must be able to maintain their confidence in UMKM entrepreneurs and give them the necessary support for recovery. Monitoring of UMKM credit distribution must become stricter, so that the credit can be absorbed and utilized optimally. Insufficient monitoring of the program’s execution will only delay – or even obstruct – national economic recovery. 

OJK’s various efforts are in line with the statement made by President Joko Widodo during its ninth anniversary. He expressed his hope that OJK assumes a bigger responsibility in helping UMKMs to become productive again and revive the Indonesian economy. 

Here is to UMKM – and naturally, to Indonesia!