Government Prepares Regulation on UMKM Debt Write-Offs

The Government has approved the Draft Bill (“RUU”) on Amendment to Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (“P2SK”). This regulatory update will provide a new legal framework for the write-off and debt waiver of non-performing loans of Micro, Small, and Medium Enterprises (“UMKM”) at banks, as well as state-owned (BUMN) and regional government-owned (BUMD) non-bank financial institutions, without causing losses to state finances.

“This measure is taken to reduce the level of non-performing loans (NPLs) in the banking sector and to provide a ‘new hope’ for UMKM that have been constrained by the credit information system (SLIK),” said the Acting Director General of Financial Sector Stability and Development at the Ministry of Finance, Herman Saheruddin.

He further emphasized the need to relax the requirements for loan write-offs while maintaining the principle of prudence and taking into account the potential for recovery from debtors. “Detailed technical criteria will subsequently be regulated in a Regulation of the Government (PP) or a Regulation of the Financial Services Authority (“OJK”) as implementing regulations of the RUU on the Amendment to the P2SK Law,” he added.