Non-Performing Financing During Pandemic: Government Initiatives towards Small and Medium Enterprises (SMEs) In Indonesia

Abstract

The pandemic era exposed the vulnerabilities of small and medium enterprises (SMEs), significantly increasing non-performing financing (NPF) rates and threatening economic stability in Indonesia. This paper illustrates how government initiatives have mitigated the financial distress faced by SMEs during this period, focusing on policies aimed at restructuring loans, providing fiscal incentives, and enhancing liquidity. By examining the effectiveness of these interventions, the study highlights their role in maintaining economic resilience and supporting the recovery of one of the country’s most vital economic sectors. Using a qualitative methodology, the research synthesises in-depth literature review analyses, regulations, and SME studies to evaluate the interplay between authority actions and cases. Key questions include: How effective were Indonesia’s government initiatives in addressing rising NPF rates? What lessons can be drawn to enhance the resilience of SMEs in future crises? Findings reveal that while policy interventions provided critical relief, challenges such as administrative inefficiencies and unequal access to financing limited their full impact. The analysis underscores the importance of robust frameworks that prioritise equitable financial access and adaptive measures to safeguard SMEs against economic shocks. Recommendations include refining loan restructuring mechanisms, strengthening public-private partnerships, and fostering financial literacy among SMEs. This research contributes to the discourse on crisis management and SME sustainability, offering actionable insights for policymakers, financial institutions, and stakeholders navigating post-pandemic economic recovery.