A Guide to Building Creditworthiness among MSMEs

Maintaining your own credit history will become ever more crucial to do proper financial planning. Economic conditions and personal circumstances may unexpectedly change, forcing individuals and business owners to seek credit. Building and protecting your reputation is key to preserving access to financial services, including credit.

The Indonesian government has taken various approaches to mobilize financing, including putting a cap on interest rates, providing interest rate subsidies, subsidies on credit insurance, and other incentives to banks and non-banking financial institutions to stimulate lending to the population and particularly to the small business owner and micro enterprises which are so vital for the Indonesian National economy.

The government has also promoted the establishment of private credit bureaus to stimulate the adoption of credit bureau services since credit bureaus play a crucial role in facilitating lending. They are responsible for reducing processing costs and nonperforming loan rates for lenders which ultimately should impact the final interest charged to the borrower. Through credit bureaus, Banks are able to increase their loan approval rates, including to MSMEs and provide better customer experience and more importantly cheaper loans.

Society in this scenario also needs to play its part and consumer and small business owners need to be more aware of the fact that their credit history and their “reputation” is something of immense value that must be protected. A society where individuals access credit responsibility and honor their payment obligation is beneficial to the national economy.

President Director of PT CRIF Lembaga Informasi Keuangan (CLIK) Leonardo Lapalorcia, states that credit history and reports embody one’s reputation. Leonardo emphasizes that in today’s interconnected world, one’s reputation is as valuable as any collateral, and individuals must maintain both, as they are essential components for accessing financial services.

CLIK’s Guide for MSMEs to Gain More Leverage

CLIK Private Credit Bureau (PCB) suggests that the current situation calls for proactive measures from both Debtors and Creditors. While loan collateral is often still necessary, Debtors can also proactively enhance their credit profiles.

A high credit score increases bargaining power with financial institutions. It’s crucial to protect one’s own credit history and score to be able to access lending services. Here are steps to gain more leverage in credit terms negotiation: 

1. Timely bill payments
   Demonstrating a history of timely loan or credit repayments to creditors.
2. Reduce debt levels
   Avoid overspending. Access credit responsibly.
3. Avoid accumulating multiple loans in a short period
   The type and frequency of loans you access will impact your credit history differently.