Interest Rates Fall, Capital Costs Rise: What’s the Smart Move for MSMEs?

Recently, many small and medium business owners (MSMEs) assumed that when interest rates fall, loan costs would automatically become cheaper. However, reality shows otherwise. Even though Bank Indonesia has lowered its benchmark rate, the cost of capital for MSMEs remains high — and in some cases, it’s even rising.

Why Capital Costs Stay High Despite Lower Interest Rates?

The benchmark interest rate serves as a guide for financial institutions when determining lending rates. But in practice, capital costs are influenced by many other factors, such as:

1. Borrower Risk Profile (MSMEs)

Financial institutions assess the risk of each borrower. If an MSME doesn’t have proper financial records or a clear credit history, it’s considered high risk — which means higher interest rates.

2. Global Economic Conditions and Inflation

Inflationary pressure and currency fluctuations can increase banks’ operational costs, which are then passed on to borrowers through higher loan rates.

3. Access to Formal Funding Sources

Many MSMEs still rely on informal loans with high interest because they’re not yet connected to formal financial institutions.

In other words, a lower benchmark interest rate doesn’t automatically mean easier access to cheaper capital. The real challenge lies in how ready a business is to demonstrate credibility and solid financial management.

Smart Steps for MSMEs in This Situation

1. Strengthen Financial Reports

Transparency is key. With organized financial statements, MSMEs can prove healthy cash flow, profit margins, and repayment capacity.

CBI SME Bureau provides free services to help MSMEs prepare clean and professional business reports that are easy for financial institutions to understand.

These reports are not only useful when applying for loans but also for understanding your business’s financial health.

2. Build a Strong Credit Reputation

An MSME’s credit score is a crucial factor for lenders. Late payments or unpaid debts can reduce trust from financial institutions.

By monitoring and improving their credit scores through services like CBI SME Bureau, SMEs can increase their chances of getting loans with lower interest rates.

3. Diversify Funding Sources

Don’t rely on just one funding channel. Besides banks, MSMEs can explore alternatives such as:

• Fintech lending platforms with competitive interest rates,

• Modern cooperatives, or

• Government financing programs or credit guarantee schemes.

4. Use Capital Efficiently

Lower interest rates should be used for productive reinvestment, not for consumptive spending. Use additional funds to boost production capacity, adopt digital tools, or expand into new markets.

A lower interest rate may signal positive economic movement, but it doesn’t automatically reduce capital costs for all MSMEs. The key lies in business credibility and transparency.

By preparing proper financial reports, maintaining good credit standing, and managing funds wisely, MSMEs can position themselves to take advantage of financing opportunities despite changing economic conditions.

Through the support of CBI SME Bureau, MSME owners now have free access to create professional business reports — a crucial first step toward inclusive and affordable financing.