Credit Risk and Financial Stability in Supporting Local Economic Growth

Abstract

Bank Perkreditan Rakyat (BPR) plays a strategic role in strengthening Indonesia’s financial system, particularly through its intermediation function for the Micro, Small, and Medium Enterprises (MSMEs) sector and local economies. BPR contributes significantly to enhancing financial inclusion, promoting economic diversification, and improving resilience against regional shocks. Nevertheless, the high level of credit risk remains a major challenge that differentiates BPR from commercial banks. Uncontrolled credit risk has the potential to weaken capital stability, disrupt intermediation functions, and trigger a broader crisis of confidence within the financial sector. Therefore, compliance with the Legal Lending Limit (Batas Maksimum Pemberian Kredit/BMPK) emerges as a crucial regulatory instrument to safeguard the financial health of BPR, prevent excessive credit concentration, and ensure long-term operational sustainability. This literature-based study aims to examine the role of BPR in maintaining financial stability, the implications of credit risk, and the importance of BMPK implementation. Findings indicate that strengthening risk management, corporate governance, and regulatory oversight is essential for ensuring the sustainability of BPR in supporting Indonesia’s economic growth.