Evaluation of the Implementation of the 5c Principles in Msme Credit Distribution: A Comparative Analysis Based on OJK and Bi Sectoral Data in the Makassar Region

Abstract

This research is motivated by the phenomenon of increasing non-performing loan (NPL) risk in the Micro, Small, and Medium Enterprises (MSME) sector in Indonesia, including in the Makassar region, which indicates weakness in the credit analysis process. The 5C principles (Character, Capacity, Capital, Collateral, Condition) are the main foundation in analyzing debtor eligibility, however their implementation in the field still faces various challenges. The objectives of this research are: (1) To analyze the application of the 5C principles in MSME credit distribution in the Makassar region based on sectoral data from the Financial Services Authority (OJK) and Bank Indonesia (BI); (2) To conduct a comparative analysis across economic sectors to identify the sectors most vulnerable to non-performing loans; and (3) To evaluate the dominant factors from the 5C aspects contributing to NPL in each sector. Data analysis was conducted using content analysis and constant comparative analysis techniques, by comparing NPL data and characteristics across economic sectors (agriculture, trade, manufacturing industry, services) and then interpreting them using the 5C principles framework. The results of the study indicate that: (1) There are variations in NPL rates across economic sectors in the Makassar region, with the trade and agricultural sectors tending to have higher NPLs compared to the services and manufacturing sectors; (2) The Condition and Capacity factors are the dominant causes of non-performing loans across all sectors, reflected in macroeconomic data such as fluctuations in public purchasing power (trade sector), climate change and import policies (agricultural sector), as well as business competition and digitalization (services sector); (3) The Character and Collateral aspects function more as initial mitigating factors but are not strong enough to prevent default if external conditions deteriorate significantly; (4) The thin capital aspect is a structural weakness of MSMEs in all sectors, so when shocks occur, there is no reserve fund (buffer) to survive.