Customer Protection for Non-Performing Loans

Customer protection for non-performing loans is crucial when borrowers face default, whether due to job loss, economic crises, or other urgent reasons.

A non-performing loan occurs when an individual or a business fails to repay debt according to the agreed terms. This situation not only harms the borrower but also impacts the financial health of banks and non-bank financial institutions. Therefore, fair and humane solutions—regulated under customer protection policies for non-performing loans—are needed, such as rescheduling and reconditioning.

These measures aim to protect the rights of borrowers acting in good faith while maintaining the stability of the financial system. Let’s explore the protection measures for borrowers facing non-performing loans in this article.

What is Non-Performing Loan Customer Protection?

Non-performing loan customer protection refers to a set of actions or policies designed to safeguard the rights of borrowers who are unable to repay their loans.

A non-performing loan occurs when a borrower—individual or institutional—fails to meet debt obligations as per the agreement, often due to poor financial planning or misuse of credit.

Credit facilities are widely used for various needs. According to Indonesia’s Customer Protection Law on Credit No. 10 of 1998, credit is the provision of funds based on an agreement that must be repaid within a specified period along with interest.

Some borrowers face repayment problems because they are financially unprepared or take out excessive loans. On the other hand, inadequate borrower assessments by lenders can also lead to non-performing loans.

To protect such borrowers, financial institutions may take steps like:

● Rescheduling: Extending the loan repayment period.

● Reconditioning: Adjusting loan terms.

● Restructuring: Adding borrower capital.

● Execution: Selling collateral to repay the debt.

If left unresolved, these issues can damage the borrower’s credit score and hinder future access to financing.

Non-Performing Loan Protection Measures

When dealing with non-performing loans, financial institutions can take various steps to assist borrowers acting in good faith. These include rescheduling, reconditioning, restructuring, and, if necessary, execution.

1. Rescheduling

Rescheduling involves extending the loan term, either by prolonging the repayment period or adjusting the installment schedule. For example, a 36-month installment plan could be extended to 48 months to reduce monthly payments.

2. Reconditioning

Reconditioning reduces the borrower’s burden by adjusting loan terms—such as postponing interest payments, lowering interest rates, or waiving interest altogether. In some cases, the remaining loan balance can be turned into a new principal with a more manageable repayment schedule.

3. Restructuring

Restructuring provides additional capital to borrowers—either through increased credit limits or equity injections—if the borrower’s business is deemed viable and requires extra funds to continue operations.

4. Combination

A combination approach merges two or more measures. For example, the loan term may be extended while interest payments are postponed (rescheduling + reconditioning), or installments extended alongside additional business capital (rescheduling + restructuring).

5. Execution

Execution is the last resort—selling collateral to repay principal and interest. Any remaining funds after repayment are returned to the borrower. However, if the proceeds are insufficient, the borrower must cover the remaining debt, unless the institution writes it off as a loss.

Loan Control Measures

To minimize the risk of non-performing loans, financial institutions implement control measures from the start of the loan process through post-disbursement. These are divided into preventive and repressive measures.

1. Preventive Control

Preventive measures aim to avoid non-performing loans from the outset. Lenders conduct strict screening of potential borrowers by verifying all requirements and assessing them based on the 6C principle:

● Character – The borrower’s integrity.

● Capacity – Financial capability.

● Capital – Available funds.

● Collateral – Security for the loan.

● Condition of Economy – Current economic climate.

● Constraint – Potential obstacles.

By thoroughly assessing these aspects, lenders can ensure loans are granted only to creditworthy borrowers.

2. Repressive Control

Repressive measures are taken when a loan shows signs of trouble. This may include negotiating with borrowers, taking over business proceeds, leasing collateral, or sending payment reminders.

If necessary, collection can be escalated to authorized legal bodies, such as law firms or the District Court. In bankruptcy cases, settlement may proceed through the Heritage Hall (Balai Harta Peninggalan/BHP) by auctioning collateral. Excess proceeds go to the borrower; shortfalls remain their responsibility.

Understanding non-performing loan protection is essential—especially during unexpected hardships like job loss or economic downturns. As long as borrowers act in good faith, multiple solutions are available, from rescheduling to restructuring, with execution as the final step.

Beyond knowing your rights, proper financial planning is equally important, especially if you need additional funds for personal, family, or business needs.

BFI Finance offers multipurpose financing with flexible collateral options, such as motorcycle BPKB, car BPKB, or house/shop ownership certificates. You can enjoy quick approval, long tenors, and low interest rates.

Moreover, BFI Finance is licensed and supervised by the Financial Services Authority (OJK), ensuring safety and credibility. With over 40 years of experience, BFI Finance is a trusted partner in realizing your financial plans.

Apply now—because with BFI Finance, #SelaluAdaJalan.