Indonesia’s Low Household Debt Looks Good, Until You Ask Why We’re Not Borrowing
Indonesia’s low household debt looks like stability, but is it actually masking deeper economic exclusion and limited credit access?
Indonesia’s household debt-to-GDP ratio, at just 16.46%, ranks among the lowest in Southeast Asia and globally. In comparison, Thailand approaches 91%, Malaysia hovers around 67%, and Singapore sits at 49%. To many observers, this low figure suggests a population that spends cautiously and avoids the financial risks seen elsewhere. On paper, Indonesia appears to be the responsible adult in a region wrestling with the side effects of easy credit.
But beneath that perception is a far more complicated reality. Low household debt is not always a sign of financial health. In Indonesia’s case, it may reflect a deep-rooted lack of access to the financial tools that help households grow and build resilience. Millions of people remain outside the formal banking system. Mortgages, business loans, and education financing are often unavailable or out of reach.
What looks like caution could in fact be constraint. When people are locked out of credit, they are also locked out of opportunity. The absence of debt might not be a strength. It might be a symptom. A light debt burden, in this context, doesn't necessarily suggest freedom. It may simply mean that many Indonesians were never given the choice to participate in the first place.
No Debt, No Problem? Or Just No Access?
Indonesia’s low household debt ratio is not the result of some nationwide commitment to frugality or minimalism. It isn’t a cultural aversion to borrowing, nor a collective choice to live within our means. It is, more often than not, a reflection of constraint. For millions of Indonesians, the simple truth is that formal credit remains out of reach.
Only about 51% of the population holds a bank account. That figure drops sharply in rural areas and among lower-income groups, where access to financial services remains patchy or non-existent. If credit is a ladder to economic mobility, many Indonesians are standing on the ground floor. The inability to take on debt is often misread as discipline, when it is in fact the product of exclusion.
This matters in a country where household consumption accounts for over half of GDP. In economies with more inclusive financial systems, borrowing allows people to spend beyond temporary income constraints, to invest in property or education, or to manage unexpected expenses. That kind of borrowing fuels demand, supports business, and ultimately contributes to growth.
In Indonesia, those options simply aren’t available to much of the population. The result is an economy that leans heavily on government expenditure and external investment to compensate for weak household demand. These aren’t inherently bad foundations, but they are fragile. They make the country more vulnerable to shocks, and less resilient when external conditions shift.
Meanwhile, countries with higher household debt, like South Korea, and Australia, may face risks of overextension, but they also offer pathways for wealth accumulation. Their citizens can borrow, build, and recover. In Indonesia, we have the restraint. What we lack is the system to support those who would borrow responsibly if only given the chance.
The Shrinking Middle Class And The Debt That Never Was
For years, Indonesia’s rising middle class was held up as proof of national progress. A growing cohort of urban, educated, upwardly mobile Indonesians would, so the story went, become the backbone of domestic consumption and the foundation for long-term economic resilience. But that narrative is now under strain. The post-pandemic period has exposed how fragile that middle class really is, and how quickly it is starting to contract.
Real wage growth has stagnated, and much of the job market has shifted into informal work. With less income stability and fewer benefits, households that once sat on the cusp of financial security are sliding back down the ladder. They are no longer seen by lenders as creditworthy. Not because they are unreliable, but because their incomes don’t tick the boxes required by the formal financial system.
This is feeding into a broader economic loop that limits progress. Fewer people are able to access mortgages or vehicle financing. Home ownership becomes aspirational rather than achievable, even outside of major cities. Micro and small enterprises, often family-run, can’t access affordable credit to expand operations. Without borrowing, many simply stall or disappear.
In turn, consumer demand weakens. Indonesia has already experienced episodes of deflation. Unlike in higher-income countries where households often borrow to stay afloat during tough periods, Indonesian families tend to retreat, cut costs, and wait things out. Not because they are cautious by nature, but because borrowing is rarely an option.
In this context, low household debt stops being a badge of honour. It becomes a quiet alarm. The middle class is shrinking. And with it, the engine of long-term economic growth risks stalling.
Digital Credit: The Invisible Debt Rising
At first glance, Indonesia’s fintech boom appears to be a success story. Over the past decade, a wave of digital lenders has entered the financial space, offering services that bypass the traditional banking system. Peer-to-peer lending platforms, buy-now-pay-later schemes, e-wallets, and instant microloans have rapidly expanded, reaching millions of users who previously had limited or no access to credit. For a country long underserved by formal financial institutions, this looks like progress.
But the picture is more complex. Much of this new credit is short-term, high-interest, and poorly regulated. Borrowers are often first-time users of formal lending products, navigating unfamiliar financial terrain without adequate guidance or protections. The result is a culture of fragmented debt obligations, rising default risk, and financial stress that remains largely hidden from public view.
What makes this particularly concerning is that most of these digital lending activities don’t register in official statistics. Indonesia’s household debt-to-GDP ratio remains low on paper, but that figure no longer tells the full story. Beneath it lies a growing layer of shadow debt. Some borrowers take out loans from multiple apps, juggling repayments while rolling over old debts into new ones. It’s a financial tightrope.
This isn’t credit being used to build long-term assets or fund productive investment. It’s emergency borrowing, often used to pay for daily needs, medical costs, or shortfalls in income. In many cases, it functions less as a tool for opportunity and more as a last resort. The problem is that debt isr rising in the dark, beyond the reach of policy, oversight, or sustainable economic planning.
Should We Want More Debt?
It can feel counterintuitive to suggest that a country should actively seek more household debt. In much of the developed world, debt has taken on the role of an admonition. It is associated with housing crises, stagnant wages, and a generation of young adults still living with their parents while servicing student loans. Debt has, in many narratives, become the emblem of overreach and financial instability.
This is what makes Indonesia’s position appear, at first, almost enviable. With low levels of household debt, we seem to have avoided the worst traps of modern capitalism. No subprime lending scandals, no runaway mortgage markets, no headlines about ballooning personal credit. There is an argument to be made that we’ve done well to remain cautious. But caution without access is not the same as resilience.
In a functioning economy, credit is a mechanism for mobility. It enables families to buy homes, invest in businesses, and respond to shocks without collapsing into poverty. Without it, large segments of the population are effectively locked out of the systems that create and transfer wealth.
For Indonesia, this is particularly relevant. A young population, urban expansion, and digital transformation all demand a more robust financial framework. Without access to responsible and inclusive household credit, the economy risks stagnating. Consumption remains subdued, and inequality deepens as only a narrow segment of society can leverage financial tools to move forward.
The point is not to chase debt for its own sake, but to create an environment where borrowing is possible, productive, and safe. Because a low household debt ratio might not be a sign of stability. It might simply mean that too many people have never been given the chance to participate at all.
Indonesia's low household debt ratio sets it apart from many economies in the region, offering a sense of stability in an increasingly volatile global environment. But that same stability comes with trade-offs. In avoiding the dangers of overleveraged households, we may have also missed out on the kinds of financial tools that enable people to move forward.
The question now is whether stronger domestic demand, wider homeownership, and a more robust middle class, is possible without it. Credit, when thoughtfully extended and responsibly managed, plays a crucial role in unlocking opportunity. Without access to affordable, regulated credit, too many Indonesians remain spectators in their own economy.
This is an argument for designing a financial system that recognises credit as a tool for inclusion and empowerment. One that supports mobility, not just consumption.
Having no debt may seem virtuous, especially in today's global economy. But when it results from exclusion rather than choice, it can quietly reinforce inequality. Stability without access is not resilience.
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