Indonesia in Full Swing to Strengthen its Economic Backbone

Jakarta. Countless efforts by both the Indonesian government and the private sector are in full swing to help small businesses thrive and drive Indonesia’s economic recovery from the pandemic, according to a recent virtual discussion.

The micro, small and medium enterprises (MSME) serve as Indonesia’s economic backbone. 

Indonesia is home to 64.2 million MSMEs, with micro-small businesses representing 98.68 percent of the sector, government data showed. MSMEs account for 61 percent of the national gross domestic product (GDP), and absorb a whopping 97 percent of the workforce. 

But Covid-19 has been tough on MSMEs. A 2020 survey by the Indonesian Institute of Sciences (LIPI) reported that 94.69 percent MSMEs suffered from a drop in sales during the pandemic. 

The government has made efforts to help MSMEs get back on their feet. This year, the government allocated Rp 744.7 trillion ($51.8 billion) for Covid-19 handling and economic recovery programs. Of that budget, Rp 162.4 trillion goes to the MSMEs and cooperatives assistance, including the working capital aid, according to Loto Srinaita Ginting, an expert staff at the State-Owned Enterprises (SOEs) Ministry.

SOEs also play their part in bolstering MSMEs through a number of initiatives.

“With the Rumah BUMN [‘SOE Home’] program, we help MSMEs to become more modern, go digital and get used to online transactions. We have established 236 Rumah BUMN across all provinces,” Loto told a webinar on synergy for MSMEs on Wednesday.

Data showed that 592,296 SMEs had signed up on the Rumah BUMN platform. About 71,525 SMEs have actively used social media for promotion and sales. Around 15,641 SMEs are on online marketplaces. 

According to Loto, SOEs also help MSMEs get their products certified.

Other initiatives include providing MSMEs access to finance through the Association of State-Owned Banks (Himbara). 

The recently established Ultra Micro (UMi) Holding could improve financing access to the ultra micro-scale enterprises, Loto said. 

The holding comprises three SOEs, namely bank Bank Rakyat Indonesia (BRI), pawnshop Pegadaian, and micro-lending firm Permodalan Nasional Madani (PNM). 

“BRI has around 9,618 outlets, a much wider network compared to Pegadaian and PNM. Through UMI, We will make use of BRI’s vast network by adding Pegadaian and PNM services in BRI outlets,” Loto said.

She added, “SOEs make MSMEs part of their supply chain. [...] Overtime, this can generate efficiency and greater employment.”

SOEs support MSMEs through curation and market access expansion, be it offline or online. 

PaDi UMKM —the government’s flagship online marketplace— helps connect MSMEs with SOEs as its buyer. The conference revealed that Padi UMKM generated a transaction volume of Rp 16.2 trillion for the period from January 1 to November 30, 2021. 

“[On offline expansion,] we are renovating the Sarinah building, which will transform its business to prioritizing local and MSME products,” Loto said, while adding that the building would reopen its doors next March.

The government has also allocated 30 percent of the commercial area in public infrastructures, such as airports and toll road rest areas, for MSMEs. 

Adapting to Changes

The Covid-19 pandemic has shifted customer behavior. Customers, for instance, now forgo cash payments to avoid the virus, and this is a change that MSMEs must adapt to. Retail business app and point of sale system provider Youtap Indonesia reported an eightfold growth in cashless transactions among its merchants throughout January-November 2021.

“MSMEs can become an engine of growth [to the economy], but they must go digital. [...] In addition to digital transformation, collaboration is also crucial,” Youtap Indonesia chief executive officer Herman Suharto told the same conference.

Youtap is seeking to build Indonesia’s largest digital ecosystem that connects MSMEs with banks, billers, enterprise merchants, among others. 

The startup is offering digital solutions relevant in pandemic times, including enabling MSMEs accept cashless payments via QRIS. Youtap has also launched PHP (‘Pesan dari Hape’ or ‘Order on Mobile’) for dine-in, pick-up, delivery, drive-thru. As well as Belanja Stok for stock replenishment.

So far, Youtap has digitally empowered over 200,000 MSMEs in 510 cities in Indonesia, Herman added.

This webinar is a joint event between Majalah Investor in partnership with Youtap Indonesia, Bank Negara Indonesia, Bank Mandiri, Jamkrindo, Pegadaian, and Astrapay.