Southeast Asia
Enrico Tanuwidjaja, UOB Economist

Strategic reforms key to Indonesian MSMEs’ greater contribution to the economy (The Business Times)

Micro-, small- and medium-sized enterprises (MSMEs) in Indonesia employ a staggering 97.2 per cent of the country’s total workforce but are contributing only close to 60 per cent of the US$1.2 trillion economy. As one of the major drivers of the Indonesian economy, they appear to be punching below their weight in terms of economic output.

In order for MSMEs to reach greater heights and to contribute more to the economy, they should pursue reforms in three strategic areas: digitalisation, access to credit and collaboration with larger corporations within and outside Indonesia.

Strategic reforms for MSMEs needed

Our UOB ASEAN Transformation Study showed that 60 per cent of MSMEs in Southeast Asia see digitalisation as a key enabler for their business transformation. However, the road ahead will be full of challenges, especially for Indonesia. The rate of digitalisation for the country’s MSMEs was only 13 per cent in 2019, with internet connectivity remaining an issue. According to the Association of Indonesian Internet Service Providers, only less than 10 per cent of internet users have connection to Wi-Fi at their home, office or in public spaces. High-speed, affordable and reliable internet connections are key for MSMEs to transform from brick and mortar to online business models.

Tight and limited cash flow is also a challenge for many MSMEs. As such, one of the key ways to grow their business is to have a sustainable funding source, including in terms of pricing and tenor of such credit facilities. Further, as many MSMEs may not keep comprehensive financial records, they are likely to find it hard to obtain bank loans at suitable interest rates.

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The Business Times

2 November 2021