Powering the Nation – SMEs in Indonesia
3E Accounting makes the case for SMEs in Indonesia and why they are an industry to be reckoned with.
Indonesia has the biggest emerging economy in Southeast Asia, and the principal drivers behind this are small and medium enterprises. SMEs in Indonesia fall under the purview of the Ministry of Cooperatives and SMEs. As Indonesia’s fastest-growing sector, they are supported by a further 24 other ministries and agencies to maintain a thriving ecosystem.
Statistics indicate that there are almost fifty million SMEs that employ 93% of Indonesia’s domestic workforce. They also account for 60% of the gross domestic product (GDP). As the global pandemic has forced a paradigm shift to e-commerce, data economies are taking over. SMEs have been quick to get their businesses online to capitalize on this innovative disruption.
The Backbone of the Economy
Most small and medium businesses are to be found in Indonesia’s rural areas. SMEs are required to be enterprises or cooperatives owned by Indonesian citizens. The need for licensing and registration is slightly ambiguous and depends on the business activity of the SME in question. As per Indonesia Law No. 20 of 2008, the criteria for SME is:
- Assets are between IDR 50 – 500 million or sales between IDR 300 million – 2.5 billion (small enterprise). The number of employees must be between 5 – 19 people.
- Assets are between IDR 500 – 10 billion or sales between IDR 2.5 billion – 50 billion (medium enterprise). The number of employees must be between 20 – 99 people.
SMEs the world over face impediments primarily in getting financial aid and working capital from traditional lending sources. Currently, Indonesian banks only offer working capital and investment loans, and many SMEs do not meet the bankable criteria. This is due in large to a lack of financial and entrepreneurial capability. It does not help matters than financial institutions still require fixed collateral and a minimum number of staff as prerequisites.
These companies are also constrained by a lack of access to proper business solutions, which brings down the competitiveness. Indonesia faces a shortage of stakeholders supporting SMEs in entrepreneurial knowledge, technology, education, training, etc. There is also limited access to raw materials, skilled labour, and lean production processes.
The Government has shown a healthy initiative to support SMEs by issuing more amenable policies and improving the regulatory environment. The Government has categorized SMEs as ‘engines of sustainable and pro-poor growth’ in its New Economic Policy Package 2008. The Government also enacted the SME Law 2008 and the Microfinance Law in 2013 to improve SMEs’ overall situation. Further amendments have built on this, and the current regulatory framework includes the following:
- Banks have been directed to allocate 20% of general lending SMEs.
- Tax rates have been reduced to 0.5% for annual turnover not exceeding IDR 4.8 billion
- Online Single Submission (OSS) System facilitates the ease of registering a business.
- Registration of SMEs facilitates access to training, subsidies, grants, etc.
SME Success Starts With the Right Alliance
Small, medium businesses play a vital part in global economies, and SMEs in Indonesia are certainly a testament to this. Starting your SME journey can be a smooth transition from incorporation to operation with the right alliance. 3E Accounting offers affordable and customizable business solutions that can take your business to the next level.
Contact 3E Accounting for that first step towards the future of your business success.