Momentum to assess MSMEs that have resilience: Teten Masduki, Minister of Cooperatives and SMEs of Indonesia
What are the efforts of the Ministry of Cooperatives and SMEs to maintain the momentum of increasing Indonesia’s digital economy, which is supported by SMEs, in the midst of a storm of crisis?
Before the COVID-19 pandemic, only 8 million MSMEs were already connected. Of the pandemic, there are almost 21 million. This is a very big jump.
One of the triggers for digital transformation of MSMEs was the COVID-19 pandemic that forced MSMEs to look for alternatives in order to survive. The second thing, the shopping trend in the digital market will indeed continue to accelerate, because there are many conveniences. Especially since our current demographic is dominated by young people and the trend is to shop digitally. Third, the presence of the digital market helps MSMEs to access a wider market.
These three things are the foundation for continuing to accelerate MSMEs to go digital and reach the target 30 million in 2024. I am optimistic that this can be achieved because there is support from the government, such as spending on goods and services is increasingly encouraged through e-catalog.
This motivates MSMEs to take advantage of e-catalogs because government spending for MSMEs has been set at 40% of the state budget, around 400 trillion. President Jokowi wants to increase it even more because this has quite an impact positive to drive the domestic local economy, especially MSMEs.
Regarding the threat of recession next year, the Ministry of Cooperatives and MSMEs are preparing several scenarios to anticipate this. One of which is that we will continue the restructuring program, even though the PEN committee ends this year. I am also proposing that MSME’s bad credit loans which are not significant in value or have even been written off at the bank. It would be great because so far many MSMEs are still constrained by BI checking to be able to get new financing.
Regarding access to financing, the President has determined that 30% of bank credit must be channeled to MSMEs. Today, the realization is only 20%, but 97% of our employment is MSMEs. So I always say that this is a momentum for the government to see the economic power of MSMEs tha really have resilience and have the potential to strengthen their access.
What are the government’s efforts, especially the Ministry of Cooperatives and SMEs to increase the competitiveness of MSME products in foreign markets?
First, we need to expand our digital platforms on a regional scale or in certain captive markets. This is because many MSMEs cannot last long on digital platforms on a national scale, for example because their average production capacity is weak.
We also continue to organize Pahlawan Digital (Digital Heroes), digital awards for young people who develop digital applications. In 2020 there were around 20 digital platforms which have been very good at helping to access the market, financing, raw materials, and quality human resources. However, this platform is still dominated by the urban economy so that many sectors have advantages but have not been explored.
Second, digital literacy. This is not a major obstacle and is relatively easy because now many young people are involved in the digital economy and its reach is wider. Therefore, at this time we are targeting assistance in secondary cities.
What are the collaborations that have been carried out by the Ministry of Cooperatives and SMEs together with the private sector to advance MSMEs in Indonesia to go digital?
To encourage the transformation of MSMEs to digital, the government cannot be done alone. The government has collaborated with e-commerce. We carry out assistance with them and we also have facilities in the area of integrated service centers, there are 74 and we will continue to add to this. This will also become a training ground, photo shoots to become a studio for MSME products to be ready to be marketed in the digital market. So that I think is quite effective.
Secondly, we also organize MSMEs through SMESCO which has reached 35,000 members who are committed to promoting the sale of local products. It must be admitted that there are still many products circulating from abroad. For this reason, the government is conducting a study to revise Law no. 50/2020.
Third, the need to protect domestic MSMEs and e-commerce from external threats. I think these three things are important to build our foundation to encourage MSMEs to be more interested in entering digital platforms, including consumers.
How has the progress of this green economy movement been for MSMEs? What are the challenges faced during the implementation of this movement?
I am optimistic that this green economic movement will continue to grow. Our survey shows that more than 70% of MSMEs agree or are more interested in businesses that are more environmentally friendly. For example, they limit the use of electricity, the use of plastic packaging, and so on. The point is that they are very ready to enter into a sustainable economic program that does not damage the environment.
It remains to be seen how this movement will be enlarged, including for example entering into organic products. For example, the use of non-fossil fuels. So I’m optimistic about this, it’s just a matter of convenience. However, of course we need to collaborate with other institutions to make this happen. We and the Ministry of EMR are currently preparing training courses for electrical conversion workshops to encourage this conversion.
The President has launched the KUR cluster, but it is said to be having difficulty synchronizing with the digital ecosystem. What efforts has the Ministry of Cooperatives and Small and Medium Enterprises made to address this?
We encourage the banking sector so that they innovate in extending credit to MSMEs. So far, lending has relied on collateral. Because MSMEs lack assets, they will have difficulty obtaining bank credit. The government, on the other hand, continues to encourage banks to channel credit up to 30% by 2024. The best example in this regard is South Korea, where 81% of bank loans are channeled to MSMEs.
We investigate banks’ difficulties or fears in extending credit to MSMEs, which is an asset, despite the fact that NPLs for MSMEs are low. This has motivated us to pursue the KUR Cluster. Meanwhile, we raise the KUR from year to year. This year it’s 373 trillion, even though the absorption is around 98%, next year we will raise 460 trillion and the president directed us to channel it into the productive sector, no longer into the trade sector. While banks prefer to lend to grocery stores because the cash flow is secure, the risk of NPLs is low, but in the production sector, such as farmers, fishermen, and breeders, the craftsmen are not as brave. So, because MSMEs are already connected to goods providers (opteker), the bank should not be afraid of giving credit because there is market certainty, price certainty, including MSMEs, which are part of the industrial or State-Owned Enterprises supply chain.
Banks should not need to be afraid, including MSMEs that are already connected to the digital ecosystem. With digitized data, banks can check the financial health of MSMEs. I conveyed to the president the importance of using digital technology in channeling financing, namely by conducting credit scoring. Currently, there are also many digital platforms that provide credit scoring services. We at the Ministry of Cooperatives and SMEs continue to encourage MSMEs to keep financial records or bookkeeping through integrated digital applications. However, an agreement is needed regarding credit scoring with the OJK.
Given the potential economic power of MSMEs, is it necessary to establish a discourse with the OJK regarding the need for a special unit that handles MSMEs?
I understand why banks in South Korea, Japan, and China are so aggressive in channeling financing to MSMEs: MSMEs are part of the industrial supply chain. MSMEs have a significant market share in that country because they produce semi-finished or raw materials.
In Indonesia, 96% of MSMEs are food stalls, street vendors, and so on. Only 7% of MSMEs are already connected to the industry. Other emerging industrial countries, such as Vietnam, have achieved 24.6%. As a result, we encourage one of the solutions, the KUR cluster, so that MSMEs can become part of the industry.
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