SMEs: Indonesia’s Economic Backbone Part 2/3

SMEs are one of the key reasons why Indonesia, despite global economic downturns, has managed to sustain 5 percent growth for well over a decade now. Indonesian government statistics show that as of December 2018, 60 million SMEs contributed to 60 percent of Indonesia’s GDP and employed 97 percent of the country’s entire workforce.

Not in the time of COVID19, unfortunately. According to the Institute for Development of Economics and Finance in Jakarta, during the previous financial crisis, SMEs were not as affected because they were far removed from the financial sector and, in fact, had trouble even getting any financing. The damage of past financial crises was limited to some industries, leaving others to continue flourishing. This time, however, SMEs are the hardest hit sector. (BBC Indonesia, March 18, 2020) To soften COVID19’s overall blow on the domestic economy, the Indonesian government is responding with firm action. A stimulus package worth 2 billion dollars will be disbursed, part of which will go towards providing social assistance and essential foods to underprivileged families. For SMEs with credit loans of up to 10 billion rupiahs (around USD 600,000), banks have been authorized to: • Determine which SMEs are affected by COVID19 and entitled to debt restructuring • Determine which borrowers are entitled to debt restructuring • Determine which borrowers are entitled to a restructuring of their principal payments, interest payments, or both • Give the highest credit rating to borrowers who’ve had their debts restructured On a macro level, this is the sector that is doing the most to fight poverty and unemployment. President Joko Widodo is hugely aware of SME power and, for the last five years, has set aside over 34 billion dollars to provide financing to SMEs through a program called KUR (Kredit Usaha Rakyat or People’s Business Credit). Dozens of P2P fintech lenders have also disbursed billions of dollars in microloans to SMEs, utilizing mobile technology. However, the bulk of SMEs are operating in survival mode. President Jokowi, as he is affectionately known here in Indonesia, wants SMEs to level up: get out of survival mode, strengthen operations, go online, and start exporting. In our next part in this series, we will discuss how SMEs can level up and how Silot is helping banks and other Financial Institutions serve SMEs.