BackgroundSmall, and Medium Enterprises (SMEs) take significant roles in Indonesia’s economy and GDP growth. The Government estimates there are more than 64.2 million SMEs in Indonesia, and they are associated with 60.5% of annual GDP growth and absorb 97% of the workforce in the country. The COVID-19 pandemic that hit the country in early 2020 has negatively impacted the Indonesian economy. Numerous studies and surveys suggest that SMEs were severely impacted by the COVID-19 pandemic. More than a million formal sector workers were reported to be dismissed from work temporarily whilst hundreds of thousands lost their jobs permanently. In total, the Ministry of Manpower estimated 29.4 million workers had been affected by the pandemic.
Numerous studies suggest that SMEs in Indonesia are facing challenges concerning access to local and global markets, access to financial products/services to support business expansion, and improvement of competitiveness and productivity. Many SMEs prefer to be part of a value chain ecosystem to deal with the challenges, especially about securing buyers (off-takers) and input providers (suppliers).
In recent years, digital technology has been increasingly affecting business and economic activities including those of SMEs. Typically, SMEs benefited from the adoption of technical digital by selling their products online, and this has been more prevalent during the pandemic times. The pandemic has created a leapfrog in the adoption of digital technology by SMEs in Indonesia. Having said that, the advancement of digital technology brings other potential benefits for SMEs that are part of a value chain ecosystem. The technology innovation and the use of the Internet of Things enable more data to be collected and shared in the ecosystem that could facilitate improvements of production processes, more financing, and new markets for SMEs products.
With this backdrop, the ILO Office in Jakarta is undertaking the second phase of the PROMISE IMPACT (PROMISE II IMPACT) project that aims at strengthening the capacity of Bank Perkreditan Rakyat (rural banks) and Bank Pembangunan Daerah (regional development bank) to serve the SMEs in productive sectors in selected locations and to enhance the capacity of the SMEs to expand their business and create employment. These objectives are achieved inter-alia through promoting the digital transformation of the targeted SMEs' value chain ecosystem. In addition, the project will also support the financial service authorities and the national and regional policymakers to enhance financial inclusion in Indonesia further.
Through these interventions, the project proposed to create an enabling environment for an inclusive financial sector for SMEs is strengthened, which will lead to economic growth and improved employment outcome, particularly in the post-pandemic situation whereby SMEs are severely impacted.
The project is expected to produce the following outcomes:
- Resilient and sustainable SMEs in priority sectors have reached an improved capacity to contribute to the economic growth post-pandemic
- The delivery of client-centric financial products and services to SMEs is scaled up in priority sectors
- Programs and policies that promote the sustainability and growth of SMEs are supported
In this project, the ILO in Jakarta received financial support from the Swiss Economic Cooperation and Development (SECO) and is closely working with the Financial Service Authority (OJK) and the Coordinating Ministry of Economic Affairs (CMEA) as the head secretariat of the National Council for Financial Inclusion. In the end of 2022, the inception phase of the project was completed and currently the project is ready to start the implementing phase.
ObjectivesThe main objective of this event is to officially mark the start of the project activities implementation. In the first intake, the project selected locations in the East Nusa Tenggara and West Java provinces. The event also aims to inform broader potential stakeholders to be aware of this project and potentially solicit support and/or partnership during the project duration. More specifically the objectives of this event are the following:
- Announce officially the PROMISE II IMPACT project implementation.
- Disseminate the implementation plan and activities to relevant stakeholders.
- Obtain insight from experts which would help strengthen the project implementation.
- Disseminate study: Mapping of Digital Financial Service for BPD and BPR in Indonesia.
- Facilitate discussion among government/regulators, financial service providers, SMEs associations, and other related stakeholders in seeing current challenges in access to finance and SMEs development in the digital era.
Structure of the EventThe event will be delivered in Bahasa Indonesia and English with simultaneous interpretation service.
- Session 1 – Official ceremony on the announcement of PROMISE II IMPACT project implementation. This is a ceremonial session consisting of remarks by the ILO, Swiss Embassy, OJK, and CMEA. A brief project profile will be presented.
- Session 2 – Panel discussion “Financial Inclusion and Competitiveness: Building Strong and Resilient SMEs in a Digitalized Economy”. The panel discussion will focus on several important subjects, including the role of government and other stakeholders in promoting inclusive finance and supporting SMEs growth, such as regulatory reforms, public-private partnerships, and investment in digital infrastructure, challenges faced by SMEs in accessing financial services and resources, the benefits of inclusive finance for SMEs growth and sustainability, the role of innovative finance in supporting SMEs growth, and the challenges and opportunities of digital financial services for SMEs.
- Session 3 – Panel Discussion “Digital Finance Transformation and Financial Inclusion: The Role of Technology in Enabling SMEs to Access Financial Services”. This panel discussion will focus on several things: Presentation result study of Mapping Digital Financial Services for BPD and BPR in Indonesia; How appropriate financial products/services could encourage sustainable SMEs growth and increase SMEs' use of financial services; How digital transformation can help financial service providers better serve the SMEs segment; As well as other necessary actions from related stakeholders to strengthen the SMEs ecosystem and contribute to regional economic growth in the digital era (including impact on job creation).