Purpose of the seminarA seminar is being organized to disseminate key findings and recommendations from a research paper titled “Financing Small Businesses in Indonesia”. The seminar is co-hosted by the Financial Services Authority or Otoritas Jasa Keuangan (OJK), Swiss State Secretariat for Economic Affairs (SECO) and the International Labour Organization (ILO).
Recent attempts to measure the demand for financial services have mainly focused at the household level. There are some enterprise level surveys, but usually these surveys are not able to fully capture latent demand for borrowing among small businesses, especially across different sectors.
Through this paper, an attempt was made to broaden the knowledge base on financing of small businesses. The exercise included a synthesis of existing literature and interviews with relevant stakeholders such as financial institutions, business associations, government, and industry experts including think-tanks.
The paper discusses various issues, challenges, and opportunities from three dimensions viz. policy framework, suppliers, and demand-side. In the end, a set of recommendations are provided to improve the enabling environment. The paper also discusses measures that financial institutions can take to offer a broader range of loan products and services.
BackgroundThe Government of Indonesia has a clearly defined objective of supporting the growth of small and medium enterprises (SMEs), which are considered as the backbone of the economy. Around 99% of businesses in Indonesia, totally over 62 million, are categorized as micro, small, and medium enterprises.
These enterprises provide jobs to over 97% of workers in the labour force . Despite the vast number, in terms of value added, micro and small enterprise contribute relatively less (46.4%) to the gross domestic product (GDP) compared to medium and large businesses (53.5%).
One of the major constraints faced by small enterprises which affects their growth is limited access to financial services. Less than 30% of small enterprises use bank loans for working capital and only 11.6% of them get bank financing for investment.
While the number of small enterprises accessing loans is quite low, the type of loan products offered across different economic sectors is also fairly limited. More than half of the SME loans are for trade. On the other hand manufacturing and agriculture loans amount to only 10.2% and 9.1% respectively of the total.