President Joko Widodo (Jokowi) targeted Indonesia's economic growth to average 7% over five years. However, the global crisis caused this target to fall short. In the first quarter of 2016, the economy only grew by 4.92%, a result far from expectations.
The government did not remain idle, focusing on boosting the real economy driven by the lower middle class. The goal was to prevent an increase in unemployment and ensure job availability.
While attending the groundbreaking ceremony for the Lontar 315 MW Unit 4 power plant, Jokowi stated that infrastructure to support Micro, Small, and Medium Enterprises (MSMEs) must be improved. The availability of electricity is crucial for sustaining MSME business activities, in addition to business mentoring and financing.
"We want MSMEs, especially in villages, to thrive," said the President in Lontar Village, Kemiri District, Tangerang Regency, Banten, on Friday (10/6/2016).
On the other hand, the Chairman of the National Economic and Industry Committee (KEIN), Soetrisno Bachir, reminded President Joko Widodo (Jokowi) that business inequality still exists. The competitiveness of MSME entrepreneurs lags significantly behind large businesses.
He hoped that the government’s intention to enhance MSME competitiveness would not remain mere rhetoric or theory. “How do we push MSMEs beyond just theory?” he said.
This PAN politician also highlighted Indonesia’s high banking interest rates. Although interest rates have been reduced to single digits, they remain the highest in ASEAN.
"How can interest rates decrease without government intervention? We will provide recommendations to the President. Now, it is already in single digits, but there is still room for further reduction. There is potential. Malaysia can do it, Singapore can do it. Everywhere else is cheap, but we remain high," Soetrisno emphasized.
The Minister of Cooperatives and Small and Medium Enterprises (SMEs), Puspayoga, stated that one of the government’s strategies to combat the crisis is strengthening the MSME sector. Regarding People's Business Credit (KUR) interest rates, in 2016, the government set the rate at 9%, a significant reduction from the previous year’s 22%, which later decreased to 12% and now to 9%.
"In 2017, we aim to lower the KUR interest rate further to 6%," said Puspayoga.
This effort was made because MSMEs have proven resilient during crises in 1998, 2008, and 2013. In fact, MSMEs are being seriously developed as the backbone of the national economy.
The Ministry of Cooperatives and SMEs recorded around 56.2 million MSME units in Indonesia in 2014, with an estimated increase to 57.9 million units this year. MSMEs have significantly contributed to Indonesia’s economic growth. According to 2015 data from the Central Statistics Agency (BPS), Indonesia's total workforce was 128 million people, with 97% employed in the MSME sector, absorbing around 124 million workers.
It is undeniable that MSMEs play a crucial role in driving the national economy. Their growth aids the government in job creation. This is supported by data from the Ministry of Trade, which states that MSMEs contributed approximately 59% of Indonesia’s Gross Domestic Product (GDP), which amounted to IDR 11,540 trillion in 2015.
According to Puspayoga, strengthening MSMEs is equivalent to stimulating the people’s economy. When economic activity at the lower level increases, MSME revenues will rise. Increased production leads to higher employment absorption, automatically reducing poverty levels. This, in turn, boosts income and overall welfare, creating economic equality and lowering the Gini ratio from 0.41.
Jamkrindo's Commitment
Recently, President Jokowi stated that MSMEs support the national economy and have demonstrated high resilience in facing global crises. While many large companies struggled due to non-performing loans, MSMEs’ contribution to Indonesia’s economic growth continued to rise. Therefore, President Jokowi’s commitment to enhancing productivity and competitiveness in the international market by strengthening MSMEs, as outlined in the Nawa Cita agenda, must be upheld.
One company that has long supported MSME development in Indonesia is Perum Jaminan Kredit Indonesia (Jamkrindo). As it approaches its 46th anniversary on July 1, 2016, the company has played a significant role in advancing MSMEs. Jamkrindo’s contribution to MSME financial empowerment was recently recognized with a special award as a State-Owned Enterprise (SOE) for credit guarantees in MSME empowerment.
Perum Jamkrindo's President Director, Diding S. Anwar, emphasized that the company is always ready to contribute by absorbing financing risks from banks and non-bank institutions through credit guarantees for MSMEs. He stated that Jamkrindo aims for aggressive growth to become the leading credit guarantee company supporting national economic development. This is achieved by helping MSMEs access funding from financial institutions.
To reinforce its mission of supporting MSMEs, Jamkrindo has set a target of disbursing IDR 115 trillion in loans this year. As an SOE, Jamkrindo operates nine regional offices and 60 branch offices to achieve this goal.
Considering that by mid-April, loan disbursements had reached IDR 38 trillion, achieving the target seems possible. Jamkrindo's 2016 target is notably high compared to the IDR 69 trillion in credit guarantees disbursed last year and IDR 40 trillion in 2014. However, given the company’s total guarantee capacity of IDR 500 trillion, the IDR 115 trillion target remains reasonable.
Doubling MSMEs
Perum Jamkrindo’s Director of Operations and Networks, Sophia Alizsa, recently stated that credit distribution for MSMEs is still far from optimal. Based on MSME credit distribution ratios, Jamkrindo has only allocated 18.7% of total credit. Clearly, Jamkrindo must improve its performance for the benefit of both the company and MSME entrepreneurs.
According to Sophia, Indonesia has approximately 57.89 million micro-enterprises, accounting for 99% of all businesses in the country, with an employment absorption rate of 88.90%. This sector contributes 60.34% of GDP, or around IDR 5,544 trillion. However, MSMEs still face challenges in expanding their businesses.
This is mainly due to difficulties in accessing financial resources. MSME owners often struggle to secure bank loans due to legal and formal requirements. If they continue operating without financial support, their business growth may stagnate. Regulatory barriers on MSME loan guarantees prevent many from obtaining the funding needed for business expansion.
With only 1.5% of Indonesia's population engaged in entrepreneurship, the country lags behind its neighbors. In Singapore, about 7% of the population are entrepreneurs, while Malaysia has 5%, Thailand 4.5%, and Vietnam 3.3%. Increasing the number of entrepreneurs is crucial for Indonesia’s economic progress.
The simplest way to achieve this is by significantly increasing MSME entrepreneurs and enhancing their business capacity to become more advanced and competitive. The more MSMEs that emerge and grow, the greater their economic impact, strengthening national economic capitalization. Moreover, MSME entrepreneurs do not depend on government salaries; instead, they contribute to job creation and drive small-scale industries across the country.
This is where Jamkrindo's role becomes crucial in expanding the loans provided to MSMEs, enabling startups to grow and improve their products to face increasingly fierce competition. With the implementation of the ASEAN Economic Community (AEC), MSMEs must become more educated and technologically literate to compete effectively despite limited capital.
(Various sources)