The digital economy in Indonesia has undoubtedly boosted consumption, increased convenience and introduced consumers to a new way of living. Another change it has brought is in terms of productivity: creating new jobs, improving the lives of small and micro business entrepreneurs and making Indonesian society more productive.
Indonesians are by and large entrepreneurial. In fact, micro, small and medium enterprises (MSMEs) are the backbone of the Indonesian economy. Yet most MSMEs still have weak administrative, financial and technological capabilities, and are therefore unable to take advantage of the benefits of the digital economy.
At Indosat, I had firsthand experience dealing with warung (corner stores), one of the largest MSME segments that stand at the outermost end of the distribution channel. Oftentimes, such distribution networks are more efficient and resilient than large, multi-brand retail channels. However, individual warung owners are vulnerable. They lack the knowhow, information, tools and means to be more productive and better able to weather tough times.
The key, therefore, is how to empower these warung owners so they can improve their efficiency, profitability and ability to withstand risk.
The government has been actively promoting digitalization among MSMEs, with several major initiatives of the past few years geared toward MSMEs. For example, the Industry Ministry recently launched the Startup4Industry application, which gives MSMEs easier access to affordable and feasible solutions from technology start-ups.
However, government initiatives alone are far from enough. The private sector needs to take part in creating sustainable business models, and large internet platforms are in a position to do just that. In fact, many ecosystems have evolved naturally between MSMEs and digital platforms, with digital platforms like Grab and Tokopedia providing marketplaces that are relatively mature and easy to navigate.
These marketplaces come with tools that allow micro entrepreneurs to kick-start or grow their businesses without forking out large investments themselves and instead adopt a commission-based or profit-sharing business model.
It is a win-win solution that lowers the digitalization barrier for MSMEs, which get access to a wider customer base, optimize their inventory and reduce costs (delivery, payment customer acquisition). Meanwhile, the digital platforms are able to tap into these MSMEs to enhance the breadth and depth of the products and services their aggregated marketplaces offer and bring value to customers and partners.
According to Grab’s Social Impact Report released in September 2019, more than 5 million micro entrepreneurs earn an income through the platform. In addition, 31 percent of Kudo agents (now GrabKios) that were not earning an income previously are now doing so.
Aside from merely providing a digital platform, tech companies are now taking a step further in strengthening the ecosystem. For example, Tokopedia is expanding into rural areas, and recently signed a partnership memorandum of understanding with the West Java provincial administration on developing a “digital village” — a Tokopedia initiative that promotes and markets the products of rural MSMEs.
Grab is tackling another issue with the nationwide launch of 50 GrabKitchens — cloud (delivery-only) kitchens that host multiple food and beverage brands under one roof. These new digital infrastructures help small food and beverage merchants expand their business to many more areas at a fraction of the setup cost, lowering risk and cost while helping to increase revenue. Grab claims that this initiative increased the gross merchandise volume of GrabFood threefold in the first half of 2019, putting it on the track to becoming the largest food delivery service in the country.
We are seeing solid government support and strong private sector collaboration, with Gojek founder Nadiem Makarim’s appointment as the education minister to the founders of Ruangguru and Amartha being appointed to the Presidential Expert Staff.
Financing has long been a challenge for MSMEs. The Indonesia country office of the International Labour Organization reported in 2019 that while MSMEs contributed 27 percent of the gross domestic product, they comprised only 16 percent of bank borrowers. Regulators have been exploring ways to leverage regulations to address this issue. For example, the Financial Services Authority (OJK) is requiring all peer-to-peer (P2P) lending platforms to disburse at least 30 percent of all loans for productive use. The advent of fintech also offers the government and large financial firms a cost-efficient way to disburse credit and capital to MSMEs that need financing.
Another reason why MSME financing is so low is because these businesses lack the information that banks traditionally need to assess creditworthiness. The OJK is also encouraging banks to work with fintechs to find new ways to assess the credit risk of MSMEs. Companies like Tokopedia and Grab that have a touchpoint with the MSME community are already venturing into this area.
Either way, digital platforms possess not only direct access to, but also unprecedented amounts of data on real consumer and business transactions, which allows them to distribute financial access in a more efficient (and cost-efficient) way.
Another way these platforms can contribute to society is by allowing Indonesian entrepreneurs with big dreams to scale their businesses by giving them access to customers and transactional infrastructure. Our friends at Tamasia, a sharia-compliant gold trading start-up, have been able to access millions more customers through GrabKios since the joined the Grab Velocity accelerator program.
A key risk is that MSMEs and their workers do not really make an effort at self-improvement while using the technology. I have observed many warung owners still continue to rely on advice from friends and family to make decisions, bypassing the benefits of all the data and tools that have been made available to them through digital access.
Another challenge is whether regulators will be able catch up with the constant, rapid changes of the digital economy. As a veteran of the finance and telco sectors, I certainly know that regulators will eventually come into the picture and that the digital economy will have to work with them.
I am a big proponent of open dialog between regulators and industry players, and not limited to Indonesia but across all major developing countries. For example, China’s regulators met many challenges with the P2P industry, even though they had never launched a formal licensing scheme — a matter we should discuss with Chinese regulators and business to learn which pitfalls we should avoid.
Sandboxing is always a good idea, and it is being implemented in a number of regulated industries that are facing disruption. However, sandboxing should result in proper regulations — which can happen only when all players are collaborating effectively.
Angel investor, advisor and cofounder of two Indonesian start-ups; nonexecutive director of Zurich Topas Life Indonesia; former president director/CEO of Indosat, GE Money Indonesia
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.