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Jakarta Post

Online MSMEs can reduce economic burden: Report

  • Eisya A. Eloksari

    The Jakarta Post

Jakarta   /   Fri, July 10, 2020   /   02:28 pm
Online MSMEs can reduce economic burden: Report Illustration of a digital work environment. (Shutterstock/File)

Digitalized micro, small and medium enterprises (MSMEs) can help Indonesia reduce 1.5 percent of the economic burden on its gross domestic product (GDP) amid the COVID-19 pandemic, a recent study shows.

According to a Mandiri Institute study, MSMEs that have an online presence are more resilient as they are more likely to continue producing and selling goods as well as have a longer runway to survive the economic slowdown.

“MSMEs' impact on the economy can become greater if more entrepreneurs go online,” Mandiri Institute head T. Yudo Wicaksono said during a webinar hosted by the Indonesian Banking Development Institute (LPPI) on Wednesday.

Based on the institute’s survey in May, 42 percent of offline MSMEs have stopped operating, compared to 24 percent of online MSMEs that have stopped their production process, he said.

Almost 60 percent of offline MSMEs have a runway of only up to three months, he added.


Read also: Digital tools give SMEs opportunity to evolve

While both small online and offline businesses saw lower revenues,  6.9 percent of online MSMEs still reported increased profits.

“We estimate that businesses in transportation, warehousing and manufacturing can recover quickly because they are highly integrated with bigger industries,” Yudo said, adding that the hospitality and restaurant sector would take longer to recover.

“Big industries can help MSMEs bounce back by integrating small businesses into their supply chain.”

Cooperatives and Small and Medium Enterprises Minister Teten Masduki said in the same event that MSMEs could act as a buffer for the national economy and going online was a crucial step for small businesses to survive during the pandemic.

The government is aiming to have 10 million MSMEs go online by year-end. Around 8 million are currently digitized or 13 percent of small business players.

However, according to a study by Sea Insight, 63 percent of small business owners are finding it hard to work from home as they lack access to an affordable and stable internet connection, while 26 percent said they faced difficulties getting access to financing and loans.

[RA:SMEs face uphill battle digitizing business to survive::]

To solve the funding problems, the Indonesia Chamber of Commerce and Industry's (Kadin) SMEs Standing Committee deputy chairman Iqbal Farabi said the government and banks must tap into small business funding through online marketplaces.

“Funding is the most important thing for MSMEs right now,” he said. “The government should immediately give small businesses funding through e-commerce because their revenue and turnover data are already captured by the marketplace and it can be used as a form of credit scoring.”

Iqbal went on to say that while fintech companies had tapped into funding for the unbanked population, their loans are limited to around Rp 60 million (US$4,195).

“If the government wants to see MSMEs scale up, it should make the microcredit program [KUR], which has a Rp 500 million limit, available through online platforms."

Read also: P2P lending helps SMEs earn more, scale up business: Research

Indonesian Fintech Association (Aftech) secretary-general and OVO e-wallet president director Karaniya Dharmasaputra said small and medium businesses are ready to receive loans and payment through digital platforms.

He added that Indonesia’s mobile and internet penetration was growing rapidly, while e-commerce usage is predicted to grow two-folds by 2023.

Karaniya went on to say that OVO also has an algorithm for alternative credit scoring for MSMEs based on their buyer turnover and cash flow, as well as their partners such as Grab and Tokopedia.

“The digital ecosystem is available; the technology is here. It is now a matter of when the government is going to take action."