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Jakarta Post

Empowering the many faces of micro and small enterprises

The limited access to assets and capital commonly found among MSEs in general, is further exacerbated by gender-specific attributes.

Thomas Dewaranu (The Jakarta Post)
Jakarta
Thu, August 5, 2021

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Empowering the many faces of micro and small enterprises

G

overnment support for micro and small businesses (MSEs) both prior to and during the COVID-19 pandemic, has taken various forms, including cash transfers, tax incentives and low-interest loans, but these have mostly proven to be ineffective because of poor targeting caused by outdated databases that fail to recognize the diversity of MSEs.

Considering the large pool of MSEs as a uniform group with similar characteristics and needs remains a common fallacy and one of the main barriers to providing well-targeted and well-tailored effective interventions.

By motivational drive alone, MSEs can be differentiated into at least two groups. First, are the opportunity- driven entrepreneurs who aim to seize market opportunity and accumulate capital through business expansions. This group typically has a growth-oriented mindset in entrepreneurship and will benefit from entrepreneurial support programs.

The second group are the necessity-motivated entrepreneurs who engage in business out of a lack of employment alternatives. Small kiosks or warung owners, for example, often opt for informal entrepreneurship merely to make ends meet due to limited options in the formal job market. This group is unlikely to expand their business or shift into a more profitable sector. As a corollary, they tend to be a stranger to innovations and remain micro in size.

For these necessity-driven businesses, well-designed poverty reduction programs are the best option for addressing the low productivity in the sector. For example, the low level of education and limited asset ownership that characterize this group, are cross-sectoral issues that would require reforms in education and in other socioeconomic segments. The majority of entrepreneurs in this group also operate informally, meaning that they are unregistered and do not usually hold a business license.

From this alone, one can already question the impact of the Finance Ministry’s six-month tax relief program for MSEs during the first COVID-19 wave last year. While this may profit the opportunity-driven businesses, informal necessity-driven businesses with below-subsistence level earnings are unlikely to benefit from this.

A similar case is the latest budget reallocation in the National Economic Recovery program. When supporting funds for MSEs are reduced from Rp 193 trillion (USS9.9 billion) to Rp 171 trillion to increase business incentives from Rp 56 trillion to Rp 62 trillion, opportunity-driven businesses are set to gain more than the necessity-driven entrepreneurs.

The gender variable also adds an extra aspect to MSEs typology. Many women-owned MSEs suffer from traditional gender preconceptions, making their problems unique. For example, they are still expected to bear the responsibility for child care and domestic work, leaving them with insufficient time to manage their businesses.

The limited access to assets and capital commonly found among MSEs in general, is further exacerbated by gender-specific attributes. In the rare instances when low-income women own valuable fixed assets such as land and buildings, the sale or use of such assets as collateral often requires the consent of a male spouse or relative.

Banks and other financial institutions should therefore be encouraged to widen the range of their collateral to include movable assets that are common for women to have like, jewelry or gold.

A reliable and regularly updated database plays a crucial role in mapping the many faces of MSEs and providing the right interventions. Current official data on MSEs have yet to reflect the above variances. On gender, for example, government data on how many women are engaging in informal MSEs is unavailable, let alone identifying their motivational drives to engage in entrepreneurship.

To address this, government ministries and agencies must work together with private stakeholders and adopt the co-regulation approach -- a responsibility-sharing between state and broad-based private stakeholders in both policymaking and enforcement. In the context of data collection, for example, Presidential Regulation No. 80/2019 still features a traditional top-down regulatory model, requiring e-commerce platforms to submit transaction data to Statistics Indonesia (BPS).

The lack of private sector involvement in regulation-making has led to a lack of details on the types of data and the mechanism, raising concerns that this may violate users’ privacy rights. Platforms are faced with the dilemma of having to choose between users’ rights and regulatory obligation and this could possibly affect compliance levels.

As such, BPS needs to include e-commerce platforms and business associations in designing the implementing rule of this policy. Platforms and BPS can, for example, agree on collecting only aggregate and not granular data to minimize the risk of violating users' data privacy rights. Platforms can also provide best practices on how to minimize cybersecurity risks when managing data.

For example, when new merchants register their business in the marketplaces, platforms can include an optional question on their motivational drive and ask their consent for the submission of their answers to BPS, strictly to improve government databases. Users can also be given an option to opt out from having their personal data transferred without their permission.

Business associations such as the Indonesian E-Commerce Association (idEA), could also be given a supervisory role to ensure that data submissions are not compromising data security and users' privacy rights. This approach is likely to produce better results in improving databases on e-commerce sellers.

In conclusion, recognizing the different types and needs of MSEs is crucial for optimal and well-targeted policy interventions. Reliable and updated databases are a promising starting point, but for this to be effective, private parties such as online marketplace providers or business associations must be involved in policymaking and enforcement using the co-regulation approach. Public and private stakeholders should mutually complement each other to improve the MSEs database, and thus allow the formulation of effective policy intervention for each group.

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The writer is a researcher at the Center for Indonesia Policy Studies. The views expressed are his own.

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