Indonesia’s Minister of Cooperatives and SMEs, Teten Masduki, stated that his ministry would propose to the Financial Services Authority (OJK) to promptly establish regulations allowing banks to provide credit to MSME players without collateral.
This is because around 59 percent of total MSME players are not connected to banking institutions.
“This regulation is currently being discussed, and we target it to be completed before the end of this year,” said Minister Masduki to reporters after attending a workshop titled “Unlocking Success and Sustainability: Empowering Micro, Small, and Medium Enterprises and Startups with Relevant Strategies” on Wednesday (Mar. 27) at the UGM Vocational College.
Minister Masduki mentioned approximately 65 million MSME players across Indonesia, but only 20 percent receive bank credit.
This is in contrast with countries like Korea, where 80 percent of MSMEs receive financing. Meanwhile, above 60 percent of MSMEs in India and China receive bank credit.
“Bank credit to MSMEs in our country is still at 20 percent, even decreasing to 18 percent last year,” he said.
According to the minister, one of the significant issues MSME players face in Indonesia is the barrier to financing access due to banks still using collateral-based credit requirements. However, most MSME players do not possess collateral.
“Banks still require collateral, while MSMEs do not have it. We are proposing a new approach through credit scoring, which requires changes in OJK regulations,” he stated.
As far as he knows, banks already provide unsecured credit to MSMEs through collaborations with fintech companies.
“Today, banks provide credit through fintech collaborations, not directly,” he added.
He believes that to facilitate OJK regulations, only a mindset shift among bank directors in the country is required. Without change, other financial industries, like fintech, will seize this significant market potential.
Regarding replacing collateral with a credit scoring system, financial track records can be obtained from monthly electricity bill payments or communication expenses.
“140 countries use credit scoring,” he remarked.
UGM Rector Professor Ova Emilia stated that the MSME sector contributes significantly to the national economy as it can withstand monetary crises and absorb many workers.
“The contribution of MSMEs to the national economy is extraordinary. Their flexibility, resilience, and creativity enable them to face every economic shock,” she said.
According to the rector, the program to strengthen MSMEs through collaborations between universities and industries can enhance MSMEs’ capacity to scale up, facilitate their access to financing, and stimulate the emergence of young entrepreneurs who can subsequently drive economic growth and widespread welfare.
The Director of Development at the British Embassy, Amanda McLoughlin, stated that they are ready to collaborate with diverse perspectives and expertise to support the startup ecosystem in Indonesia.
Moreover, they also provide best practices in startup incubator programs to support early-stage business development. This serves as a growth catalyst, offering support, guidance, network access, and tailored infrastructures for startup businesses.
“By leveraging institutional expertise such as Cambridge University and MIT, we can ensure that startups receive world-class training and guidance, placing them on the path to success,” she explained.
She agreed that collaboration between academia and industry, as currently undertaken, plays a crucial role in bridging the gap between theory and practice.
Combining cutting-edge research and real-world applications, it empowers entrepreneurs to translate their ideas into viable businesses that drive economic prosperity and have broad social impacts.
“Entrepreneurship is not just a career choice but a calling. It is a call to shape the future, create long-term impact, and make the world a better place,” Director McLoughlin concluded.
Former Director-General of Higher Education, Ministry of Education and Culture, Professor Nizam, stated that the MIT REAP program aims to help strengthen the capacity of MSMEs and startups in Indonesia.
The program implementation has begun in Java but will be expanded to other sub-regions, such as Bali, Sulawesi, and Sumatra.
“Through this program, we hope that MSMEs and startups can upscale by adopting innovative technologies,” he said.
MIT REAP Project Manager Marina Kusumawardhani mentioned that one key to becoming an advanced country lies not only in the number of MSME players or entrepreneurs but also in the ability to master technological innovation. Therefore, collaborative programs to drive innovation-based business ecosystems are highly necessary.
“To become an advanced country, the secret is technological innovation. This program we’re conducting is to enhance the quality of MSMEs and startups in Indonesia,” she concluded.
Author: Gusti Grehenson
Photographer: Firsto