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A digital prescription for MSMEs amid COVID-19

A digital prescription for MSMEs amid COVID-19

ANTARA FOTO/Raisan Al Farisi/nz

Micro, small, and medium-sized enterprises (MSMEs), the backbone of the Indonesian economy, have been particularly vulnerable to the economic impact of the coronavirus pandemic owing to transport, and supply and demand chain disruptions, and restrictions on movement of people.

To help them survive amid the near economic collapse caused by the pandemic, the Indonesian government has announced a major economic stimulus package for MSMEs.

According to Teten Masduki, Minister of Cooperatives and Small and Medium-scale Enterprises (SMEs), as much as Rp735 trillion of funding has been allocated for MSME revival.

"We are optimistic that if the Rp735 trillion is channeled for the MSME (revival) budget, the economy can be reactivated," the minister said.

The government, institutions, and state-owned enterprises budget for MSMEs is expected to help boost the national economy.

"We have to maintain (MSMEs) as our market is rather significant with 250 million people (being served by such businesses). If there is commitment among the people to buy from MSMEs, it will increase the demand for (products made by) MSMEs," he said.

The ministry has granted relaxations on MSME loans through installment delays, credit subsidy, tax amnesty, and provisions for new, more affordable capital for MSMEs to ensure their productivity is maintained.

At present, the Cooperatives and SME Ministry is preparing a digital catalog and a page specifically for MSMEs with the help of the Government Institution for Provisions of Goods and Services (LKPP).

Indonesia had 64.1 million MSME businesses, as of the first half of 2019. Of the total figure, 63.3 million, or 98.6 percent, are microbusinesses. Of the total MSMEs, only about 13 percent, or 8.3 million, have capitalized on digitalization to conduct their businesses.

Meanwhile, there are around 60.66 million MSMEs that have been connected with funding, banking institutions.

The policy of supporting MSMEs is deemed a strategic step as the sector accounts for around 57 percent of the Gross Domestic Product (GDP).

In addition, the Government Investment Center of the Ministry of Finance has launched a Rp400-billion ultra micro financing scheme (UMi) to help sustain MSMEs amid the pandemic.

The scheme will be carried out in cooperation with PT Pegadaian, which will extend the UMi facility to micro businesses.

The distribution of ultra microcredit would serve to demonstrate the government's commitment and role in supporting the National Economic Recovery Program, Ririn Kadariyah, managing director of the Government Investment Center, Ministry of Finance, said recently.

She said the distribution of Rp400 billion in UMi funding will be carried out by Pegadaian to support micro businesses, which are yet to have full access to the banking sector, with a grace period of six months offered for loans.

"Of the Rp400 billion, Rp100 billion will be in the form of sharia financing, which is the first handover from the Government Investment Center to Pegadaian. I really appreciate Pegadaian's cooperation in this program," she added.

As of June 24 this year, Pegadaian has provided Rp618.36 billion in UMi to more than 93,604 debtors. Through funding of Rp400 billion under the first phase, in the remaining months of 2020, the company is expected to be able to pursue a distribution target of Rp1.2 trillion by the end of the year, Kuswiyoto, president director of PT Pegadaian, said.

Pegadaian, a non-banking financial institution that provides UMi financing, has a significantly wide network of 4,000 operational outlets and a customer base of 14 million across Indonesia. 

Meanwhile, COVID-19 has triggered digitalization in various sectors, including MSMEs.

With the imposition of Large-Scale Social Distancing (PSBB) measures, digital infrastructure and services have evolved into a backbone for various productive activities, including working from home, online selling, and schooling from home.

The ongoing digital transformation can help propel the development of MSMEs in Indonesia, according to Coordinating Economic Affairs Minister Airlangga Hartarto.

"The pandemic has made digital transformation a necessity. Migration from offline to online is something that the community direly needs. Various countries have encouraged economic digitalization so as not to be left behind," he noted.

The digital transformation is not only beneficial for boosting efficiency and productivity, but also promoting inclusiveness.

Hence, the government has committed to creating a conducive environment for MSMEs to conduct their businesses online.

Hartarto also put the spotlight on the criticality of training for those engaged in MSMEs to help them survive and develop in the digital ecosystem.

"Of course, with digitalization, the number of supply chains will decrease, so that efficiency will be achieved. Just as online-based food stalls, it must also be lauded, and we are upbeat about increasingly more number of similar (online businesses)," Hartarto emphasized.

Furthermore, the government has been encouraging electronic-based trading transactions, or e-commerce, as instruments for realizing economic equality.

Although most people can easily adapt to the digital era, other groups still exist that have yet to access or utilize digital services.

The government plans to encourage them to further reduce costs to achieve digitization. Smartphones are also expected to become more affordable so that more people can use them. 

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