Small businesses are the driving force behind Indonesia’s economy, contributing to growth and employment. Around 64 million small businesses employ 97% of the total domestic workforce and contribute 61% of the Gross Domestic Product (GDP). However, they face significant challenges, including limited connectivity, financial barriers, and a lack of digital skills.
By 2025, Mastercard Strive Indonesia aims to empower 300,000 Indonesian micro and small businesses to succeed in the digital economy. As part of this work, 60 Decibels partnered with Strive Indonesia to run a study on Indonesian micro and small enterprises, hearing from them directly to understand their business challenges and hopes for the future. This report aims to provide insights for public and private stakeholders dedicated to helping small businesses flourish.
Research has shown that public-private partnerships are key to giving MSEs the access to capital, incentives and ecosystem that MSEs need to digitize. While public actors provide beneficial policy frameworks and infrastructural development, private actors are able to implement more localized, agile programmes. Similar benefits can be reaped from such collaborations in other critical areas, such as access to credit. Whether public or private, organizations must engage in active conversations to share lessons and resources, reduce redundancy, and coordinate better.
The proportion of businesses we spoke to who reported that their revenues had either gone up or down in the last 12 months was roughly equal, at 40-42% in each direction respectively. The remaining 18% saw no change.
A small 7% of businesses reported an increase in number of employees, with double that number reporting a decrease (14%). Overall, a majority of businesses (80%) report no change in the number of employees in their businesses.
Only 4% of businesses say they would not be able to cover a reasonable but generally not catastrophic emergency expense of ~3.5M IDR, This compares to roughly 8% in the wider Indonesian population.
Two-thirds of MSEs report that they have not used credit or loans in the last 12 months. Of these the primary reason for not using credit was cited as not needing credit (62%), followed by being unable to afford credit (28%). When MSEs do access credit, most select their credit source based on its ease of application. Correspondingly, most MSEs chose to receive credit from a formal finance institution.
Small enterprises are more likely to report being more proficient with technology, both in terms of their adoption of, and ability to use, digital tools.
Across multiple metrics such as revenue, financial resilience, growth expectations, customer retention, and employee growth, there was little difference in the outlook of women-led businesses compared with their male-led counterparts. This is a marked improvement for the position of Indonesian female entrepreneurs, who have been historically disadvantaged.
Roughly 70% of MSEs consider support services like business, finance, digital and human training important for their business growth. MSEs are clearly eager to access such support for their business. Nevertheless, there remains a sizeable gap in access to this support, with two-thirds of businesses not accessing any such services in the past 12 months.
With two-thirds of businesses using digital tools such as mobile wallets and e-commerce platforms, MSEs seem to be fans of digitalisation. Businesses display both confidence and eagerness to use more digital tools, with 7 in 10 MSEs saying they are confident in their ability to utilize digital tools to enhance their operations. Yet this confidence does not seem to equate to proficiency. 64% of MSEs say they don’t know which digital tools/services are right for thei businesses.
It wasn’t surprising to see that a lack of digital literacy skills was the top reported barrier to improving business operations. More than half of MSEs we spoke to say they don’t have the requisite digital skills to use digital tools. This inconsistency between confidence and lack of practical skills could indicate a low awareness of how digital tools can be used in their businesses.
Two thirds of businesses expect moderate growth in the next 12 months. This aligns with 3 in 5 MSEs expecting revenue increases and 62% expecting an increase in customers.
59% of businesses cite a lack of marketing knowledge as their biggest challenge in the next 12 months. Further access to inputs that MSEs lack include supply chain disruptions (29%) and access to capital (20%).
The data found within the report is from 60 Decibels conducting phone interviews with owners, senior executives, directors, or managers of 835 Indonesian micro and small enterprises from November 2023 to January 2024. The businesses that participated are dispersed across location, size, sector, tenure, and gender of business owners.
