MSMEs in Indonesia - statistics & facts
Micro, small, and medium enterprises (MSMEs) are the backbone of Indonesia’s economy, making up the majority of businesses in the country and thus providing substantial employment opportunities. With over 65 million MSMEs as of 2023, these enterprises play a crucial role in supply chains across different industries and driving economic growth. However, many Indonesian MSMEs still struggle with marginal profitability and structural challenges that make it difficult for them to reach their full potential.
MSMEs contributed to around 60 percent of Indonesia’s GDP, with wholesale and retail trade and manufacturing being the leading sectors. They are deeply embedded in the daily lives of many Indonesians: from local grocery stores and food vendors to small neighborhood salons. Many MSMEs are also reaching customers through online platforms without having any physical stores. However, these businesses primarily serve domestic demand, while their penetration into global markets remains low. This is due to limited resources and access to information, alongside the complex legal procedures in doing exports. That said, the growing trend of digitalization and the rise of e-commerce in Indonesia offers significant opportunities for MSMEs to scale and participate in the international trade market.
Furthermore, digital adoption among these enterprises is relatively slow. As of 2023, only less than half of Indonesian MSMEs have gone digital. A recent study found that a lack of technical skills among employees was one of the leading reasons for MSMEs not to use the internet, which could hold back innovation and productivity. In the long run, improving digital literacy and financial access will become critical in helping MSMEs accelerate their growth and competitiveness to contribute even more significantly to Indonesia’s national economy.
MSMEs in Indonesia: an overview and its economic potential
The Indonesian government defines micro enterprises as businesses with annual revenues below two billion Indonesian rupiah, while small enterprises generate between two and 15 billion and medium enterprises have revenues ranging from 15 to 50 billion Indonesian rupiah. MSMEs employ a large part of the Indonesian workforce, as they are the means of self-employment for millions of Indonesians. As of August 2024, Indonesia had over 30 million self-employed workers. Given that more than 99 percent of Indonesian businesses are micro enterprises, a significant portion of these workers are tied to these businesses. Additionally, around 20 million self-employed individuals rely on temporary or unpaid workers, reflecting the informal and flexible structure of MSMEs in the country. Only a small portion of Indonesian entrepreneurs are supported by permanent, paid employees.MSMEs contributed to around 60 percent of Indonesia’s GDP, with wholesale and retail trade and manufacturing being the leading sectors. They are deeply embedded in the daily lives of many Indonesians: from local grocery stores and food vendors to small neighborhood salons. Many MSMEs are also reaching customers through online platforms without having any physical stores. However, these businesses primarily serve domestic demand, while their penetration into global markets remains low. This is due to limited resources and access to information, alongside the complex legal procedures in doing exports. That said, the growing trend of digitalization and the rise of e-commerce in Indonesia offers significant opportunities for MSMEs to scale and participate in the international trade market.
Challenges for Indonesian MSMEs
Despite their economic significance, MSMEs in Indonesia still face numerous hurdles that prevent them from expanding. Limited access to formal financing remains one of the major challenges, as many businesses struggle with collateral requirements and loan application processes. Indonesia’s generally low financial literacy also contributes to this issue, hindering many MSMEs from accessing suitable financial options available to them.Furthermore, digital adoption among these enterprises is relatively slow. As of 2023, only less than half of Indonesian MSMEs have gone digital. A recent study found that a lack of technical skills among employees was one of the leading reasons for MSMEs not to use the internet, which could hold back innovation and productivity. In the long run, improving digital literacy and financial access will become critical in helping MSMEs accelerate their growth and competitiveness to contribute even more significantly to Indonesia’s national economy.
