Financing Solutions to Promote the Growth of Micro, Small & Medium Enterprises (MSMEs)

Small business in Indonesia

By Adli Wahid on Unsplash

Financing Solutions to Promote the Growth of Micro, Small & Medium Enterprises (MSMEs)
SectorMost major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Financials
Corporate and Retail Banking
Business Model Description

Invest in B2C and P2P financing companies that form a link between lenders/investors and the borrowers. Lenders may seek to invest in MSMEs by offering affordable business loans to serve their working capital requirements, including invoice financing, supply chain financing, term loans and microloans. Examples of some companies active in this space are:

PT Mitrausaha Indonesia Grup (Modalku) is an SME digital financing platform in Indonesia that provides business financing to Micro, Small and Medium Enterprises (MSMEs) funded by individual and institutional lenders. Founded in 2016, Modalku offers various productive loans such as invoice financing, supply chain financing, term loans and microloans. In 2022, it raised USD 294m in Series C+ equity and debt lines led by SoftBank Vision Fund 2, with participation from VNG, Rapyd Ventures, EDBI, Indies Capital, Ascend Vietnam Ventures and existing shareholders like Sequoia Capital India and BRI Ventures. (17).

PT Lunaria Annua Teknologi (KoinWorks), founded in 2017, operates a peer to peer lending platform which offers loans relating to business, education, and health. It provides 18% interest rate and provision fund. As of 2020, it has raised USD 59.35 mn, including USD 10 mn from Lendable Ltd and USD 20 mn from East Ventures Pte. Ltd, PT Sinar Mas Digital Ventures and others (17).

Amartha (PT Micro Amartha Fintek), founded in 2010, is a peer-to-peer (P2P) lender that enables investors to find investment opportunities in MSMEs. In 2021, its valuation was USD 140 mn (18), as it raised USD 28 mn funding from Women’s World Banking Capital Partners II (WWB), MDI Ventures and other existing investors (Mandiri Capital Indonesia (MCI) and UOB Venture Management). (19)

Expected Impact

Affordable loans to promote growth of MSMEs and fuel domestic economic growth, improvement in unemployment level and financial inclusion.

Indicative ReturnDescribes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
The Neobanking segment is expected to show a revenue growth of 41.0% in 2023. (22)
Investment TimeframeDescribes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market SizeDescribes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)Describes the USD amount for a typical investment required in the IOA.
> USD 10 million
Direct ImpactDescribes the primary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8)
Indirect ImpactDescribes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Reduced Inequalities (SDG 10) Gender Equality (SDG 5)
Sector Sources
  • (1) OJK. 2020. BAGAIMANA UMKM & PERBANKAN DAPAT SUKSES DI ERA DISRUPSI EKONOMI & DIGITAL. https://www.ojk.go.id/id/data-dan-statistik/research/prosiding/Documents/Kajian%20Bagaimana%20UMKM%20dan%20Perbankan%20Dapat%20Sukses%20di%20Era%20Disrupsi%20Ekonomi%20dan%20Digital.pdf (2) SOFIA-Oxford Policy Management Ltd. 2017. Understanding people's use of financial services in Indonesia. https://www.bappenas.go.id/files/e2017943-e9b8-4452-ae8a-5f7c86b4a814/download (3) OJK. 2021. THE INDONESIAN FINANCIAL SERVICES SECTOR MASTER PLAN 2021-2025. https://www.ojk.go.id/id/berita-dan-kegiatan/publikasi/Pages/Master-Plan-Sektor-Jasa-Keuangan-Indonesia-2021-2025.aspx (4) Bamboo Capital Partner. 2020. Amartha – Bridging the financing gap for women entrepreneurs in Indonesia. https://bamboocp.com/amartha-bridging-the-financing-gap-for-women-entrepreneurs-in-indonesia/ (5) WOMEN'S WORLD BANKING. 2019. Indonesia. https://www.womensworldbanking.org/country-strategies-indonesia/#keytrends (6) OJK. 2020. Supporting Financial Inclusion for MSMEs through FinTech. for https://ojk.go.id/id/berita-dan-kegiatan/publikasi/Documents/Pages/Financial-Inclusion-for-MSMEs-Through-Fintech/OJK%20Publication%20-Financial%20Inclusion%20for%20MSMEs%20through%20Fintech.pdf (7) Ayman Falak Medina. 2021. Opportunities in Indonesia’s Financial Technology Sector. https://www.aseanbriefing.com/news/opportunities-in-indonesias-financial-technology-sector/ (8) J-PAL. 2020. Towards Inclusive Digital Finance in Indonesia (Inclusive Financial Innovation Initiative Whitepaper). https://www.povertyactionlab.org/review-paper/towards-inclusive-digital-finance-indonesia-inclusive-financial-innovation-initiative (9) PRAKARSA Policy Brief. 2020. The Risk of Over-indebtedness Amid COVID-19 Pandemic. https://responsibank.id/media/496087/policy-brief-23-eng-the-risk-of-over-indebtedness-amid-covid-19-pandemic.pdf (10) OJK. 2020. DIGITAL FINANCE INNOVATION ROAD MAP AND ACTION PLAN 2020-2024. https://www.ojk.go.id/id/berita-dan-kegiatan/publikasi/Documents/Pages/Publikasi-Materi-Digital-Finance-Innovation-Road-Map-dan-Action-Plan-2020-2024-serta-Digital-Financial-Literacy/Digital%20Finance%20Innovation%20Road%20Map%20dan%20Action%20Plan.pdf (11) Republic of Indonesia. 2021. Annexes Indonesia’s Voluntary National Review . https://sdgs.bappenas.go.id/laporan-voluntary-national-review-vnr-indonesia-2021/ (12) Republic of Indonesia. 2020. Indonesia's 2020-2024 National Medium-Term Development Plan https://katalog.data.go.id/dataset/rpjmn-tahun-2020-2024/resource/23e26880-a84f-4443-a16f-1ddb3b69cfeb. (13) International Finance Corporation. 2016. Women-owned SMEs in Indonesia:A Golden Opportunity for Local Financial Institutions. https://www.ifc.org/wps/wcm/connect/region__ext_content/ifc_external_corporate_site/east+asia+and+the+pacific/resources/women-owned+smes+in+indonesia-a+golden+opportunity+for+local+financial+institutions (14) Bappenas. 2021. Indonesia's Voluntary National Review 2021. https://sustainabledevelopment.un.org/content/documents/280892021_VNR_Report_Indonesia.pdf. (15) OJK. 2021. Statistik Perbankan Indonesia - Oktober 2021. https://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Pages/Statistik-Perbankan-Indonesia---Oktober-2021.aspx (16) ILO. 2019. Financing small businesses in Indonesia: challenges and opportunities. https://www.ilo.org/jakarta/whatwedo/publications/WCMS_695134/lang--en/index.htm
IOA Sources
  • (17) CIMB Niaga. 2020. Fintech Report 2020. https://branchlessbanking.cimbniaga.co.id/download/Fintech%20Report%202020.pdf (18) Dealroom. 2022. Amartha. https://app.dealroom.co/companies/amartha (19) MoneyPlus. 2021. Amartha Secures USD 28 Million New Funding Led by Women’s World Banking. https://blog.amartha.com/amartha-secures-usd-28-million-new-funding-led-by-womens-world-banking/ (20) Awan Tunai. 2022. About Us. https://www.awantunai.co.id/aboutus (21) OJK and BCG. 2020. BAGAIMANA UMKM & PERBANKAN DAPAT SUKSES DI ERA DISRUPSI EKONOMI & DIGITAL. https://www.ojk.go.id/id/data-dan-statistik/research/prosiding/Documents/Kajian%20Bagaimana%20UMKM%20dan%20Perbankan%20Dapat%20Sukses%20di%20Era%20Disrupsi%20Ekonomi%20dan%20Digital.pdf (22) Statista. 2021. Digital Markets FinTech. https://www.statista.com/outlook/dmo/fintech/indonesia (23) The Jakarta Post. 2021. P2P lending: Setting new trends to reach MSMEs and women. https://www.thejakartapost.com/academia/2021/03/03/p2p-lending-setting-new-trends-to-reach-msmes-and-women.html. (24) Ken Research. 2020. Indonesia Online Loan and Insurance Industry Outlook to 2024 : Compelling Incumbents to pursue growth via Product Development & International Expansion. https://www.kenresearch.com/banking-financial-services-and-insurance/loans-and-advances/indonesia-online-loan-aggregator-industry-outlook/347119-93.html (25) Ministry of Finance. 2021. Pemerintah Terus Perkuat UMKM Melalui Berbagai Bentuk Bantuan. https://www.kemenkeu.go.id/publikasi/berita/pemerintah-terus-perkuat-umkm-melalui-berbagai-bentuk-bantuan/ (26) Aziz Rahardyan. 2021. KoinWorks Ciptakan Ekosistem Layanan Finansial UKM Buat Penuhi Imbauan OJK. https://finansial.bisnis.com/read/20211030/563/1460042/koinworks-ciptakan-ekosistem-layanan-finansial-ukm-buat-penuhi-imbauan-ojk. (27) MicroCapital. 2020. MICROCAPITAL BRIEF: Accion Venture Lab Takes Equity Stake in Pintek of Indonesia, Provider of Online Loans to Students, Schools. https://www.microcapital.org/microcapital-brief-accion-venture-lab-takes-equity-stake-in-pintek-of-indonesia-provider-of-online-loans-to-students-schools/ (28) Open Data Labs. 2018. Digital Literacy and Young Girls in Indonesia: Bridging the Gap. https://labs.webfoundation.org/digital-literacy-and-young-girls-in-indonesia-bridging-the-gap/ (29) P. Eko Prasetyo. 2021. The Role of MSME on Unemployment in Indonesia. https://turcomat.org/index.php/turkbilmat/article/view/8944 (30) Bisnis.com Media Digital. 2020. Kredit Plus Peroleh US$50 Juta dari IFC. https://finansial.bisnis.com/read/20201228/89/1335921/kredit-plus-peroleh-us50-juta-dari-ifc (31) The Jakarta Post. 2017. Fintech lending opens up opportunities for SMEs. https://www.thejakartapost.com/academia/2017/01/18/fintech-lending-opens-up-opportunities-for-smes.html (32) Indo Tekno. 2021. KoinWorks dukung partisipasi perempuan di industri fintech. https://www.indotelko.com/read/1615213445/koinworks-fintech (33) SEKRETARIAT NASIONAL SDGS. 2019. Indonesia's SDG National Action Plans-RAN SDGs 2021-2024. https://sdgs.bappenas.go.id/category/dokumen/rencana-aksi-nasional-ran/. (34) Statista. 2022. Largest banks in Indonesia as of Q1 2021, by total assets. https://www.statista.com/statistics/830681/indonesia-top-banks-by-total-assets/ (35) Oliver Wyman and Modalku. 2016. Time for marketplace lending – Addressing Indonesia’s missing middle. https://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/apr/Time_For_Marketplace_Lending.pdf (36) Ministry of Finance, Bank Indonesia, and OJK. 2018. National Strategy for Financial Market Development, 2018-2024. https://www.bi.go.id/en/publikasi/kajian/Documents/SNPPPK-BI-EN.pdf (37) Program Keluarga Harapan. 2018. APA ITU PROGRAM KELUARGA HARAPAN. https://pkh.kemensos.go.id/?pg=tentangpkh-1 (38) Republic of Indonesia. 2020. National Strategy for Inclusive Finance. https://peraturan.bpk.go.id/Home/Details/154566/perpres-no-114-tahun-2020 (39) Bank Indonesia. 2017. Penyelenggaraan Teknologi Finansial. https://peraturan.bpk.go.id/Home/Details/135776/peraturan-bi-no-1912pbi2017-tahun-2017 (40) OJK. 2016. POJK No. 77/2016 on Information Technology-Based Lending Services. http://www.ojk.go.id/id/regulasi/otoritas-jasa-keuangan/peraturan-ojk/Pages/POJK-Nomor-77-POJK.01-2016.aspx (41) BPS. 2020. PERATURAN BADAN PUSAT STATISTIK NOMOR 2 TAHUN 2020 TENTANG KLASIFIKASI BAKU LAPANGAN USAHA INDONESIA. https://legalitas.org/KBLI-2020.pdf. (42) OJK. 2019. FAQ Fintech Lending. https://www.ojk.go.id/id/kanal/iknb/data-dan-statistik/direktori/fintech/Pages/FAQ-Kategori-Umum.aspx (43) Republic of Indonesia. 2018. Peraturan Pemerintah (PP) Nomor 23 Tahun 2018 tentang Pajak Penghasilan atas Penghasilan dari Usaha yang Diterima atau Diperoleh Wajib Pajak yang Memiliki Peredaran Bruto Tertentu.https://peraturan.bpk.go.id/Home/Details/82680/pp-no-23-tahun-2018 (44) Ministry of Finance. 2015. Peraturan Kementerian Keuangan (PMK) Nomor 105/PMK.05/2015. https://peraturan.bpk.go.id/Home/Details/115502/pmk-no-105pmk052015 (45) Fika Nurul. 2021. Pemerintah Naikkan Plafon KUR Jadi Rp 373,17 Triliun, Pinjaman Bisa hingga Rp 100 Juta. https://money.kompas.com/read/2021/12/30/104000726/pemerintah-naikkan-plafon-kur-jadi-rp-37317-triliun-pinjaman-bisa-hingga-rp (46) Republic of Indonesia. 2008. LAW OF THE REPUBLIC OF INDONESIA NUMBER 36 OF 2008. https://jdih.esdm.go.id/peraturan/UU%20No.%2036%20Thn%202008.pdf