The Role of MSMEs (Micro, Small, and Medium Enterprises) in Indonesia’s Economic

MSMEs stand for micro, small, and medium enterprises. These enterprises are owned by individuals, families, or business entities with assets and annual revenue of no more than Rp500 million.

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In other words, the income generated from such business is quite small. However, Micro, Small, and Medium Enterprises form the backbone of Indonesia’s economy. MSMEs are vital for the contribution of Indonesia’s economy as they play a crucial role in driving economic growth, generating chances of employment, and fostering economic resilience. With over 64 million MSMEs in operation, they account for more than 60% of Indonesia’s GDP and nearly 97% of its total employment. However, despite their significant contribution, MSMEs face numerous challenges, especially during and after the COVID-19

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First of all, MSMEs contribute to economic growth and GDP. Based on research, the MSMEs account for more than 60% of Indonesia's GDP. This intense growth has shown their immense influence on the national economy. The enterprises operate across various sectors, including agriculture, manufacturing, services, and trade. As MSMEs participate in countless industries, they help diversify the economy and reduce reliance on large corporations. In most of the developing countries, MSMEs are very vital as they keep the economy dynamic and responsive to market changes, and services the local needs.

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Secondly, MSMEs offer jobs and solve the unemployment issue. In Indonesia, MSMEs provide nearly 97% of the country’s employment, especially in rural and semi-urban areas. The job creation by MSMEs helps alleviate poverty, improve living standards, and reduce income along with economic inequality. The best part of MSMEs is that they often offer job markets for young people, unskilled workers, and neglected populations to develop their skills and entrepreneurship.

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Besides that, MSMEs are fundamental to fostering innovation. This can be said as the MSMEs often generate new ideas, products, and services. They can quickly adapt to market conditions. As MSMEs are smaller in size, they are more flexible and they can avoid risks that might cause them to underperform their businesses. Innovation is not only crucial for local demands but also to compete within the same industries whether within the country or abroad. It is counted as a worldwide competition. The MSMEs also encourage entrepreneurship by providing a safe platform for all individuals to start up their businesses, contributing to the culture of innovation and creation.

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Last but not least, MSMEs are essential to promote a balanced regional development. The MSMEs can be related to sustainable development goal number 8 which is decent work and economic growth and sustainable development goal number 9 which is industry, innovation, and infrastructure. As large companies usually concentrate their development in major cities, the MSMEs play a significant role in balancing the economic activity in rural and semi-urban places. The presence of MSMEs stimulates the local economies and encourages the growth of local supplies. MSMEs often use local materials and support local businesses, this could be beneficial to boost the local industry and increase the rise of local industry.

In a nutshell, the role of MSMEs in Indonesia’s economic recovery and country development is irreplaceable.

Due to their major contributions to economic, employment, and regional development, the MSMEs are one of the pillars of Indonesia’s economy. On the other hand, MSMEs are crucial for advancing multiple SDGs, particularly those related to economic growth, innovation, poverty reduction, and social inclusion. Supporting MSMEs is essential for achieving a sustainable, inclusive, and resilient future. With ongoing government support, digitization efforts, and innovation, MSMEs have the potential to thrive and play an even greater role in shaping Indonesia’s economic future.