Empowering MSMEs in Indonesia: Using Data Analytics, Systemic Design and Strategic Foresight to Improve Policymaking for MSMEs’ Growth and Resilience
Did you know that in Indonesia, most businesses are micro, small, and medium-sized enterprises (MSMEs)? They make up over 90% of all businesses and employ around 120 million people, helping to boost the country’s economy, innovation, and job creation. Yet even though they make a big impact, they are one of the most vulnerable sectors and face many challenges, let alone the additional hardships faced by women entrepreneurs. In response to this, the Government of Indonesia has made various attempts to implement a set of policies and programs to support and leverage opportunities for MSMEs; however, greater effort is needed to address the systemic barriers. As a joint data innovation facility, Pulse Lab Jakarta (PLJ) has continued to support the government’s efforts in building resilience and promoting the growth of MSMEs through data analytics, system design, and strategic foresight.
Several research studies show that MSMEs in Indonesia face hurdles revolving around areas such as limited access to finance, markets, and management training, among others. Many are unable to get loans from traditional financial institutions as they lack collateral or credit history and they operate in rural areas or sectors that aren’t well-connected to global markets. Many entrepreneurs also lack formal training in business management, hindering them from making informed decisions about their businesses, not to mention being competitive in the global economy. Moreover, women entrepreneurs face even greater challenges than their male counterparts for a number of reasons, such as gender based discrimination, familial responsibilities, societal biases, and stereotypes.
These difficulties faced by Indonesian MSMEs were compounded by the COVID-19 pandemic as social restrictions, high economic pressure and uncertainties changed people’s behaviors and consumer habits, forcing businesses to adapt in order to survive. However, the rapidly expanding digital economy also presented opportunities for MSMEs to sell their products and services online, enabling them to reach new markets, customers, and grow their businesses. Additionally, the growing demand for sustainable products and services provides a competitive advantage for MSMEs that are able to meet the demand.
The Indonesian government has implemented a range of policies and programs to support MSMEs, such as by providing access to finance and training programs as outlined in the National Medium-Term Development Plan and the National Strategic Plan for the Development of MSMEs. However, while stimulus packages helped them cope throughout the pandemic, it’s clear that further efforts are needed to address the systemic barriers faced by these enterprises.
Acknowledging these challenges and opportunities, PLJ pivoted its focus in 2022 to support the government’s efforts in building resilience and promoting the growth of MSMEs through three projects using data analytics, system design, and strategic foresight. These projects build upon our belief that a mixed-method approach can help us understand the root of problems in a more holistic way and develop innovative solutions based on anticipatory and data-driven decision making that creates lasting systemic, methodological, and operational impacts.
Designing an informational data analytics tool that can improve the effectiveness of government policies and programs
The Indonesian government has taken a major step toward integrated data collection for MSMEs through SATU Data UMKM, a database that aims to provide centralized, up-to-date, and accessible information about MSMEs in Indonesia. The database will provide a more accurate picture of the sector which can be used to improve the effectiveness of policies and programs that support the development and adaptiveness of Indonesian MSMEs. It can also connect them with financial institutions, investors, and other relevant stakeholders.
However, the database has limitations and bottlenecks, such as issues with data quality, accessibility, usability, integration with other systems, and security, which the government is continuously addressing to improve its effectiveness. In support of their efforts, PLJ collaborated with the Directorate of MSMEs and Cooperatives Development of the Indonesian Ministry of National Development Planning (Bappenas) to better understand the MSMEs landscape by developing a data analytics platform that generates insights on the geographical spread of Indonesian MSMEs at the district level.
Using a combination of traditional and non-traditional datasets as well as service design, the platform serves to inform policy decisions that will assist MSMEs in accessing financial services, marketplaces, and other resources they need to grow. This data analytics platform has been designed to function as a host for the future development of MSMEs data collection and analysis, and supports the government’s efforts to create a single database for MSMEs that can provide policymakers with data-driven insights. Check out our blog to learn more about how we looked Beyond the Conventional.
Employing systemic design research to identify key interventions to break growth barriers for women impact entrepreneurs
Existing research indicates that the number of women-owned enterprises is increasing worldwide. However, women entrepreneurs frequently face particular challenges in starting and growing their firms, such as access to funding, networking opportunities, and combining work and family responsibilities. Yet despite these obstacles, women entrepreneurs are more capital-efficient and lucrative than male-owned businesses.
According to the World Bank, if women entrepreneurs had equal access to resources as their male counterparts, they could raise employment and GDP by up to 2% in certain countries. Women entrepreneurs are also more likely to be active in businesses that benefit their communities and the environment, such as healthcare, education, and social assistance.
With this knowledge in hand, PLJ collaborated with UN Women to use system design, a qualitative methodology for analyzing social systems that blends human-centered design and systems thinking, along with other tools to reimagine a more systemic intervention that helps break the barriers faced by women entrepreneurs.
Using this methodology allowed us to capture systemic insights and understand the perspectives of individual women entrepreneurs as well as that of ecosystem enablers — the actors in Indonesia who support the growth and economic empowerment of entrepreneurs, ranging from investors to business associations, mentors, development programs, and government representatives. Read through our blog to learn more about how Her Barriers are More Systemic than You Think, and our findings and recommendations.
Applying strategic foresight to deepen understanding of the factors affecting the future growth and resilience of MSMEs
The COVID-19 pandemic severely impacted MSMEs in Indonesia and served as a wake-up call that we cannot continue with business as usual, especially when it comes to supporting the growth and resiliency of enterprises. The crisis highlighted the need to proactively prepare for future disruptions before the risks materialize and to envision an optimal future for the sector to help define and step up key innovation efforts. We must adopt different approaches and methods to create robust policies that prepare us not just for one but for the many futures that may unfold. This is where strategic foresight is useful, as it allows us to articulate policies that are truly forward-looking and resilient to future shocks.
PLJ and Bappenas, with expert support from UN Global Pulse Finland (PLF), carried out a strategic foresight exercise using the horizon scanning method with the aim to identify key potential developments that could impact the futures of Indonesian MSMEs. A team of 12 scanners from Bappenas and PLJ were trained by experts from PLF through an immersive hands-on learning experience.
Using horizon scanning, we identified five key drivers of change that could shape the futures of MSMEs in Indonesia, such as climate change, increasing international sustainable economic partnerships, the rise of emerging sectors and shift in consumer preferences, tech and business as new ways of working, precarious work in the gig economy. The results underscored the need for anticipatory governance and policy planning and prompted an invitation for further dialogue with stakeholders to devise possible scenarios for if these drivers materialize, bearing in mind the needs and interests of Indonesian MSMEs. Have a look at our Strategic Foresight: The Futures of MSMEs in Indonesia microsite to learn more about what we discovered from the horizon scanning exercise and our recommendations.
The Key Takeaway
By capitalizing on these mixed-methods approaches — data analytics, system design and strategic foresight — our projects have shown our collaborators the art of the possible, providing new perspectives in understanding problems, opportunities, and potential solutions that create more inclusive and sustainable impacts. To reach these possibilities, it is vital that improving the quality and availability of data remain a priority for invested stakeholders as moving forward, having a robust database and strong foundation of analytical capabilities will only enhance the benefits of data-driven decisionmaking and anticipatory governance.
Author: Angga Gumilar (Government Project and Engagement Officer), with comments from Rizqi Ashfina (Social Systems Researcher) and editorial support from Andini Kamayana (Communication Manager)
Pulse Lab Jakarta is grateful for the support from UN Women Indonesia in conducting this joint research.
