Accelerating MSMEs to Upgrade with Mentoring
By: Dewi Meisari, Chief Editor, UKMIndonesia.id – LPEM FEB UI
KONTAN (6/17/2022) – ILYAS is a shrimp farmer with a turnover of Rp8 billion per year. Despite having access to People’s Business Credit (KUR) for two cycles, he is reluctant to expand his business for fear of being taxed.
Sulis’s cake business, on the other hand, is becoming increasingly busy, with turnover tripling to Rp15 million a month. Several banks were eager to lend. Still unsure of her business, Sulis refused the loan, wanting to boost her turnover with digital promotion, although she was still confused about how to start.
These two cases are the business practices of Indonesian MSME players 20 years ago and now. After hundreds of trillions of budgets, and dozens of programs from around 21 Ministries/Institutions (K/L) in the last ten years, the real impact does not seem significant.
At a macro level, MSMEs represent 99.99% of the total business units in Indonesia. Meanwhile, large-scale businesses are stagnant at 0.01%, meaning that only one out of 10,000 business units has managed to upgrade to a large business. The ratio of large businesses in more developed countries is relatively higher, such as in the European Union (0.2%), Japan (0.3%), and China (0.4%).
To equalize the ratio with the European Union alone, we should have 130 thousand large businesses. Data from the Indonesian Ministry of Cooperatives and SMEs (2018) projects that there are around 5,600 large business units. That means that Indonesia needs to empower around 124 thousand MSMEs until they can upgrade to become new large businesses.
When referring to PPNo.7/2021, MSMEs are defined as businesses with an upper limit of IDR 50 billion turnovers per year. Whereas the current estimate of the average turnover of MSMEs is still around IDR 147 million per year. What is the strategy to create 124 thousand new big businesses?
Non-ceremonial and Structured Assistance
Since 2010, the state budget has spent Rp120 trillion to pay credit guarantee premiums and interest subsidies for the KUR program. Then, around Rp6 trillion per year for training programs, grants, workshops, certifications, exhibitions, and others by various K/L (TNP2K, 2020). NGOs and CSR of SOEs and corporations also help with similar programs. With such great support, why do our MSMEs seem stunted because they are stuck at the micro-scale and find it challenging to scale up?
The UKMIndonesia.id: LPEM FEB Ul study supported by BRI (2019-2020) tried to compile the parameters of ‘Upgrading’ MSMEs, develop a mentoring curriculum, and produce an Upgrading MSME Index with a score range of 0-10. The index score is divided into 9 class categories from Traditional to Exemplary Modem.
The pilot test results for more than 3,700 MSMEs showed that most belonged to the Developing class (index score range 3.21 – 4.26) and Exemplary Traditional (2.17 – 3.21). The study also found that the opportunity to upgrade from Micro to Small Enterprises can increase significantly when an enterprise reaches the Main Developing class (score 4.26 – 5.30), while Small to Medium Enterprises at the Main Modern class (score 7.39 – 8.43).
The study estimates that to upgrade from the Traditional to Emerging class category. Businesses need to improve their entrepreneurial competencies concerning at most minuscule 27 practical training/workshop themes covering 12 aspects of entrepreneurship (scale, mindset, leadership, a culture of innovation, marketing, operations, finance, human resources, legality, and compliance, understanding the industry and market competition, supply chain, and social and environmental concerns). Meanwhile, it takes 31 themes to move from Emerging to Modern.
This finding confirms that short training events, webinars, field visits, or other ceremonial events are not worthy of being called mentoring programs. Mentoring should at least include practical workshops with Q&A and consultation for participants who are confused when practicing their new knowledge, as well as continuous monitoring and evaluation.
The Urgency of Mentoring Resource Allocation
Without structured mentoring, tax evaders like Ilyas will continue to enjoy subsidies. Meanwhile, Sulis’ business could be threatened with stagnation, even though she has a high spirit of learning and growth.
The price intervention policy in the form of KUR interest subsidies has also not proven effective in accelerating financial inclusion for MSMEs. The proportion of bank credit for MSMEs remains at around 20% because KUR is mostly enjoyed by existing customers who pursue low-interest rates and narrow the inclusion opportunities for non-bankable MSMEs.
If to distribute KUR with a ceiling of IDR 285 trillion at 6% interest, the estimated KUR subsidy budget in 2021 is around IDR 14 trillion. Then, as a result, the average productivity does not increase significantly, the inclusion of access to capital remains stagnant, and awareness of tax compliance. Is not this interest subsidy like burning money? What if the allocation is improved?
If mentoring can increase the chance of success in becoming a large business from 0.01% to 1%, then to create 124,000 new large businesses, we need to assist around 12 million MSMEs. Assuming a ratio of 1:200, we need to create at least 60,000 entrepreneurship facilitators. If the facilitator’s salary is IDR 8 million per month, then it only needs a budget of IDR 76 trillion in a year. The difference of Rp8.24 trillion can still be utilized for interest subsidies and certification facilitation, but this time only for those proven to make improvements according to the criteria for upgrading.
Since the 1950s, South Korea has trained 30,000 facilitators with content equivalent to 100 hours of learning sessions to assist 1.6 million farmers. As a result, South Korea now has a social conglomerate, the National Agricultural Cooperatize Federation, one of the largest financial groups with more than Rp4,100 trillion in assets under management (2014).
Effective empowerment orchestration requires structured, sustainable investment in mentoring and a robust database system for monitoring and evaluation.
Source: Kontan Newspaper. Edition: Friday, June 17, 2022. Opinion Column