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Policy Brief: UMi Financing and its Impact On Ultra Micro Enterprises

Updated: Wednesday 23 August 2023 - 12:29 Kategori: Policy Brief Posted by: Admin IAEI


UMi Financing and its Impact On Ultra Micro Enterprises 

At the foundation of Indonesia's business landscape lies a multitude of Ultra Micro Enterprises (UMi). These entities, characterized by their small scale and individual ownership, cater to daily necessities and exhibit a smaller footprint compared to their micro enterprise counterparts. These UMi businesses encompass a range of endeavors, including kilo laundries, grocery stores, home-based culinary ventures, and more. Notably, data from 2019 underscores the prominence of micro enterprises, encompassing ultra-micro businesses, constituting a staggering 98% of MSMEs in Indonesia. This sector commands a substantial labor force, accounting for as much as 89%, and contributes 37.35% to Indonesia's GDP.

The significant role of ultra-micro businesses in Indonesia's economy does not make this type of business challenge free. Among of the biggest challenges faced by ultra-micro businesses is funding. Funding is particularly difficult for ultra-micro businesses due to some factors such as limited financial literacy, limited access to information and education, and limited collateral. and education, and limited collateral. Consequently, ultra-micro businesses agents do not hesitate to borrow from loan sharks, which can lead to other problems.

To help finance ultra-micro businesses, the government has issued a financing scheme that focuses on targeting ultra-micro businesses called UMi financing since 2017. This financing uses the concept of a revolving fund managed by the Government Investment Center (Pusat Investasi Pemerintah/PIP) under the Ministry of Finance. UMi's financing distribution is carried out through non-bank financial institutions (LKBB) including Islamic LKBB. UMi financing is intended to provide easy and fast financing facilities for ultra-micro businesses and increase the number of entrepreneurs facilitated by the Government.

The criteria for businesses that can get UMi financing are individual businesses currently not being financed by other government’s SMEs credit programs, and the owner is an Indonesian citizen who meets the age requirements (already has an Indonesian id card). Financing can be individual or in the form of groups with a joint responsibility system without collateral with a maximum loan limit of IDR 20,000,000 (around USD 1,300).

After about 5 years of UMi's journey, it is necessary to see how this financing impacts Ultra Micro Enterprises to evaluate and develop UMi financing better strategies and policies in the future. Henceforth, the Indonesian Association of Islamic Economists (IAEI) partnered with researchers from both Universitas Indonesia and Universitas Airlangga to undertake a comprehensive series of studies examining the repercussions of UMi PIP financing on Ultra Micro Enterprises (UMEs) within Indonesia.

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