UMKM Development Needs Deregulation, Access to Credit, as well as Partnerships with Industry

The SUAR team explored the thoughts of business leaders, regulators and economic observers in an effort to play a role in developing UMKM through the Business World Universe Survey. The survey, which took place from July 22-August 7, 2025, produced some interesting findings that are worthy of follow-up by stakeholders.

Highlights:

As many as 40% of respondents stated that it is difficult and very difficult for UMKM actors to get access to bank financing (credit).
Factors that make it difficult for UMKM to obtain credit from banks include the absence/limited collateral, lack of information on credit, low financial literacy of UMKM actors, complicated regulations/administration, ineligibility of UMKM businesses, and resistance from banks.
Regulatory reform is absolutely necessary (80%).
UMKM players need to partner with large companies to obtain credit from banks (73.3%).
Need for collateral diversification (86.7%).
The three factors that determine whether UMKM can develop are: easy access to credit (financing), promotion/marketing strategies and market expansion, and good business management.

From time to time, micro, small and medium enterprises ( UMKM ) in Indonesia have proven to have a significant role. Given their large numbers and the persistence of their practitioners, UMKM have become the pillar of the economy, and have proven to be resilient in times of crisis.

UMKM have supported many families and contributed to national economic growth.

The Ministry of UMKM of the Republic of Indonesia said that based on data from the Central Bureau of Statistics, the current number of UMKM is 65.5 million units capable of absorbing 119 million workers. This figure is more than half of the total labor force in Indonesia, which reaches 153 million people. The UMKM sector contributes 61.9% to the gross domestic product (GDP).

However, UMKM still face major challenges. These include limited access to financing, low productivity, uneven digitalization, and weak market networks and partnerships.

Regarding access to financing, the results of the SUAR Team's survey of a number of company leaders, regulators, and economic observers revealed the opinion that in general, it is quite easy for UMKM players to get access to financing (60%). However, as many as 40% believe that UMKM players still find it difficult, even very difficult, to access financing.

According to Bank Indonesia data, as of June 2025, the amount of UMKM loans that had been disbursed was IDR 1,506.85 trillion. This amount increased by 76% compared to the conditions 10 years ago. The average UMKM credit grew by 7.4% per year.

Based on the scale of business, micro business loans received the largest portion of loans, 43.43%. Furthermore, the portion of small-scale and medium-scale loans was 34.36% and 22.21%, respectively.

Micro-scale lending during the 2017-2024 period grew higher than the other two business scales. Namely, an average of 18.3% per year. The highest growth has occurred after the Covid-19 pandemic, namely in 2021 by 57.74%.

Small-scale loans over the same period grew by an average of 8.98% per year. Meanwhile, medium-scale credit grew smaller and tended to decline, with an average of -1.49%. Due to the pandemic, for three consecutive years (2021-2023) medium-scale business credit growth contracted by -23.86%, -5.88%, and -4.30%, respectively.

Although in nominal terms UMKM lending tends to increase, the survey informants assessed that there are still UMKM players who have difficulty obtaining credit from banks. The factors that cause this difficulty vary.

Most respondents stated that the factors that make it difficult for UMKM actors to obtain credit from banks are the absence or limited collateral owned by UMKM actors (26.7%). Furthermore, there is also the factor of information about credit that is not known by UMKM actors (16.7%) and the low financial literacy and digitalization of UMKM actors (16.7%).

Difficult rules or administration are also a reason (13.3%); ranging from difficult requirements, to long loan disbursement times.

Another reason cited was the inadequate condition of the business with minimal resources, as well as legality issues, which resulted in a lack of trust from the bank (13.3%). In addition, there are also banks that are too selective or picky in lending and charge high interest rates (10%).

To overcome the limited access to financing, as a solution, the resource persons agreed that regulatory reforms need to be carried out. In addition, UMKM players need to partner with large companies to facilitate obtaining credit from banks. Another solution is to diversify collateral to make it easier for UMKM players.

UMKM players serve potential buyers during Pertamina SMEXPO Merah Putih 2025 at Graha Pertamina, Gambir, Jakarta, Friday (15/8/2025). ANTARA FOTO/Sulthony Hasanuddin/foc.

Regulatory reform

The majority of interviewees were of the opinion that regulatory reforms are necessary to make it easier for UMKM players to obtain credit from banks (80%). The main reason is to simplify the rules to make it easier for UMKM players to administer credit (41.7%).

This refers to one of the factors that make it difficult for UMKM actors to obtain credit as described earlier. The ease in question is presumably related to the number of requirements, the length of procedures, the length of processing, and other administrative aspects.

The next reason is that there must be a policy breakthrough that is more suitable or in accordance with the conditions of UMKM (33.3%). This is also related to providing convenience to UMKM players.

Another reason is the opinion that UMKM have great potential for the national economy so there should be a favor towards UMKM (16.7%). And, to make UMKM a more professional entity (8.3%). UMKM as business entities have the potential to drive the economy, increase employment, encourage entrepreneurship, and develop the creative economy.

However, this regulatory reform needs to still refer togood governance.

A small number of interviewees (13.3%) were of the opinion that regulations related to UMKM do not need to be carried out, considering that the existing regulations are sufficient. What needs to be done is to conduct better socialization, so as to provide a better understanding for UMKM actors when they want to expand and need additional capital.

In addition, the resource person also argued that for the development of UMKM, what needs to be done is to provide guidance and empowerment so that UMKM can manage their businesses better and can be sustainable.

The capital factor is not always the main thing to grow. Mapping the market and mitigating risks also need to be done at the beginning of building a business so that it can survive and be sustainable.

UMKM players partner

The second solution that can be done to make it easier for UMKM players to get credit from banks is to partner with large private companies. This opinion was expressed by 73.3% of respondents. The main reason is that private companies, especially large ones, can become foster partners or foster fathers for an UMKM (31.8%).

This refers to the concept of foster/foster father that has been running so far. Large companies can also act as off takers by purchasing UMKM products. This UMKM father-MSME relationship is usually based on the principles of mutual need, trust, strengthening, and mutual benefit.

Through partnerships with large private companies, UMKM have greater opportunities to access financing (22.7%). Large companies can serve as collateral guarantors for UMKM. By partnering with established companies, UMKM will also get better information and access to markets for marketing and developing their products and businesses (18.2%).

UMKM can become part of the supply chain of large companies or industrial supply chains. It is believed that this relationship will also provide better business certainty so that UMKM can improve their credibility and professionalism so that their businesses can be sustainable (13.6%).

UMKM can become part of the supply chain of large companies or industrial supply chains. It is believed that this relationship will also provide better business certainty.

There are many success stories of large companies successfully fostering UMKM, although sometimes these relationships are only part of corporate social responsibility (CSR). However, not all private companies are willing to foster UMKM.

Private companies are selective in these relationships and sometimes expect government incentives to partner with UMKM. This opinion was expressed by 9.1% of respondents.

The interviewees who believed that UMKM do not need to partner with private companies had their own reasons. According to them, UMKM must be able to be independent (42.9%).

Another reason is that there is concern that the relationship between foster/adoptive fathers and UMKM will not be successful/sustainable (28.6%). In fact, it has the potential to cause new problems, such as exploitation of UMKM (28.6%).

Collateral diversification

Another solution that can be done to make it easier for UMKM players to get credit from banks is to provide more diverse collateral alternatives to business actors. Or, in other words, diversify the collateral. The majority of interviewees stated this (86.7%).

Collateral is crucial when applying for bank loans. Diversification of collateral is needed to provide convenience for UMKM players, especially regarding the type and scheme of financing (44%).

Collateral does not have to be in the form of objects or assets (28%). This is because UMKM actors have limited collateral, so it should be adjusted to the conditions or capabilities of UMKM actors (16%). Thus, it is hoped that UMKM can develop more.

Property assets, motor vehicle assets, and assets in the form of machinery or production equipment are the top three types of collateral that can be used as collateral to banks. However, for flexibility, other things that can be used as collateral include products or projects from the UMKM itself and invoices or bills for sales orders. Diplomas are also recommended to be used as collateral at banks.

Three factors that make UMKM grow

The effort to develop UMKM is a continuous effort that has been carried out for a long time. In accordance with the great potential of these businesses, building and developing UMKM means building the Indonesian economy.

The Business Universe Survey concluded that there are three main factors that make SMEs thrive.

First, promotion, marketing, and market expansion strategies (26.7%).
Second, ease of access to financing or ease of obtaining credit for business expansion (23.3%).
Third, business management is carried out well by UMKM actors (16.7%).

In addition to these three main factors, the internal factors of UMKM actors are also decisive. How the mindset and mentality of an individual in building a business starting from planning production, producing, mapping markets, distributing products, to mitigating risks will determine whether a business will survive in the long term and be able to expand.

Product creation and innovation also determine the extent to which a brand is accepted by the market. Not only accepted, but also 'sought after' by the market. This is also a determining factor for UMKM to develop.

In the current technological and digital era, UMKM players must also be able to utilize technology and digital to improve competitiveness and develop their business. UMKM players must now be digitally literate.

In addition to the many factors above, tax incentives are also needed by UMKM players, especially those who are just starting a business, to be able to survive and develop their business.

According to the website of the Ministry of UMKM, there are six strategies to develop UMKM. These strategies include expanding market access, increasing the competitiveness of products and services, developing business capacity and management, and accelerating financing and investment.

Other strategies include business ease and opportunity and cross-sector coordination.

Crafters finish making Garuda Pancasila statue handicrafts made of fiber at a home industry in Halim Perdanakusuma, Jakarta, Wednesday (12/8/2025). Sales of Garuda Pancasila handicrafts, which sell for Rp120 thousand-Rp1.5 million per unit, have increased tenfold from an average of 25 units per day to 250 units per day in the last two weeks ahead of the 80th anniversary of the Republic of Indonesia. ANTARAFOTO/Muhammad Rizky Febriansyah/app/tom.

Survey methodology and profile

The Business World Universe Survey was conducted on July 22-August 7, 2025. The sources (respondents) came from the business world, regulators, and economic observers. From the business world, the positions of the sources varied, ranging from directors, managing directors, to owners. From the regulators, there were regional heads and council members.

The interviewees in this survey were selected by purposive sampling.