Transfers to Regions Encouraged to Drive UMKM

In the midst of the government's efforts to boost economic growth, micro, small and medium enterprisesUMKM) are the main drivers that support almost all economic activities in the regions.

Fiscal policies such as transfers to regions (TKD) are now seen as not just a budget equalization mechanism, but an important instrument to strengthen the economic foundation of the people.

Deputy for Medium Enterprises at the Ministry of UMKM, Bagus Rachman, explained that the government views TKD as one of the most strategic fiscal instruments in promoting economic equality.

"The general allocation fund, special allocation fund, revenue sharing fund, and village fund should not only be a budget transfer tool, but also a productive and sustainable local economic driver for UMKM in the regions," Bagus said in a discussion in Jakarta, Thursday (23/10/2025).

Bagus outlined a number of strategic steps being taken by the government, ranging from financing reforms to the digitalization of UMKM.

The government has disbursed Rp217 trillion worth of people's business credit (KUR) to 3.7 million businesses, with 60% of it directed to productive sectors such as agriculture, fisheries, and processing industries.

In addition, the Ministry of UMKM is preparing an integrated digital platform called Sapa UMKM to make it easier for businesses to access licensing, financing, training, and product promotion online.

Bagus added that the synergy between TKD and UMKM empowerment policies is expected to accelerate economic equality. Through innovative management, transfer funds can be used to strengthen local economic infrastructure, increase business capacity, and expand access to markets and financing.

Bagus stated the importance of cross-agency collaboration so that the utilization of TKD really has an impact on the productivity and independence of UMKM in the regions.

Fiscal soundness

The Director of the Ministry of Finance's Fiscal Balance System, Subandono, said that the national economy grew by 5.12% in the first semester of 2025, with inflation of 2.5% and a state budget deficit of 1.56%. He considers healthy fiscal conditions important so that UMKM can survive and upgrade.

According to him, the state budget support for UMKM continues to increase after the pandemic to reach around IDR 56.4 trillion in 2025 through ministry and agency spending, TKD, KUR interest subsidies, and UMKM financing schemes.

Subandono emphasized that central and regional spending are a complementary unit in supporting UMKM. The crucial issue now is the acceleration of regional budget absorption, because until October there are still many local governments with expenditure realization below 60%.

"The next key is to accelerate spending so that money circulates, liquidity flows, and the local economy grows," he said.

Furthermore, Subandono explained that the 2024 APBD budget budgeted around Rp1.4 trillion for various UMKM schemes with a realization of Rp1.26 trillion, while the 2025 ceiling rose to Rp1.44 trillion but the temporary realization was only Rp472 billion.

For 2026, the focus of TKD is directed first to meet basic regional expenditures, while government priority programs will be run through relevant ministries and agencies by involving local government coordination.

Subandono also mentioned additional support in the form of the establishment of the Merah Putih Village Cooperative worth around Rp83 trillion, including a loan ceiling of up to Rp3 billion, a six-year tenor, 6% interest, and a grace period of 6 to 8 months.

Kadin Indonesia's Deputy Chairperson for UMKM Entrepreneurship, RM Tedy Aliudin, highlighted the condition of small businesses, which are still dominated by micro businesses.

Citing Kadin's study results, the portion of micro businesses reached 99.62% with 67.8% of UMKM having an annual turnover of below Rp50 million, and 31.8% having a monthly net income of below Rp1 million. Tedy believes that this situation reinforces the urgency of an effective TKD to drive the local economy and improve the competitiveness of business actors in the regions.

Tedy added that strengthening the impact of TKD needs to be followed by improving the capacity of UMKM on three main sides, namely competence, market networks, and capital. He encouraged the implementation of government spending provisions for UMKM in accordance with PP 7/2021 at least 40% and supervision of realization at the central and regional levels. "The policy is good, the regulation is good, it's just a matter of realization," he said.

Review

However, a different opinion was expressed by the Secretary General of the Indonesian UMKM Association (Akumindo), Edy Misero, who said it was important to review the effectiveness of transfer funds to the regions in driving the UMKM sector.

Although the policy requires 40% of government spending to be allocated to UMKM, its impact on the ground is still limited.

"Even if 40% is spent, the average value is only around Rp3 million per UMKM per year. How can such a large fund really drive the economy?" he said.

Edy also highlighted the barriers to access to financing that are still faced by UMKM players, especially for loans below Rp100 million, which should not require collateral.

According to him, many banks still require collateral so that policies that should facilitate UMKM are difficult to implement. For Edy, challenges like this must be fixed immediately so that UMKM players can optimally utilize fiscal support.

In addition to access to financing, Edy highlighted the limited infrastructure in the regions that still hampers the digital transformation of UMKM. He noted that there are still many areas that have not been reached by internet services, making it difficult for businesses at the local level to expand their markets.

"Currently, there are around 10,000 villages in Indonesia that are not covered by the internet. How can my brothers and sisters in the village grow if there is no signal?" he said.

Therefore, he believes that the formation of the Merah Putih Village Cooperative should be directed at strengthening the supply chain and helping village products penetrate markets outside the region, not just meeting local consumption needs.

Thus, for Edy, the spirit of empowerment brought through the transfer fund program to the regions can truly encourage the economy.

CEO of Investortrust.id, Primus Dorimulu explained that of the four main engines driving the economy, namely consumption, investment, exports, and government spending, TKD is one of the most influential supports for small businesses in the regions.

The 2026 TKD allocation was set at Rp693 trillion, an increase of Rp43 trillion from the initial design, but still a sharp decline compared to 2025 which reached Rp848.5 trillion. According to him, this condition raises concerns among regional entrepreneurs because it can reduce the propulsion of the local economy.

According to Primus, most UMKM located outside economic centers are highly dependent on regional projects sourced from TKD. A more effective distribution of funds will help strengthen economic liquidity, maintain small business stability, and open up expansion space for the productive sector.