Offer MSMEs financial coaching services
Policies Involved
Challenge
MSMEs often lack the financial resources to adopt new technologies and build their own internal digital infrastructures. Although there are various financing policies and programs available for MSMEs, micro enterprises in particular suffer from higher loan rejection rates due to their higher risk profiles, coupled with limited financial reporting capabilities and lack of understanding of the qualifications and payment terms. Since existing regulations suggest that collateral is not required for MSMEs aiming to access KUR, banks have little way to mitigate the risks they are undertaking1 2. This explains why, despite high program signup rates, graduates of Jakpreneur and other MSME development programs still find it challenging to obtain financing and grow their business.
Current Policy
The Governor of DKI Jakarta Regulation No. 2 of 2020 on Integrated
Entrepreneurship Development facilitates potential entrepreneurs
and entrepreneurs who participate in the Jakpreneur program with
access to financing. One example of the financing options
available for program participants is the People’s Business Credit
program (translates to Kredit Usaha Rakyat or KUR). Based on
information gleaned from the co-design workshop, partnership with
Bank DKI has enabled Jakpreneur to facilitate KUR financing for
more than 2400 program participants since 2018. However, the
current regulation does not guarantee that all of the 300,000
Jakpreneur program participants will be successful at obtaining a
loan or other sources of financing3.
Meanwhile, MSME business training run by
organizations such as large businesses, higher education
institutions or civil society organizations are not obliged to
offer participating MSMEs specialized coaching to assist them in
their financing applications. These programs do not use
standardized curriculums and are often set up to meet the
organizations’ own organizational goals, such as meeting the
interests of non-profit donors or for large businesses to fulfill
their corporate social responsibility (CSR).
Action
Financial coaching services can help MSMEs to understand and reliably reveal the future prospects of their business digitalization to potential financiers. They may include banks and other financial institutions that provide loans, or government agencies and civil society organizations that offer small business grants. To achieve this, the government needs to offer MSME development programs (including Jakpreneur and business training by various organizations) incentives to provide their participants with specialized coaching for financing applications. Second, the programs need to verify whether the MSMEs have the potential and capacity to go digital. Third, the programs can help MSMEs to understand the different financing options, select ones that are best suited for their situation, and guide them through the application process. Upon acceptance, coaching responsibilities can be shared with or passed on to the lender or financier. Continuous coaching is important so that MSMEs can continue to learn to make sound business decisions and manage the cash in their business with confidence.
Indicator of Success
- The Coordinating Ministry of Economic Affairs Regulation No. 1 of 2022 on Guidelines on the Implementation of People’s Business Credit (KUR).
- KUR micro product is an unsecured loan product provided for MSME entrepreneurs.
- Jakpreneur. https://jakpreneur.jakarta.go.id/index [accessed 17 May 2022]