Startups do not have the easiest time when it comes to establishing themselves as a renown brand. However, time and time again, we see that startups with simple access to business capital can become global powerhouses. Even if the vast majority are only moderately successful, a vibrant SME sector still strengthens the production value of a nation at large.
According to Indonesia’s Cooperatives and Small and Medium Enterprises minister, Teten Masduki, Indonesia’s SMEs account for about 60 percent of the nation’s GDP. However, only 14.5 percent of them are export-oriented. When compared to other nations like China, wherein about 70 percent of SMEs are export oriented; we can see that there is plenty of untapped potential in Indonesia’s SMEs.
According to economists, Indonesian SMEs must see a large increase in production volume as well as access to global markets in order to achieve similar success. The nation’s SMEs will need a lot more backing and support than is currently provided to be more globally competitive.
Up until now, Indonesian SMEs have largely been excluded from the formal financial sector due to unique factors inherent to the landscape. Massive unbanked segments of society, complex regulations from legislators, and limited access to enterprise credit are just a few hurdles that routinely hinder them from getting business loans.
Recent research from Google, Temasek, and Bain & Company shows that there are 92 million adult residents in Indonesia that remain untouched by any kind of financial or banking services. While over 97 percent of the national workforce is being employed by SMEs, less than 15 percent of them have proper access to financing.
P2P lending would certainly be one possible solution for this issue, but the industry is still in its infancy in Indonesia. Which means that compared to big banks and financial institutions, it’s still liable to cause more losses than profits for lenders. And this is despite the extensive and in-depth profiling that P2P startups claim to run.
On the other hand, these platforms are also as vulnerable to instability and bankruptcies like any other businesses. The potential for fraud or extortion exists from unethical players as well.
P2P lending is not the be-all-and-end-all solution to Indonesia’s problem. It will likely become unsustainable as banks develop more reliable digital lending solutions.
Indonesia continues to adopt innovative new tech to overcome national problems, but as the country does this, solutions need to be devised on a grander scale on how to improve its economic state by bolstering financial and digital literacy. The nation needs to assist with capital management for the unbanked farmers, fisherfolk, craftspeople, and others who form the biggest potential digital borrower market.
