Stories from the field seem never enough to be written down. The experience of conducting research, through observation, interaction, and the myriad of narratives shared, always leaves a space for endless reflection that will never be fully explored. As researchers, the way we connect with and build relationships with the subjects we study creates a unique impressions and fosters empathy. At this point, researchers fully learn from the individuals being studied.
These individuals are the actors of the entire experience and the long trail of learning that has shaped who they are and their life’s meaning up to this day. The tendencies of behaviour patterns, perspectives, decision-making choices, principles, and life values are what researchers aim to understand in relation to broader aspects of life.
Similarly, when studying the phenomenon of MSMEs (Micro, Small, and Medium Enterprises) in Indonesia, it is difficult to recognize the character of a business without recognizing and understanding the human side of the individuals behind it. What goals and intuitions motivate them in their endeavours? How do they interact with their families and the social networks that surround them? How do they perceive money specifically and the worldview generally? These factors are among the findings that can help explain the relationship between economics and humanity through personal characteristics, business models, market potential as well as the challenges and issues that influence them.
In data collection, building trust with informants regarding market research agendas is no easy task. However, this approach is both crucial and fundamental to gaining openness and honesty during the storytelling process—or in academic terms, informal interviews.
The following narrative provides a brief snapshot of the researcher’s observations, capturing the colourful stories of local business actors navigating the ups and downs of their ventures. The study is limited to the regions of Jakarta, Bandung, Semarang, Magelang, Surabaya, and Bali. Therefore, it is not intended to generalize events and business behaviours from other areas but rather serves as a representation of the dynamics of MSMEs in Indonesia.
Lucky in Expediency
In the world of business, luck is not like a shooting star falling from the sky. In essence, it is the result of hard work that finds its momentum to be harvested. In fact, often, based on real-life experiences and observations, luck occurs as a ‘blessing in disguise’ effect.
A Peer-to-Peer Lending (P2P Lending) company in Jakarta shared its unique story. In its early days, the company took the risk of funding one of the local MSMEs based in Bandung. When referring to the properly standard financial assessments, this retail business fell into the “red flag” category, which would typically deter most investors from providing support.
However, driven by a passion for supporting local brands and a belief in the great potential of Indonesian MSMEs, the P2P Lending company disbursed IDR 300 million to help the production of the retail business right on the verge of hitting the pandemic period. It was a bold and risky business move.
In early 2019, for the sake of operational efficiency, the local fashion brand was advised by its financial backer to close its physical store and shift to selling its products through online marketplaces. Unexpectedly, it was precisely because of the pandemic that sales to multiply several times over. By 2020, after successfully repaying its initial debt, the business increased its loan from the Jakarta’s P2P Lending platform to IDR 20 billion.
The pandemic, despite being a disaster, can be turned into an opportunity when combined with the power of technology. In Semarang, a home-based cake and pastry business also utilizes social media to market its products digitally.
Established in 2011, the business saw a surge in demand in 2020, prompting it to expand its market and open 134 branches, most of which are located on the island of Java. These branches were built through a partnership business model offered to people who were facing economic impasse due to Covid-19, thus seeking new forms of livelihood amidst the obstacles of the pandemic. This strategy proved successful, positioning that local brand as one of the most recognizable and desirable cake and pastry products.
Another MSME that has been focused on the digital market from the outset is a trendy Muslim fashion business located on the outskirts of Jakarta, specifically in South Tangerang. This venture is an evolution of previous products, starting with hijabs and previously bags.
Starting from a mere fad during college, two young women who loved selling formed a coalition as resellers of imported goods from shopping centers in the capital of Jakarta eventually turned into something more. After college, they went their separate ways, pursuing their respective professional choices . However, after experiencing career stagnation in office jobs, both of them decided to reunite and resume their business more seriously.
No longer trading bags, the two women who had just entered married life and migrated within the urban Muslim communities identified hijabs as a promising commodity. Their business officially launched in 2016, with all production and marketing managed by the two of them, relying solely on sales through social media platforms like Instagram and TikTok, as well as their website.
Two years later, as hijab sellers became increasingly competitive, they switched to hijabers clothing with the designs created directly by one of the founders. They implemented marketing strategies such as limited editions, pre-orders, and leveraging the FOMO (Fear of Missing Out) movement. These strategies successfully effect on building a loyal customer network and community, fueled by the psychological wave of panic buying.
The success that entrepreneurs achieve in growing their businesses is not just due to their ability to capitalize on moments like the pandemic or the hijrah trend, but also their foresight in seizing niche market opportunities.
Based on findings in the field, there are two vital aspects that are intertwined when it comes to niche markets. First, how to reach consumers, both through technology tools and the sales strategies implemented. Second, the orientation of the ecosystem to be formed. Not just who the target market is, but why such an ecosystem is being targeted.
For example, a local bag brand from Bandung expanded its business by engaging other MSMEs players to handle production, stock and distribution, as well as promotional content. Moreover, it opened up opportunities for entrepreneurs who need financial support from fintech companies. This is part of its broader corporate social responsibility, aiming to elevate the welfare of smaller businesses.
The aspiration for beneficial impact rooted in moral values also underpins other types of businesses, such as a dog training center in South Jakarta. The training is designed not only for dogs, but also for dog owners through seminars and courses. This center, which was newly established in November 2023, essentially aims to educate and change the public’s paradigm regarding dogs, especially in Muslim-majority neighbourhoods. The perception of dogs as wild animals to be kept, noisy due to barking, impure, and potentially carrying rabies is being challenged by first focusing on training the dogs’ behaviour.
The well-being of dogs needs to be addressed, and the knowledge of their owners must be improved so that the relationship between humans and these animals can improve. This means that people’s awareness in a social neighbourhood environment should no longer see dogs as a threat, but rather as companions living alongside humans.
Businesses like this are still rare, which indirectly makes this dog training center a pioneer. Within less than a year, the number of customers has surged over and over. On Instagram, it has organically reached 12,000 followers.
Cultural and Structural Barriers
The societal system in Indonesia that influences entrepreneurial practices is deeply rooted in communal culture. The tendency of this pattern was found in most of the MSME actors and supporting stakeholders interviewed. Typically, entrepreneurs, especially at the micro and small levels, rely on family members or relatives to support their business financing. Borrowing and lending capital from close acquaintances has become a generational tradition since it is based on trust, ease, and the absence of collateral or interest. While this socio-economic relationship can benefit business owners, it also hampers their development. In the short term, borrowing business capital from relatives or friends is convenient, but it can be limited in nominal terms, not legally binding, and under certain extreme conditions can damage or even break fraternal relationships.
This tradition was later replicated in the form of ‘mobile banks’ (moneylenders) that utilise personal proximity and simplified borrowing processes to attract customers. Unfortunately, this financial model imposes excessively high interest rates, which ultimately harms and impoverishes MSMEs (Micro, Small, and Medium Enterprise) actors. To some extent, even at the start of the aforementioned P2P Lending company in Jakarta, they still employed this communal financing model. They collected capital from friends and acquaintances who wanted to become lenders and then channelled those funds to entrepreneurs who were also within their social circle.
The company admitted that initially, there was a trust issue barrier that made them unwilling to invest in MSMEs they didn’t know personally, relying solely on recommendations. Eventually, they realized that this pattern hindered their goal of strengthening local creative businesses, so they began accepting financial applications in a more professional manner.
On the other hand, government support for MSMEs is plagued with bureaucratic complexities, unless the business actors have personal connections with certain policymakers. Furthermore, the government’s role is often limited to acting as a third party that bridges business actors with capital providers or financial institutions. Even when connections are successfully made, MSME actors frequently complain that the administrative requirements, such as financial records, collateral assets, and interest rates disqualify them from meeting the eligibility standards set by conventional funding authorities such as banks. Even if credit programs from the government are available, the credit offered does not target productive loans with low interest rates that are needed by the entrepreneurs. Many MSMEs, including one of manufacturing companies based in Surabaya, lament these structural barriers, pointing out the lack of roles and efforts by the government to design regulations that would be more favourable for business owners.
The high interest rates offered by conventional banks, online loans, and other lending institutions have discouraged most MSME players from accessing loans, especially in the post-pandemic period where the pace of the global economy has not yet fully stabilized and the situation is worsened by ongoing geopolitical conflicts.
As a result, many entrepreneurs choose the ‘survival’ mode rather than expanding their businesses with loan capital injections. According to their general admission, local MSMEs prefer to rely on profits from their business operations rather than adding the risk of paying high interest rates.
Collaborative Innovation is the Key
The entrepreneurs’ stories summarized in this research demonstrate that business practices are not always focused solely on accumulating profit and capital, but also on benefiting humanity and the environment. For example, a local coffee business pioneer in Magelang has dedicated his work as a commitment to preserving and protecting nature from harmful mining activities, while also educating and strengthening the community of coffee farmers and artisans in the area. In addition to cultivating the land and managing his own coffee products, this entrepreneur is also actively involved as a mentor in barista training sessions across various regions.
As an activist, the founder of this coffee business understands that their business needs to collaborate with many stakeholders. He established good relations with the village heads, regional agriculture office, NGOs, as well as coffee farmers and communities in order to create a business ecosystem that supports their social mission. Believing that the mentorship model in the entrepreneurship learning arena is important for nurturing resilient, competent, and humanistic entrepreneurs, he aims to cultivate the next generation of entrepreneurs. They are children of the nation who are proud to work for creating local products as a manifestation of their love and contribution to the earth, humanity, and the country.
The background of activism, including spiritualism, strongly influences the business style of MSMEs in Indonesia. Among them are two businesses from Bandung, such as the founder of a local bag brand who requires their employees to read books regularly, and a fashion entrepreneur in the jersey industry who practices Quran recitation in the office before starting work. The internalization of these noble values is part of the innovation by business actors in designing and driving their businesses. It shows that the spirit of entrepreneurship can be ignited through various more empathetic approaches, both toward customers and employees. The P2P Lending case in Jakarta could be another concrete example.
As a fintech company, the Jakarta’s P2P Lending essentially combines traditional funding based on mutual friendship systems with the sophistication of digital financial technology. MSMEs in need of funding from P2P Lending are selected not based on asset collateral or convincing financial records, but through intuitive assessments focused on the purpose-driven and uniqueness of the brand, which has high appeal on social media platforms.
The fintech company will delve Into the character and business model employed, seeing the potential to be assisted in its development with a mentorship or patron-client system. Additionally, MSME actors accessing support from P2P Lending are facilitated with an ‘inventory financing’ strategy, which opens up broader financing opportunities (financial inclusion). This is because the assets used as collateral for loans are not fixed assets like land or houses, but rather mobile assets, namely the inventory produced and sold by the MSMEs.
Thus, the findings of this research present the rich fact that various forms of cooperation and support for MSMEs have creatively innovated in line with the needs of the times and the developing technology. The partnership model that is now more relevant is one that is supportive and collaborative with one another. A system of cooperation that can open up broader opportunities for business, such as a cake and bakery brand in Semarang that has spawned many new branches because it is willing to provide 20% profit from its total revenue.
Another crucial point to note is that MSMEs today no longer simply require funding from large corporations, as seen in many CSR (Corporate Social Responsibility) practices. Instead, they need a mentorship system between big companies and MSMEs. This mentorship system is considered capable of expanding and scaling up the business’s capacity while also improving the quality and mentality of the entrepreneurs.
Certainly, the vital strength of MSMEs also requires regulatory safeguards from policymakers who care about and are responsible for the economic well-being of the people. This means that, overall, it is a big collective effort from all parties that need to collaborate and synergize continuously in the long term, those are the government (both central and regional), local MSME actors, and big companies.
