The Role of Bekraf and Development Micro and Small Industries (MSE) in Indonesia

Abstract

The study aims to analyze the indirect role of Bekraf and the business environment in the development of MSEs in Indonesia by using the SME strengthening framework applied in OECD countries. The research data uses secondary data from the Central Statistics Agency which are the results of a survey of micro and small industries for the period 2010 – 2019. For estimation, this study uses a robust regression method that is not sensitive to outlier data. The findings of this study are that the BEKRAF institution plays more of a role in export-oriented MSEs than in domestic market-oriented MSEs, but the role of the BEKRAF institution is still limited to increasing external loans and has not touched on increasing the productivity and compensation of SME workers. The use of the internet and online sales media for MSEs has increased competitiveness in the domestic market, while Global Value Chain (GVC) participation and the level of education of entrepreneurs have provided increased export opportunities. The level education of workers has not contributed to the performance of SMEs in comparable to the entrepreneurs which has made a positive contribution to export-oriented SMEs. The access to a fixed capital remains as the main obstacle in facilitating the development of SMEs. Therefore, its business environment needs to be improved by adjusting the capital loans that are tailored to the conditions and needs of SMEs or improving the skills and education of workers and entrepreneurs which are aligned with the level of technology mastered by SMEs. Improving SME technology itself can be done in collaboration with large industries within the GVC framework.