Startups in Indonesia can flourish, but how crucial a role will fintech play?

in Indonesia, along with micro, small, and medium enterprises (MSMEs) form the backbone of the business landscape in Southeast Asia’s (SEA) largest economy, which has in recent years seen a shift towards a healthy and dynamic startup ecosystem.

Indonesia’s economy is set to rebound this year, with positive forecasts by international institutions such as the International Monetary Fund (IMF), World Bank, and the Organisation for Economic Co-operation and Development (OECD). This is partly due to a ‘demographic dividend’, a phenomenon where a country’s working force outnumbers those that cannot. 

in Indonesia, together with MSMEs a critical sector

Taking the workforce and youthful, millennial-owned landscape of business in Indonesia, Indonesia is set to achieve and drive strong economic recovery. In fact, millennial MSMEs will be the key force behind Indonesia’s economic rebound.

With the support of the government’s Economic Recovery Plan (PEN), the next step would be to capture this borrowers’ market of millennial MSMEs – most of whom will require additional capital to take that next step in their growth trajectory.

The banking conundrum

and MSMEs in Indonesia intending to enhance operations and grow their businesses require funding. Some startups will have the opportunity to pitch and win seed funding or investments from venture capitalists or accelerators. But for the rest, they are left with either their own savings or loans from financial institutions.

However, millennial MSME founders often find that they lack the ability to acquire loans from banks. The issue with banks is that they often have archaic and stringent lending requirements that look at things like the business’s credit history and the founders’ credit history. 

Due to their young age and relatively recent economic activities, millennials who own MSMEs often find themselves without a healthy or perhaps no credit history at all, to facilitate loan approvals.

Startups in Indonesia propped up by fintechs post-COVID

As most of the workforce comprises young adults who are digitally savvy and increasingly well-connected, naturally their appetite for digital services is healthy and on the upswing. Over the years, this has led to a proliferation of digital startups and MSMEs that are tapping into that oh-so lucrative market of millennials and Gen-Zs.

Thankfully, the prognosis is good for startups – their platforms will see continued usage due to their user-centric design, convenience, and ease of use despite any difficulties that might have been presented by the pandemic. This resilience would then translate into helping the startup and MSME sectors to survive, and with the proper capital, ideally thrive. 

The state of fintechs

While Indonesia has a large number of unbanked customers, almost half of them aren’t so keen to leverage fintech due to data privacy concernsNevertheless, MSMEs and startups will still be reliant on their presence to drive their growth. 

This trajectory towards fintech growth can be seen by how well investor sentiment is towards them. For instance, prominent local fintech Bukuwarung managed to raise a further US$60 mil to expand their services recently, managing to raise US$80 mil over five funding rounds.

And despite pandemic setbacks, new players continue to make their presence felt in the country. Bukuwarung is a startup focused on building bookkeeping, digital payments, and e-commerce solutions for MSMEs in Indonesia. Earlier this year, fintech newbie GajiGesa managed to raise US$2.5 million in their first seed round. GajiGesa is a financial wellness platform helping Indonesians achieve financial dignity and security from their work.

Indonesia’s overall economic growth

It is becoming increasingly evident how fintech plays an important role in the growth of Indonesia’s digital economy. With the opportunities presented by MSMEs and startups, fintech players ought to work on addressing consumers’ digital privacy concerns, one of the outstanding concerns in the archipelago. 

Fintechs, with their unique propositions, can position themselves as reliable and safe alternative financing options for the greater unbanked. When consumers and businesses achieve greater financial access and independence, so too, can the digital economy soar to greater heights.

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