RADAR TULUNGAGUNG – Indonesia’s UMKM sector is facing mounting pressure as declining consumer purchasing power, weak access to financing, and a flood of cheaper imported products challenge the survival of millions of small businesses across the country. Business owners and experts warn that without stronger government support, many micro and small enterprises could struggle to remain competitive in the coming years.
Indonesia’s UMKM sector, which contributes significantly to the national economy, is grappling with a combination of domestic and global pressures. Entrepreneurs interviewed in a televised discussion described shrinking sales turnover, rising operational costs, and increasingly difficult market conditions as key obstacles to sustaining their businesses.
Many sellers said they have been forced to rely on aggressive marketing strategies, including participating in bazaars, exhibitions, consignment programs, and online marketplaces, to maintain visibility and attract buyers. Others have expanded sales channels through websites and physical stores in an attempt to diversify revenue streams.
UMKM Face Structural Challenges Beyond Falling Sales
Economic analyst Laurensius highlighted that Indonesia’s UMKM sector faces at least five major structural challenges that continue to hinder growth. The first issue involves legal permits and business licensing.
Although the government has introduced digital licensing through the OSS system under the Ministry of Investment and BKPM, millions of UMKM operators still struggle to register their businesses. Out of roughly 64 million UMKM nationwide, only around 30 million have reportedly obtained official business identification numbers.
Laurensius said digitalization remains difficult for entrepreneurs in remote areas due to limited internet infrastructure, lack of digital literacy, and the high cost of accessing online systems. Many business owners also lack adequate devices such as smartphones or laptops required to complete administrative processes.
Access to financing remains another major obstacle. While programs such as KUR and support from state-owned lenders like Bank BRI and PNM are available, many micro businesses still find the application process too complicated.
For many entrepreneurs, small loans ranging from Rp5 million to Rp10 million are already sufficient to sustain operations. However, complicated requirements, including bookkeeping and licensing documents, often prevent them from qualifying for formal loans, pushing some toward online lending platforms or informal financing alternatives.
Cheap Imports and Weak Human Resources Intensify Competition
Experts also warned that Indonesia’s UMKM sector is no longer competing solely against local businesses. Imported products, particularly from China, are increasingly dominating the market with lower prices and competitive quality.
Laurensius pointed to traditional trade centers such as Tanah Abang and Thamrin markets, where imported textiles and household products continue to outcompete locally produced goods. He said in some cases, raw materials in Indonesia are already more expensive than finished imported products.
The situation has made it difficult for local manufacturers to compete on price without sacrificing product quality. Business owners said securing affordable raw materials remains one of the most urgent issues for small enterprises.
At the same time, limited human resource capacity continues to slow innovation within the UMKM sector. According to Laurensius, less than 3% of UMKM operators have higher education backgrounds, while nearly half only completed elementary school.
This education gap creates additional difficulties in financial reporting, digital adaptation, and business management, all of which are often required to secure funding or scale operations.
Business Leaders Urge Stronger Collaboration and Ecosystem Protection
UMKM entrepreneur Mira stressed that maintaining consistent product quality remains the most important survival strategy for small businesses. She also encouraged entrepreneurs to move beyond simply producing goods and instead focus on building brands that create consumer trust and long-term value.
Mira said Indonesian businesses should integrate into larger supply chains, including global manufacturing ecosystems, to improve competitiveness and access cheaper raw materials. She cited India’s automotive manufacturing ecosystem as an example of how integrated industrial networks can strengthen global competitiveness.
Meanwhile, academic observer Afanti argued that Indonesia must create stronger protective ecosystems for UMKM, particularly in the digital economy. She said government regulations should encourage fair collaboration between e-commerce platforms and sellers rather than allowing smaller merchants to lose bargaining power.
The discussion also addressed growing concerns among UMKM sellers regarding rising platform fees imposed by e-commerce companies. Some merchants have reportedly withdrawn from online marketplaces after service charges increased, despite the platforms providing access to wider consumer markets.
Afanti said collaborative mechanisms involving government, universities, media, large corporations, and communities are needed to provide mentoring and long-term support for smaller businesses navigating digital transformation.
As Indonesia’s UMKM sector continues to face pressure from weaker consumer spending, imported products, and financing barriers, experts agree that stronger policy coordination and ecosystem support will be critical to protecting one of the country’s largest economic contributors.