Indonesia’s trade finance: Unlocking growth and inclusion

By Vice President Business Strategy at MonetaGo , Vishal Hiranandani

Read the Bahasa Indonesia version here

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• Indonesia has one of the largest per-capita micro-, small-, and medium-sized enterprise (MSMEs) in the world.
• However, they enjoy limited integration in global markets.
• Some government initiatives are underway to improve accessibility for MSMEs.

With?64 million MSMEs, spanning from agriculture to essential services, these businesses constitute 60.5% of Indonesian GDP and employ 97.0% of the workforce.

However, their interaction with global markets is limited: MSMEs account for just 14% of Indonesia’s total exports. Similarly, just 4.2% of Indonesian MSMEs are integrated into the global supply chain – compared with 24.6% in Vietnam. How is Indonesia’s trade financeecosystem putting barriers in place for MSMEs, and what solutions can address financing gaps?

The trade finance gap: and opportunities

Since they have limited access to formal credit, access to trade financing remains one of the most significant challenges for Indonesian MSMEs. Only 27.4% of MSMEs have access to bank loans or credit lines, while 66% rely on internal resources (savings, reinvesting profits, trade credit from suppliers, and even short-term loans from friends and family) for financing. Micro- and small-sized enterprises are particularly underserved, receiving just 30% and 24% of total MSME loans, respectively, compared to 46% for medium-sized enterprises.

State-owned enterprise (SOE) banks, despite their mandate, allocate only 26% of their lending portfolios to MSMEs, which is insufficient to drive significant MSME growth. Indonesia’s support for MSMEs lags behind OECD countries, limiting the sector’s ability to innovate and expand, particularly into lucrative international markets.

The financing gap is driven in part by a lack of creditworthiness, where banks hesitate to lend due to insufficient credit histories. But it is compounded by information asymmetry, where inconsistent or unavailable data makes it difficult to assess risk accurately. Additionally, many MSMEs lack the assets required for traditional loans, and collateral requirements are cumbersome.

Finally, an under-explored barrier is the risk of fraud and duplication: multiple loan applications for the same transaction raise lender risk.

Government initiatives: reforming the financial ecosystem

Reforms brought in September 2024 by Indonesia’s financial regulator, RPOJK (Rancangan Peraturan OJK) eliminated the mandate requiring banks to allocate 30% of their portfolios to MSMEs, providing flexibility for financial institutions to create tailored loan products. This change aims to boost credit access without rigid thresholds.?

In August 2024, Teten Masduki, Minister of Cooperatives and SMEs, introduced new financing schemes in collaboration with OJK and the Finance Ministry. Key elements included relaxed collateral requirements, fintech integration with banks to develop innovative products, and guarantee programs to mitigate risks for riskier MSMEs.

The forecast is positive for MSMEs. By 2025, OJK will introduce new regulations to simplify loan approval processes for MSMEs, removing procedural bottlenecks and improving financial inclusion.?

The government is also promoting digital transformation through initiatives like the KADIN CIPTA platform, which leverages blockchain-based identities and enhanced data management to improve credit access. Efforts are underway to boost MSME participation in FTAs (Free Trade Agreements) and CEPAs (Comprehensive Economic Partnership Agreements).

The Indonesian government has also made broader efforts to expand the tax base while delivering more focused support for small businesses. rolled out a 0.5% tax rate for businesses generating up to 4.5 billion Rupiah (Rp) ($295,000) annually to alleviate financial burdens and encourage MSMEs to formalise their operations. However, regulatory hurdles such as complex administrative processes, rigid local content requirements, and stringent compliance standards remain significant barriers, making it difficult for many small businesses to access formal financing and credit. Recognising these challenges, the government is now streamlining local content requirements and other policies to help MSMEs scale up and integrate into global value chains, especially in the manufacturing sector.?

Challenges and emerging solutions in trade finance

The Indonesia trade finance ecosystem faces challenges beyond capital access:

• Inefficiencies in traditional, manual financing processes delay transactions.
• A lack of transparency increases the chances of multiple financing requests for the same trade activity – the aforementioned fraud and duplication risks.
• Limited digital literacy among MSME owners and their workforce creates hesitance, which is exacerbated by limited financial resources. This makes investment in digital infrastructure, such as software and training, difficult. In short, MSMEs still rely on traditional business models and perceive digital transformation as complex or unnecessary for their target market.

Some solutions are emerging to address these challenges. The government is looking to implement centralised registry systems for trade finance requests, preventing duplicates. In markets where such solutions are implemented, banks report reduced fraud risks and streamlined loan processing: transparency in ecosystems will foster trust. Also, altering supply chain finance models to focus on cash flow rather than assets would unlock working capital for MSMEs through trade receivables.

On the technology side, partnerships between banks and fintech would leverage blockchain, AI, and digital verification to enhance credit scoring. Private sector developments must go hand in hand with public investment, and the Indonesian government has launched multiple initiatives to modernise the industrial sector. Namely, the Go Digital campaign and Making Indonesia 4.0 focus on integrating digital tools in MSMEs to enhance competitiveness and productivity.

Indonesia is poised for transformative growth in its trade sector, backed by innovative solutions and government reforms. Now that companies can build solutions tailored for Indonesia, MSMEs are set to thrive in a more transparent and inclusive trade finance ecosystem.

Enhanced liquidity and access to finance are required to support the opportunity – but evidently, with the right mix of regulatory frameworks, technology, and financial collaboration, Indonesia has the potential to lead Southeast Asia in trade finance innovation, unlocking sustainable growth for its MSMEs.

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