Through PROMISE II IMPACT, ILO Accelerates Financial Inclusion for MSMEs and the Informal Sector

Photo: Special

JAKARTA - As part of the agenda of decent work, the International Labor Organization (ILO) also encourages the creation of jobs that are not only available, but also productive, with decent income, safe, and have social protection. This agenda places the quality of work as a top priority, in line with efforts to improve the welfare of workers and business actors.

Within this framework, financial inclusion is a strategic component. Access to inclusive and sustainable financial services enables business actors to strengthen the quality of their work, increase production capacity, and expand the scale and sustainability of their business.

As an implementation of this approach, the ILO promotes SMEs through the Second Phase of Improving Access to Financial Services for Entrepreneurship (PROMISE II IMPACT) which supports three value chain ecosystems, namely nutmeg oil in Aceh, cow milk in West Java, and seaweed in East Sumba.

Nutmeg oil is an important raw material in the perfume, cosmetics, and skin care product industries, with great potential for added value for local farmers. In West Java alone, strengthening the cow milk sector is not only aimed at improving quality and productivity, but also answering the high domestic needs that are still dependent on imports.

This effort also expands access to financing for farmers to be able to increase production capacity and meet the growing market demand. Meanwhile, seaweed in Sumba is developed as a flagship commodity oriented towards exports that contributes to increasing the income of business actors in coastal areas.

Project Manager PROMISE II IMPACT ILO, Djauhari Sitorus, said the key to increasing the income of farmers and business actors lies in increasing yields and production quality.

"However, these efforts must be supported by adequate access to financing. Without the support of credit and formal financial services, business actors will face limitations in increasing capacity and expanding the scale of their business," he said in a written statement, Monday, February 16.

For this reason, a partnership with OJK has been carried out in the use of data and technology to open access to financing (unlocking access), especially for farmers and cattle farmers. In the Pangalengan area, support is provided through a digital recording system for milk deposits and facilitating access to credit from BPR. Through this approach, farmers who have a documented production record can obtain financing to buy new cows and recruit additional labor.

This approach not only encourages an increase in business scale, but also expands labor absorption and strengthens economic inclusiveness at the community level.

Main Challenges of MSMEs

On the other hand, the Financial Services Authority (OJK) highlighted the challenges of MSMEs which still face obstacles in accessing funding and business management capacity, including the lack of financial records. In coordination with the Ministry of Finance, the main challenge faced is reaching underserved and underbanked groups, which requires policy breakthroughs to be able to move up in class.

The mapping shows two main obstacles for MSMEs: access to funding and human resource capacity. Many business actors have not been able to compile simple financial reports, even mixing business and personal finances. In addition, the informal sector's character makes MSMEs often change business types, so they need ongoing training.

"Through the regional economic development program, OJK encourages flagship sectors to strengthen MSMEs. One of them is the dairy sector, which was chosen because it is the most complex challenge," said Ludy Arlianto, Head of the OJK Digital Financial Innovation Group.

PROMISE II IMPACT Also Helps Create Jobs

Meanwhile, this project also helps to encourage the strengthening of vocational training as part of efforts to create decent and sustainable jobs.

One of the main challenges of employment today is the mismatch between the skills of graduates of formal education and industry needs. Various data show that vocational skills are actually more needed and have a higher absorption rate in the labor market. Therefore, strengthening capacity based on practical skills is an important agenda.

In this project, the ILO also provides training on simple financial recording for business actors.

"Often the main obstacle is not the lack of access to credit, but the lack of adequate financial records. Without clear data, financial institutions find it difficult to assess the feasibility of financing. Through structured records, business actors become more prepared and meet the financing requirements of banks," said Djohari Sitorus, Project Manager PROMISE II IMPACT ILO.

Through the utilization of technologies such as Enterprise Resource Planning (ERP), the agriculture and livestock sector is beginning to transform. Young cattle farmers can now monitor daily milk deposits and cash flows through their mobile phones. This data not only increases confidence, but also becomes a strong foundation for accessing banking financing. The bank is also more confident because decisions are based on transparent and measurable data.

This effort is part of the creation of an ecosystem that not only increases the scale of business, but also opens up more decent and modern job opportunities.

Indonesian National Agenda for Financial Inclusion

In terms of national policy, the government targets the transformation of the National Council for Inclusive Finance into the National Council for Financial Well-being by 2026. This transformation marks a shift in focus, from merely expanding financial access to strengthening the financial well-being of the community as a whole.

The Deputy Policy Analyst of the Coordinating Ministry for Economic Affairs, Satrio Adhitomo, said that the current financial inclusion rate had reached 93 percent of the target of 98 percent.

This means that most Indonesian people already have access to formal financial institutions. However, the level of financial literacy is still in the range of 50-60 percent, indicating a gap between access ownership and understanding in managing finances."

The formation of the National Financial Well-being Council is expected to present a sharper and more comprehensive approach in improving people's financial capabilities. This transformation marks a shift in policy focus, from merely expanding financial access to improving real and sustainable financial well-being.

Through this council, the government targets more coordinated efforts and is able to reach the regions more effectively. The approach is cross-sectoral, involving various related ministries and agencies, including the Financial Services Authority (OJK), Bank Indonesia (BI), and other institutions according to their respective mandates and fields. With clear division of roles - including in the insurance issue and other financial sectors - this cross-ministerial and cross-agency collaboration is expected to strengthen policy synergies and accelerate the improvement of the financial well-being of the Indonesian people.