The Catalyst of Sustainable Future

Our exploration of MSMEs’ significant role in alleviating poverty

Photo by Lok Yiu Cheung on Unsplash

The UN’s Sustainable Development Goals (SDGs) are among the most
important commitments made by 192 countries of the world in 2015 in
order to ensure the future viability of civilization, and in the decade
spanning we will face our moment of truth, so priorities will need to be
applied systematically before we run out of time.

Time is also running out for the skeptics and deniers. The facts of
global privation emergency are there for all to read: from academic
institution and the press; the point is that it is time for action not
opinions: the effects of the poverty emergency are all around us, and
doing nothing because “the government has got it wrong” would be an
act of irresponsibility.

Government Efforts in Indonesia

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 Indonesian President Joko Widodo said on March 2020 he
expects extreme poverty to be reduced to zero percent in the
country within the next three years.

The government has been distributing cash and non-cash benefits like
cards for health benefits and food discounts to eradicate
impoverishment in remote and urban areas. State-owned enterprises
has been addressing this problem as well, among others through their
corporate responsibility programs. However, despite those efforts, the
population living in a state of penury remains a challenge.

Poverty alleviation in Indonesia has resulted in the expected progress,

albeit the rate is not yet ideal. The number of Indonesians living in
poverty in 2011 was 30,02 million people (12,49% of the population).
This total had declined further to 25,14 million (9,41% of the
population) in 2019. The government target to eradicate poverty to 0%
of the population in 2024 cannot be achieved if the alleviation
acceleration follows the trend of the last decade. A more solid strategy
is required.

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 Photo by Jonathan Kho on Unsplash

Anthropologist Clifford Geertz explained that destitution in Indonesia

was related to social and cultural tendency of low-income people to
share. He found poor people tend to share their limited assets among
their relatives, a habit that makes them more indigent as their families
get bigger. In addition, most of the poor are not employed or do not
earn enough to lift themselves out of impoverishment.

After we came across this study, my friend and I were thinking:

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 “What if those unfortunate people could earn
enough income for their families to escape
poverty?”

MSMEs Are Helping Us Get Back on Our Feet

As of 2019, Indonesia has the most MSMEs (Micro, Small, and

Medium Enterprises) in the world. This indicator sparked us to dive
deep into MSMEs datasets, and explore MSMEs’ role in various SDGs.
Our most interesting finding after going through several datasets
provided by Depkop and BPS (dataset A, B, and C), is that these kind of
informal ventures do have significant importance in alleviating
poverty.

MSMEs’ contribution to economy growth and jobs. (made by author)

Just going through above visualization, you can already say that
MSMEs as a concept is very — if not extremely — relevant to Goal 8 of

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 SDGs. However, I want to convince you further that Goal 8 is only a
milestone that we will eventually go through, and that Goal 1 is our
finish line.

What role will MSMEs play in all this? One that is absolutely
fundamental. The development and expansion of MSMEs will be vital
in meeting the challenges we face.

We found that the increase of MSEs output can generate income for
MSE actors that further contribute to the reduction of poverty. The
increase of income increased expenses, thus minimizing the poverty
gap. That result is inline with the real condition of Indonesia, where
most MSME actors come from micro-small enterprise scales.
Therefore, the more developed the scale of an MSE, the stronger the
business competitiveness that further improves the income of the
actors. This finding is inline with Ali, Rashid, and Khan (2014) in
Pakistan.

MSMEs’ correlation to reducing privation and unemployment. (made by author)

Our exploration confirms that the influence of SMEs on poverty

reduction was significant and showed negative signs on three poverty

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 indicators. The negative signs indicate that the increase of SME
outputs can reduce the number of people under the poverty line,
minimizing the gap between the average expenses per capita between
them.

However, we also found out that MSEs have not been fully able to
minimize the disparity of average expenditure between poor people. As
a rule, actors of medium enterprises have higher input than actors of
MSEs. The differences in growth affect the income earned. Moreover,
MSEs face many limitations which medium enterprises have access to,
including markets, financial support, and training.

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