Encourage MSME procurement

Policies Involved

Ministry of Cooperatives and MSMEs Regulation on Private Sector Procurement


Participating in procurement and becoming a part of a supplier network is one way for MSMEs to grow and expand their customer base. For large businesses, the main competitive advantage of procuring from MSMEs is their ability to provide a niche product or service that larger businesses found challenging, or costly, to produce themselves. Meanwhile, large businesses have the potential to support MSMEs by creating demand for their products and services, indirectly transferring knowledge of the procurement process, increasing their sales, and upskilling their workforce to enhance productivity along the supply chain.

Current Policy

The government has made enormous strides in making procurement more accessible for MSMEs. Government Regulation No. 7 of 2021 on the Ease, Protection, Empowerment of Cooperatives and MSMEs (GR 7/2021) obliges ministries, non-ministerial government institutions and regional officials to allocate at least 40 percent of the budget to procure goods and services from the domestic production of micro and small enterprises1. Meanwhile, GR 7/2021 also stipulates that the fulfillment of goods and services by medium or large enterprises can be carried out through a supply chain partnership pattern that prioritizes the procurement of goods produced by micro and small enterprises, as long as they meet the necessary quality standards of the required goods and services2. Incentives for such partnerships include regional tax and fee reduction or relief for medium and large enterprises3. However, at the current time, there is an absence of an operational regulation on private sector procurement which may affect the effectiveness of policy implementation.


Private sector linkages have the potential to develop strategic, long-term relationships between micro and small enterprises with their larger counterparts. To achieve this, the policy must firstly incentivize medium and large enterprises to procure from micro and small enterprises. Further, developing an e-procurement platform where buyers and sellers can invite bids and specify prices can reduce costs associated with labor-intensive procurement processes. To simplify the process and account for risks, medium and large enterprises can create standards and requirements of the micro and small enterprises that can supply them, and develop tools to screen for the micro and small enterprises that meet these criteria. Finally, the formalization and certification of micro and small enterprises are necessary to ease the procurement process for specific industries, for instance food safety or halal certifications in the food and beverage industry.

action points
parties involved
Incentivize larger businesses to procure from MSMEs
Ministry of Cooperatives and MSMEs
Provincial Government of DKI Jakarta
Office of Industry, Trade, Cooperatives, Small and Medium Business DKI Jakarta
Develop the online procurement platform
Jakarta Smart City
Office of Communications, Informatics and Statistics DKI Jakarta
Private sector or higher education institutions
Create standards and requirements
Provincial Government of DKI Jakarta
Large businesses
Screen MSMEs to fulfill the larger businesses' requirements
Provincial Government of DKI Jakarta
Large businesses 
Facilitate formalization & certification of MSMEs
Relevant certification board (e.g. Halal, BPOM)
Industry associations
Provincial Government of DKI Jakarta

Indicator of Success

Number of established linkages
MSMEs business growth post-linkage
Number of successfully certified MSMEs
  1. GR 7/2021, Article 81.
  2. GR 7/2021, Article 112.
  3. GR 7/2021, Article 102.

For many entrepreneurs, the decision to turn into innovations depends on the ease to adopt technology, trained workforces, and multiple sources of finance. Yet, navigating the complex regulation is a major challenge for most lay business people. To expedite the economic recovery post-pandemic recession, the stakeholders in the ecosystem are urged to formulate the right policy to simplify such challenges.

— Kariem El-Ali, Senior Policy Advisor