Synchronize MSME classification

Policies Involved

Ministry of Cooperatives and MSMEs Regulation on MSME Classification


While Government Regulation No. 7 of 2021 on the Ease, Protection and Empowerment of MSMEs (GR 7/2021) has expanded the classification of MSMEs, in practice, classification still differs from one program to another, leading to an inconsistent understanding and support. This is exacerbated by the fact that more than 20 ministries and agencies are involved in regulatory policymaking and development of MSMEs1. For example, the classification of MSMEs as understood by Law No. 20 of 2008 on MSMEs was different to that by Statistics Indonesia, the non-governmental institute responsible for conducting statistical surveys, and international organizations such as the International Finance Corporation2 3 4 5.

Current Policy

The Indonesian government had issued GR 7/2021 as an implementing regulation of the Job Creation Law No. 11 of 2020, which amended aspects of MSME development related to Law No. 20 of 2008 on MSMEs. GR 7/2021 states that ministries or institutions may use other criteria to define MSMEs according to each business sector, such as: revenue, net worth, investment value, employment, incentive and disincentive, local content, and/or environmentally-friendly technology application. However, these additional criteria must firstly be considered by the Ministry of Cooperatives and MSMEs6.


Aligning the criteria of what constitutes MSMEs allows the government to better compare the conditions of MSMEs across industries and regions, and helps benefits and support to be better directed. To synchronize MSME classification, ministries or institutions involved in MSME development must first review the current MSME definitions used by each institution. Then, comparative research on commonly understood MSME definitions can inform stakeholders on MSME classifications in other countries that can potentially be used as a reference point. Lastly, ministries and agencies should consolidate the definitive classifications that all parties can agree with. As the leading ministry for MSME development in Indonesia, it is imperative that the Ministry of Cooperatives and MSMEs take the lead in this process.

action points
parties involved
Review the current MSME classification used by each institution
Ministry of Cooperatives and MSMEs
Relevant ministries and government agencies, e.g. Ministry of Industry
Conduct comparative research on commonly understood MSME classifications outside of business capital and annual turnover
Ministry of Cooperatives and MSMEs
Relevant ministries and government agencies, e.g. Ministry of Industry
Higher education institutions, think tanks, or other research organizations
Consolidate the definitive criteria of MSMEs
Ministry of Cooperatives and MSMEs
Relevant ministries and government agencies, e.g. Ministry of Industry

Indicator of Success

Adoption of definition by relevant ministries and agencies
Adoption of definition in MSME development projects or initiatives
  1. OECD. (2018). Good Regulatory Practices to Support Small and Medium Enterprises in Southeast Asia.
  2. Law No. 20 of 2008 defined MSMEs based on net assets and annual revenues, while Statistics Indonesia (BPS) uses an employment-based definition of MSMEs. The definition by BPS is used in the Indonesian Economic Census and in the BPS Survey of Micro and Small Enterprises.
  3. OECD (2018). SME and Entrepreneurship Policy in Indonesia 2018.
  4. IFC classifies MSMEs per number of employees.
  5. International Finance Corporation. (2016). Women-owned SMEs in Indonesia: A Golden Opportunity for Local Financial Institutions.
  6. GR 7/2021, Article 36.

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