Indonesia's 'Sleeping Giant' MSMEs: The Vast Opportunity Digital Banking Can Unlock

Micro, Small and Medium Enterprises (MSMEs) are widely recognised as a vital segment of Indonesia’s national economy, contributing approximately 60 per cent to Gross Domestic Product (GDP) and absorbing roughly 97 per cent of the workforce. However, MSMEs remain a “sleeping giant”—an underdeveloped resource awaiting fuller exploration to realise their growth potential.

Nailul Huda, Director of the Digital Economy Center of Economic and Law Studies (Celios), observed that Indonesia’s true economic strength lies in the domestic sector. With an exceptionally large MSME population—95 per cent of which are microenterprises—this segment presents substantial development opportunities, particularly given current global economic and geopolitical uncertainties.

“From a domestic perspective, the sleeping giant lies in the business sector, where considerable potential exists,” Huda stated during a press conference for Amar Bank’s Digital Banking & Economic Outlook 2026: Awakening Indonesia’s Sleeping Giant held in South Jakarta on Tuesday, 10 March 2026. “Since the 1998 monetary crisis, MSMEs have continued to endure and remain a key engine of economic growth. Therefore, in 2026, amid trade wars and similar challenges, the impacts are primarily on non-UMKM sectors. As a result, MSMEs represent the most promising segment for substantial growth.”

Nonetheless, MSMEs face numerous challenges requiring urgent resolution. Most critically, Huda highlighted financing and credit constraints as a pressing concern.

Data from Bank Indonesia (BI) revealed that banking sector credit growth in Indonesia expanded 9.69 per cent year-on-year in 2025, reaching 9.96 per cent growth in January 2026. However, MSME credit growth continued its contraction trend, recording negative growth of 0.30 per cent by the end of 2025.

Meanwhile, the Consumer Confidence Index (IKK) remained relatively positive at 125.2 in February 2026 according to BI data. Although this represented a decline from the previous month’s 127, it remained within the optimistic zone (index above 100).

These figures suggest that from a consumer perspective, economic conditions are relatively healthy. Yet this consumer optimism has failed to translate into increased MSME credit growth, raising important questions about the specific barriers faced by MSME operators, particularly regarding financing.

“One key reason for weak MSME credit is that many banks have stated they lack interest in financing MSMEs,” Huda explained. “When examining the proportion of MSME credit relative to GDP, we see it continuously declining, as does the proportion of MSME credit relative to total credit. This demonstrates that banks prefer directing credit towards corporate clients.”