Micro and Small Enterprises: A Safety Net That Needs a Safety Net?

A solid middle class is the anchor of a nation’s economy. With substantial purchasing power, they enliven the domestic market and keep the economic pulse beating. This group can emerge from various backgrounds: civil servants, private sector workers and professionals, to business owners. Unfortunately, that foundation is now cracking from within.

The data speaks grimly. The Mandiri Institute recorded that the middle-class population in 2025 shrank by 1.1 million people to just 46.7 million, a deeper decline than the previous year. At the same time, according to the Central Statistics Agency (BPS), the vulnerable group swelled to nearly 67.9 million people, almost a quarter of the nation’s population.

The direction of mobility is no longer upward, but downward. And every time purchasing power is shaken, we reflexively call out the name of a saviour: micro, small, and medium enterprises (MSMEs). The problem is, what if the safety net we glorify has actually transformed into a slippery slope towards poverty?

We need to remember why MSMEs were able to act as a saviour in 1998. Back then, it was large corporations and banks exposed to foreign currency debt that collapsed, while the purchasing power of the lower classes for basic needs continued to circulate in local markets. The grassroots still held liquidity.

Today, the situation is almost the opposite. When the middle class shrinks and purchasing power crumbles, exacerbated by household liquidity leaking away due to the grip of online gambling and increasingly heavy living costs, the primary market for MSME products itself slowly evaporates. MSMEs cannot save the economy if there is no one left able to buy their wares. Hoping this sector will once again become a safety valve without restoring middle-class purchasing power is a policy illusion.

Of course, many established MSME players remain healthy, innovative, and form the backbone of the economy. The segment that needs highlighting is a new one, born of desperation: entrepreneurs who emerge not because they see an opportunity, but because they are forced to survive. The wave of layoffs is the trigger.

The Ministry of Manpower recorded 88,519 workers lost their jobs throughout 2025, the highest in several years and up from 77,965 in 2024, with the actual number of layoffs estimated to be far larger. Labour-intensive industries like textiles and footwear were the hardest hit.

Where do these former formal workers end up? Most are absorbed into the informal sector, which now accommodates nearly 60% of our workforce, starting micro-businesses with their dwindling severance pay. They trade not out of skill, but because it is the only door left, with courage and resignation as their sole business breath from day one.

Unfortunately, in this arena, they are surrounded. The domestic market is increasingly seized by foreign products. The Ministry of MSMEs estimated in 2026 that around 90% of products circulating on online marketplaces are still imported goods, while INDEF research shows that although almost all digital stores are owned by MSMEs, they act more as resellers than producers.

The pressure is measurable: Indonesia’s trade deficit with China nearly doubled, from around US$11 billion in 2024 to US$20.5 billion in 2025, as Beijing diverts its exports to developing markets amid the trade war.

The Ministry of Industry itself points to the residue of import relaxation policy, Trade Minister Regulation 8/2024, as the culprit behind the pressure on labour-intensive industries. Micro-traders with little capital and no bargaining power clearly cannot fight a price war against giant factories. As a result, their businesses are highly vulnerable to collapse, pushing them down to become the new poor.

Herein lies a deeper fallacy. For years, our policies have whispered the same message to those who have fallen: ‘Lost your job? Become an entrepreneur.’ This slogan sounds empowering, but in reality, it shifts the burden of social protection onto the shoulders of those who have the least cushion.

People’s Business Credit (KUR) and social assistance do help, but both are palliative, relieving symptoms momentarily without curing the root cause: the declining purchasing power of the middle class. Yet, protecting the livelihood and dignity of its citizens is the most fundamental duty of a state. This republic does not yet have an institutionalised shock absorber for social crises.

In truth, we have already mastered the form of such an absorber; we just have not directed it towards small enterprises. Waqf, in its essence, is a perpetual fund: the principal is preserved intact, and only the returns from its management are spent, allowing the benefits to circulate across generations.

This centuries-old principle has actually been operationalised in a modern way by Indonesia through the Endowment Fund for Education (LPDP). From an initial capital of just Rp1 trillion at its formation in 2013, the education endowment fund it manages has now reached approximately Rp154 trillion.

The results are tangible: by 2025, more than 58,000 students had been funded for master’s and doctoral degrees, with tens of thousands of them now filling strategic roles in the nation. This model has even been replicated by the state for research, higher education, and culture. And the core logic—preserve the principal, spend the returns—is precisely the logic of waqf.

So, the question we must now ask is very simple. If we can build an endowment fund that large for education, why not for micro and small enterprises? Imagine an ‘LPDP for UMK’, a public endowment fund that does not merely channel interest-free loans, but shelters the destitute and those hit by layoffs, forges their skills from scratch, and finances their businesses through a profit-sharing scheme instead of the trap of interest.

Meanwhile, zakat funds could cover the living costs of the truly impoverished during their training period, until they are ready to stand on their own feet.