Small and Medium Enterprises (SMEs) are one of the most important economic sectors for Indonesia. SMEs along with micro-enterprises have proven to be one of the economic sectors that absorb the most labor in Indonesia. In 2012, 97.16% of Indonesia’s workforce was absorbed by SMEs and micro enterprises (Kemenkop UKM Data Processing, 2012). This proves that the development of SMEs and micro-enterprises will also have an impact on expanding the absorption of Indonesian workers.

In addition, SMEs are one of the pillars of the economy for the people of Indonesia, especially during times of crisis. Therefore, SMEs and micro-enterprises are one of the economic foundations for the Indonesian people that should be developed. SMEs are simultaneously important to the Indonesian economy and their existence is challenging for the government to formulate and implement policies that support SME growth.

Initiated by the National Team for the Acceleration of Poverty Reduction (TNP2K) and the World Bank, RAND Corporation and AKATIGA conducted research to understand the causes of various obstacles in the development of SMEs. By using mixed methods (quantitative and qualitative), this research shows what things limit the growth of Indonesian SMEs and what the government’s role should be in encouraging the growth of SMEs.

The selected industries are seen from the largest employment absorption, leading sectors for Indonesia, and sectors that have the potential to grow and innovate. These industries are food processing (tofu-tempeh and chips), services (restaurants and workshops), garments (batik and Muslim clothing), wood processing (wood furniture), coffee, and information technology (IT). The research was conducted in Jakarta, West Java, Central Java, North Sumatra, Aceh and South Sulawesi in August 2014.

This study uses a survey that asked 192 SME owners and analyzed it to get an overview of the obstacles they face in order to grow, the interaction of respondents with the government, as well as policies related to their business. This data is analyzed and compared with two large surveys, namely the Micro and Small Industry Survey (IMK) by BPS and the Enterprise Survey by the World Bank. While qualitative methods are used to obtain in-depth data mining. In-depth interviews with several key informants such as employers, government, workers provide an in-depth description of the structure and barriers that exist in SMEs.

To follow up on the research, two focus group discussions were conducted to understand the perspectives of other stakeholders such as the central government, regional governments, banks and associations related to SMEs. FGD participants gave their views regarding the obstacles to SME growth and input regarding policy recommendations to overcome these obstacles.