Micro-, small-, and medium-sized enterprises (MSMEs) play a significant role in Indonesia’s economy, accounting for 61% of its gross domestic product. An even smaller segment—ultra-micro businesses—is helping drive economic growth, as well. Since 2017, Pusat Investasi Pemerintah (PIP), an Indonesian government agency, has disbursed loans to 5.4 million ultra-micro entrepreneurs, 95% of whom are women.

In collaboration with the Government of Indonesia, Women’s World Banking set out to understand the needs and behaviors of these ultra-micro women entrepreneurs vis-à-vis loan utilization, savings, and financial resilience. Our mixed method research with 1,400 ultra-micro entrepreneurs found that disparities in these areas were the result of behavioral differences between men and women, rather than systematic discrimination. Below are key insights from our recently released report, Economic Resilience and Digital Adoption among Ultra-Micro Entrepreneurs in Indonesia.

How Women Ultra-Micro Entrepreneurs Access and Use Loans

While women and men ultra-micro entrepreneurs access financing from a range of loan providers, we observed some differences in their preferred sources; for example, women are more likely than men to borrow money from Permodalan Nasional Madani (a state-owned enterprise), cooperatives, and conventional private banks. With regards to loan purpose, women ultra-micro entrepreneurs are more likely to take smaller loans to buy stock or repay debt whereas men are more likely to take larger loans to buy equipment or machinery and rent or build retail space.

How Women Ultra-Micro Entrepreneurs Save Money

While women ultra-micro entrepreneurs are more likely to save than men, their savings amount tends to be lower, even during the best months. It can be challenging for women to set aside money regularly, as they are often responsible for managing the family’s living expenses. Social norms can also restrict women’s decisions whether to invest in a business or spend on household needs. Women ultra-micro entrepreneurs prefer saving money in cash at home over other methods, as it allows for easy access and eliminates the time and expense of having to travel to a bank. Other common methods include in piggy banks, gold or other jewelry, and informal savings groups.

Financial Vulnerability of Women Ultra-Micro Entrepreneurs

Ultra-micro businesses are particularly vulnerable to the financial shocks that unexpected events, such as illness, job and income loss, injury, or death, might trigger. Due to the COVID-19 pandemic, women ultra-micro entrepreneurs have taken on an extra layer of vulnerability as they struggle to balance business and household activities.

While the median cash buffer reported in our sample was enough to cover one to two months of living expenses, where women ultra-micro entrepreneurs were more likely to have lesser cash buffer compared to men. Government cash assistance programs for MSMEs, such as Banpres Produktif (BPUM), and for low income households, such as Program Keluarga Harapan (PKH), can provide temporary relief for the financially vulnerable; however, women are less likely than men to participate in the BPUM program.

Customizing Financial Products and Programs for Women Ultra-Micro Entrepreneurs

Helping women-owned ultra-micro businesses will require a comprehensive set of financial products and programs tailored to women’s specific needs and behaviors. Key recommendations from our report include:

  • Designing technical assistance and capacity-building programs to help women develop their business skills. Rather than employing a “one size fits all” approach, financial service providers should tailor these programs for certain user segments. For example, some women might benefit from basic financial management skills, such as how to separate personal from business expenses, while others might tackle more advanced topics, such as how to acquire a business license.
  • Using digital financial and service platforms to build women’s digital financial capabilities. Financial service providers should (1) target a clear behavioral outcome and design specific methodologies, like daily SMS reminders, to help drive those changes; (2) leverage teachable moments, for example, with dummy apps, to help women practice their newly acquired knowledge and abilities; and (3) utilize the social media and direct communications channels most accessible to ultra-micro entrepreneurs.
  • Collaborating among financial service providers to offer savings and insurance. Women ultra micro-entrepreneurs also need access to other financial products and services, particularly savings accounts and insurance policies. Loan channel partners can help mobilize savings among women via savings-linked credit or mobile wallets. Meanwhile, insurance providers should ensure their products are convenient, affordable, and easy to understand.

Download our report, Economic Resilience and Digital Adoption among Ultra-Micro Entrepreneurs in Indonesia.