Background

Micro, small, and medium business(“UMKM”) are business activitieswhich can increase the number of job opportunities and give wide economic services to the public, and also have an important role in the process of distribution and the increase of the public revenue, furthermore, it can also support the economic development and achievement of national stability. In relation to the dynamic and global economic development, the Law of the Republic of Indonesia Number 9 of 1995 on Small Business, which regulates onlyabout small business needs to be replaced in order  to give UMKM in Indonesia legal certainty and justice. In order to support UMKM, The House of Representative of Republic Indonesia together with the President of Republic of Indonesia has issued the Law of The Republic Of Indonesia Number 20 of 2009 concerning Micro, Small, and Medium Business (“UMKM Law“).

Criteria

Under Article 6 of UMKM Law, it is mentioned that there arecriterias for micro, small, and medium business, which are as follows:

• Micro Business:

–  Have maximum net assetsof Rp.50.000.000,- (fifty million rupiah) not including the land and building for business; or

–  Have maximum annual sales revenue of Rp.300.000.000,- (three hundred million rupiah).

• Small Business:

-Have net assets of more than Rp.50.000.000,- (fifty million rupiah) up to Rp. 500.000.000 (five hundred million rupiah), not including  the land and the building for business; or

-Have annual sales revenue ofmore than Rp.300.000.000,- (three hundred million rupiah) up to Rp.2.500.000.000,- (two billion and five hundred million rupiah).

• Medium Business:

-Have net assets of more than Rp.500.000.000,- (five hundred million rupiah) up to Rp.10.000.000.000,- (ten billion rupiah) not including the land and building for business; or

-Have annual sales of revenue more than Rp.2.500.000.000,- (two billion and five hundred million rupiah) up to Rp.50.000.000.000,- (fifty billion rupiah)

The criterias as mentioned above may be changed according to the economic development, which will further be stipulated in the Presidential Regulation.

Government Contribution

In article 7 UMKM Law, in order to develop the business environment,the government along with the local government will isssue regulations and policies which includes the following aspects:

•        Funding:

According to Article 8 of UMKM Law, funding program is performed by expanding the resources of fund and facilitating the UMKM in order to get access to loan/credit from the bank and any non-bank financial institution.

• Infrastructure:

According to Article 9 of UMKM Law, one of the purpose of infrastructure aspect is to encourage and develop small and micro business and to provide reduction of certain infrastructure tariff for small and micro business

• Business Information:

According to Article 10 of UMKM Law, one of the purpose of business information aspect isto assure the transparancy and equality of access to business information for all UMKM entrepreneurs.

• Partnership:

According to Article 11 of UMKM Law, one of the purpose of partnership aspect is to encourage the partnership in conducting business transactions between UMKM

• Business licensing:

According to Article 12 of UMKM Law, one of the purpose of business licensingaspect is to simplify the procedure andthe types of business licensing with an integrated one door services system.

• Business Opportunity:

According to Article 13 of UMKM Law, one of the purpose of business opportunityaspect is to determine the business fieldwhich are reserved for UMKM and which are open for large business under the condition that the large businessshall have to cooperate with UMKM.

• Trade Promotion:

According to Article 14 of UMKM Law, one of the purpose of Trade Promotion aspects is to increase promotion of the products for UMKM, inside and outside the Republic of Indonesia.

Partnership

UMKM Law also regulates about Partnership. Under Article 25 of UMKM Law, it is said that partnership can be done between (i) UMKMand UMKM;  and (ii) between UMKM and large business.Furthermore, based on Article 25 paragraph (2) of UMKM Law, a Partnership includes the process of transfer of skillsin the field of:(i) production and processing, (ii) marketing, (iii) financing, (iv) human recourses and (v) technology. Moreover, based on Article 26 of UMKM Law, the partnership is condcuted by using the following system: (i) plasma core, (ii) sub-contract, (iii) franchise, (iv) general trade, (v) distribution and agencies, (vi)and other form of partnership such as profit sharing, operational cooperation, joint venture, and outsourcing.

Coordination and Control of UMKM Utilization

Under Article 38 paragraph (2) of UMKM Law, the coordination and control of UMKM utilization are performed nationaly and regionaly,which include: the arangement and integration of policy and program, the implementation, monitoring, evaluation and general control to the implementation of UMKM empowerment, including the implementation of business partnership and the financing of UMKM.

Interdiction

Based on Article 35 of UMKM Law, large business is prohibited from owningand/or controllingtheir UMKM Partners in relation tothe implementation of partnership as stated in Article 26 of UMKM Law. This also applies to Medium Business whichis prohibited from owning and/or controlling their Micro and/or Small Business Partners.

Sanction and Criminal Provision

For the administrative sanction as mentioned in Article 39 UMKM Law, Large business that ownsor controls theirUMKM Partnersare imposed with the administrative sanctionin the form of revocationof business license and/or penalty in the amount of Rp.10.000.000.000,- (ten billion rupiah) maximum by the authorized institution.

And for the medium business that ownsor controlsmicro and/or small business Partners areimposed with the administrative sanction in the form of revocation of business license and/or penalty in the amount of Rp.5.000.000.000,- (five billion rupiah) maximum.

For the criminal sanction as mentioned in Article 40 UMKM Law, everyone who benefits themselves or others by claiming or using the name of Micro, Small and Medium Business in order to obtain easy access to money, place, field and activity of business or the procurement of goods and services ofthe government that is reserved for UMKM shall be punished with imprisonment of 5 (five) years and fine in the amount of Rp10.000.000.000,- (ten billion rupiah) maximum.

Adjusment of the regulation

At the time when this regulation comes into effect, The Law of Republic of Indonesia Number 9 of 1995 concerning Small Business (State gazette of the Republic of Indonesia Number 74, Supplement to the State Gazette of 1995 Number 3611) is revoked and shall not be valid (or declared void). Moreover/In addition, at the time when this regulation comes into effect, all regulation that related to the small and medium business remain valid as long as not conflict with the provisions of this Law.