Legal Literacy - Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indonesian economy. According to the Central Statistics Agency (BPS), in 2024, MSMEs contributed approximately 61.07% to the national Gross Domestic Product (GDP) and absorbed more than 97% of the workforce in Indonesia (BPS, 2024)¹. Despite this significant contribution, MSMEs still face various challenges, especially in terms of legal protection. Without a clear legal framework, MSMEs are vulnerable to various risks, ranging from unfair competition to problems with accessibility to financing. In this paper, we will discuss why MSMEs without a legal framework become vulnerable and marginalized in the context of the Indonesian economy. 

Legal protection for MSMEs is very important to create a conducive business environment. With clear regulations, MSME actors can operate more safely and confidently. According to data from the Financial Services Authority (OJK), only about 20% of MSMEs have access to formal financing, while the rest have to rely on informal sources of financing that are often unclear (OJK, 2024)². This shows an urgent need to provide better legal protection for MSMEs so that they can get better access to financing. 

In this context, the legal framework not only functions as a means of protection, but also as a driver of growth. With legal certainty, investors will be more interested in investing their capital in the MSME sector. For example, in developed countries such as Germany and Japan, strong legal protection for MSMEs has significantly driven the growth of this sector (Fajarihza & Rini, 2025)³. 

Without a clear legal framework, MSMEs face various challenges. One of the biggest challenges is unfair competition. Many large business actors operate without regard to existing regulations, so MSMEs are often marginalized in the competition. BPS data shows that around 40% of MSMEs experience losses due to unfair business practices from large companies (BPS, 2024)⁴.  

In addition, MSMEs are also vulnerable to legal risks. Without legal protection, MSME actors often become victims of fraud or breach of contract. For example, cases of product counterfeiting involving MSMEs often occur, and without legal support, they find it difficult to fight for their rights (Izzuddin & Shaidra, 2024)⁵. 

The legal powerlessness experienced by MSMEs not only has an impact on the business actors themselves, but also on the national economy as a whole. According to data from BPS, the MSME sector contributes 61% to GDP, but many of them are forced to stop operating due to legal uncertainty (BPS, 2024)¹. This results in the loss of jobs and a decrease in people's purchasing power. 

Furthermore, legal uncertainty also hinders innovation and the development of new products among MSMEs. Without adequate protection, MSME actors are reluctant to invest in research and development, which in turn reduces their competitiveness in the global market (Puspadini, 2025)⁶.   

The Indonesian government has realized the importance of legal protection for MSMEs and has taken several steps to provide a legal framework. One of these steps is through the issuance of Law No. 20 of 2008 concerning MSMEs, which provides a legal basis for the development of MSMEs in Indonesia. However, the implementation of this law still faces various obstacles. 

Data from the Directorate General of AHU of the Ministry of Law and Human Rights shows that only about 30% of MSMEs have been officially registered, even though this registration is important to obtain legal protection (Ditjen AHU, n.d.)⁷. Therefore, further efforts are needed to increase the awareness of MSME actors about the importance of business legality. 

The Role of Society and Communities in Supporting MSMEs

In addition to the role of the government, society and communities also have a responsibility to support MSMEs. The public can play an active role by buying local products and supporting small businesses around them. In addition, communities can also help provide education about the importance of business legality and legal protection for MSME actors. 

Several community initiatives have proven effective in providing support to MSMEs. For example, business mentoring programs held by various non-governmental organizations have succeeded in increasing the awareness of MSME actors about the importance of legal protection and access to financing (Novamalinda, 2023)⁸.  

Conclusion

MSMEs are an important pillar in the Indonesian economy, but they still face many challenges, especially in terms of legal protection. Without a clear legal framework, MSMEs become vulnerable and marginalized, which has a negative impact not only on them but also on the national economy as a whole. Therefore, collaborative efforts between the government, society, and communities are needed to provide better support for MSMEs. Only in this way can we ensure that MSMEs can contribute optimally to Indonesia's economic development. 

Reference

  1. Statistics Indonesia. (March 1, 2024). Position of Micro, Small, and Medium Enterprise (MSME) Credit in Commercial Banks. Accessed February 24, 2025, from [BPS](https://www.bps.go.id/id/statistics-table/2/MTk2MiMy/posisi-kredit-usaha-mikro--kecil--dan-menengah--umkm-sup1-sup-pada-bank-umum.htmlFinancial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  2. Fajarihza, R. F., & Rini, A. S. (2025, February 11). MSME Credit Grows Short in 2024, OJK Reveals the Reasons. Bisnis.com. Retrieved from [Bisnis](https://indonesia.go.id//kategori/editorial/8630/jalan-baru-ojk-agar-akses-pembiayaan-umkm-lebih-mudah?lang=1?lang=1Financial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  3. Statistics Indonesia. (September 18, 2024). Number of Micro and Small Scale Industrial Companies by Province. Accessed February 24, 2025, from [BPS](https://finansial.bisnis.com/read/20250211/90/1838746/kredit-umkm-tumbuh-cekak-pada-2024-ojk-buka-bukaan-alasannya)
  4. Izzuddin, H., & Shaidra, A. (2024, November 27). Write-off of MSME non-performing loans: Banks are still verifying data, OJK is ready to remove SLIK records. Tempo. Retrieved from [Tempo](https://www.bps.go.id/id/statistics-table/2/NDQwIzI=/jumlah-perusahaan-industri-skala-mikro-dan-kecil-menurut-provinsi.htmlFinancial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  5. Puspadini, M. (2025, February 11). Bank's MSME Credit Plummets, This is OJK's Explanation. CNBC Indonesia. Retrieved from [CNBC](https://www.tempo.co/ekonomi/penghapusan-piutang-macet-umkm-bank-masih-verifikasi-data-ojk-siap-hapus-catatan-slik-1173736Financial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  6. Directorate General of AHU. (n.d.). Business Legality is the Future Investment of MSMEs. Retrieved from [Ditjen AHU](https://www.cnbcindonesia.com/market/20250211140720-17-609752/kredit-umkm-bank-terpuruk-ini-penjelasan-ojkFinancial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  7. Novamalinda. (2023, November 7). Business Legal Counseling for MSME Business Actors. Retrieved from [UGM](https://portal.ahu.go.id/id/detail/75-berita-lainnya/5158-ditjen-ahu-legalitas-usaha-adalah-investasi-masa-depan-umkmFinancial Services Authority. (2024). OJK's new path: making MSME financing access easier. Accessed February 24, 2025, from [OJK](
  8. /)https://law.ugm.ac.id/penyuluhan-hukum-bisnis-bagi-para-pelaku-usaha-umkm/)