Law of the Republic of Indonesia no. 20 of 2008 on micro, small and medium enterprises

Article 1 In this law: 1. Micro enterprises means a productive enterprise owned by individuals and/or business entity/enterprise which fulfill the criteria of the micro enterprise as regulated in this Law. 2. Small Enterprise means an independent productive enterprise, which is run by individuals or a company which -3- is not a branch companies owned, controlled, or becoming direct or indirect part of the Medium or Large Enterprises fulfilling the criteria of the Small Enterprises as referred to this Law. 3. Medium Enterprises means an independent productive economic enterprise, which is run by individuals or a company which is not a branch companies owned, run, or becoming direct or indirect part of the Small or Large Enterprises with the amount of net assets or annual sales proceeds as provided for herein. 4. Large Enterprise means a productive economic enterprise conducted by business entities with the amount of net assets or annual sales proceeds larger than that of Medium Enterprises, which covers the state-owned or private-owed enterprises, joint ventures, and foreign businesses that conduct the economic activities in Indonesia. 5. Business World means Micro, Small, Medium, and Large Enterprises that conduct economic activities in Indonesia and reside in Indonesia. 6. Central Government hereinafter referred to as the Government, means the President of the Republic of Indonesia who hold governance power of the state of the Republic of Indonesia as referred to in the 1945 Constitution of the Republic of Indonesia. 7. Local Governments means Governor, Regent, Mayor, and local apparatus as the elements of running the local governments. 8. Empowerment means an effort made by the Government, Local Governments, business world, and the public in a synergized manner in the form of engendering business climate and development for Micro, Small, and Medium enterprises, hence, capable of growing and developing to become strong and independent businesses. 9. The Business Climate means a condition which is attempted by Government and the Local Governments to empower the micro, small, and Medium enterprises in synergy through ratification of any acts and policies in all aspects of economic -4- life in order that the Micro, small, and medium enterprises gain supports, certainty, opportunity, protection, and support for running a business as broad as possible. 10. Development means an effort made by Government, Local Governments, Business World, and society to empower micro, small, and medium enterprises through providing the guidance facilities and strengthening aids to develop and improve the ability and competitiveness of Micro, Small, and Medium Enterprises. 11. Funding means a budget provision by government, Local Governments, Business World, and society through banks, cooperatives, and non-bank financial institutions, in order to develop and increase the capital for the Micro, Small, and Medium enterprises. 12. Underwriting means the provision of loan guarantee for Micro, Small, and Medium enterprises by the credit guarantee institution as a support for enlarging opportunities to earn loans to increase their capital. 13. Partnership means cooperation in business linkage, both directly and indirectly, based on mutual need, trust, worthy, strengthening, and benefit enganging actors of Micro, Small, and Medium Enterprises as well as Large Enterprise. 14. Minister means a minister whose duty and responsibility are in the field of Micro, Small, and Medium Enterprises. 15. Technical Minister means a minister technically responsible for developing he Micro, Small, and Medium Enterprises in his/her activity sectors. CHAPTER II PRINCIPLE AND OBJECTIVE

Article 2 Micro, Small, and Medium Enterprises are based on the following principles: a. kinship; -5- b. economic democracy; c. togetherness; d. justice efficiency; e. sustainability; f. environment friendly; g. independence; h. progress balanced ; and i. national economic unity.

Article 3 Micro, Small, and Medium Enterprises are aimed to engender and develop their business in order to develop the national economy based on equitable economic democracy. CHAPTER III PRINCIPLES AND PURPOSES OF EMPOWERMENT Part One Principles of Empowerment

Article 4 Principles of the empowerment of Micro, Small, and Medium Enterprises: a. developing independence, togetherness, and entrepreneurship of Micro, Small, and Medium Enterprises to work on their initiative; b. realization of transparent, accountable, and equitable public policies; c. development of local potentials and market-oriented business in accordance with the competence of Micro, Small, and Medium Enterprises; d. enhancing the competitiveness of Micro, Small, and Medium Enterprises; and e. the realization of planning, implementation, and controlling in integrated manner. -6- Part Two Purposes of Empowerment

Article 5 The empowerment of the Micro, Small, and Medium Enterprises is aimed at: a. realizing in the balanced, developing and equitable national economy structure; b. growing and developing the ability of the Micro, Small, and Medium Enterprises to become strong and independent enterprises; and c. improving the roles of Micro, Small, and Medium Enterprises in the regional development, creating job opportunities, income distribution, economic growth, and poverty alleviation. CHAPTER IV CRITERIA

Article 6 (1) The criteria of the Micro Enterprises are the followings: a. possessing the net asset of maximum Rp50,000,000.00 (fifty millions rupiahs), excluding the sites and buildings of the enterprise; b. possessing the annual sale income of maximum Rp300,000,000.00 (three hundred million rupiahs). (2) The criteria of the Small Enterprise are the followings: a. owning the net capital of more than Rp50,000,000.00 (fifty million rupiahs), excluding the sites and the buildings of the enterprise; or b. owning the annual sale income of more than Rp300,000,000.00 (three hundred million rupiahs) up to the maximum Rp2,500,000,000.00 (two billion five hundred millions rupiahs). (3) The criteria of the Medium Enterprises are the followings: a. owning the net asset of more than Rp500,000,000.00 -7- (five hundred million rupiahs) up to Rp.10,000,000,000.00 (ten billion rupiahs) excluding the sites and the buildings of the enterprise; or b. owning the annual sale income of more than Rp2,500,000,000.00 (two billions five hundred million rupiahs) up to the maximum Rp.50,000,000,000.00 (fifty billions rupiahs). (4) The criteria as referred to in section (1) point a, point b, and section (2) point a, point b, and section (3) point a, point b, the nominal values are changed in accordance with the economy development which are regulated by a Presidential Regulation. CHAPTER V BUSINESS CLIMATE GROWTH

Article 7 (1) Government and Local Governments grow the Business Climate by ratifying legislation and policies covering the aspects of: a. funding; b. infrastructure; c. business information; d. partnership; e. business permit; f. enterprising opportunity; g. trade promotion; and h. institutional support. (2) Business world and society actively participate in helping grow the Business Climate as referred to in section (1).

Article 8 The aspect of funding as referred to in Article 7 section (1) point a, is aimed at: a. broadening the funding sources and facilitate the Micro, Small, and Medium Enterprises to be able to access the -8- banking load and other non-banking financial institutions; b. increasing the number of funding institutions and broadening the network so that it can be accessed by the Micro, Small, and Medium Enterprises; c. providing the ease in gaining the funding fast, accurately, inexpensively, and not discriminative in giving services in accordance with the provision of legislation; and d. assisting the doers of the Micro and Small Enterprises to get other funding and services/products provided by banking and other non-banking institutions both using conventional and sharia system with guarantee provided by government.

Article 9 The aspect of infrastructure as referred to in Article 7 section (1) point b is aimed at: a. the provision of public infrastructure which can encourage and develop the growth of Micro and Small Enterprises; and b. providing ease on the certain infrastructure tariff for the Micro and Small Enterprises.

Article 10 The aspect of business information as referred to in Article 7 section (1) point c is aimed at: a. creating and simplifying the use of database and the business information network; b. creating and spreading and the information on market, funding sources, accommodation, underwriting, design and technology, and quality; and c. granting transparency warranty and the same access to all actors of Micro, Small, and Medium Enterprises to all business information.

Article 11 The aspect of partnership as referred to in Article 7 section (1) point d is aimed at: a. realizing the partnership amongst the Micro, Small, and -9- Medium Enterprises; b. realizing the partnership amongst the Micro, Small, Medium and Big enterprises; c. urging the emergence of mutual benefitted relationship in business transaction implementation amongst the Micro, Small, and Medium Enterprises; d. urging the emergence of mutual benefitted relationship in business transaction implementation amongst the Micro, Small, Medium, and Big enterprises; e. developing cooperation to increase the bargaining power of the Micro, Small, and Medium Enterprises; f. urging the formation of market structure which guarantees the growth of fair business competitiveness and protects the consumers; and g. preventing the market control and business centralization by individuals or certain groups which harm the Micro, Small, and Medium Enterprises.

Article 12 (1) The aspect of business permit as referred to in Article 7 section (1) point e, is aimed at: a. Simplifying the procedures and types of business permit with a one stop service; and b. Charging no expenses on the permission cost for the Micro Enterprises and giving ease in cost over the permission cost for Small Enterprises. (2) Further regulations regarding the requirements and procedure of business permit enquiry are regulated by Government Regulation.

Article 13 (1) The aspect of business opportunities as referred to in Article 7 section (1) point f is directed for: a. determining the business location which covers the handing over a location in market, shops, industrial central location, people's fanning location, people's - 10 - mining location, appropriate location for street vendors, as well as other locations; b. determining the time allocation of running the business for Micro and Small in retail trade subsector; c. determining field and types of business activities who own process particularity, with the characteristics of absorbing works, as well as owning special cultural inheritance; d. determining reserve field of business for Small and Medium Enterprise as well as that businesses that are open for Large Enterprise with requirements must cooperate with Micro, Small and Medium Enterprise. e. protecting certain strategic enterprises for Micro, Small, and Medium Enterprises; f. prioritizing to use product produced by Micro and Small Enterprises through direct procurement; g. prioritizing the goods and services procurement and the work conduct of Government and Local Governments; and h. providing legal consultation and aid. (2) The implementation of the provisions as referred to in section (1) on the monitoring and controlling is done by Government and Local Governments.

Article 14 (1) Aspects of trade promotion as referred to in Article 7 section (1) point g, is aimed at: a. improving the promotion for the Micro, Small, and Medium Enterprises' products in domestic and foreign market; b. broadening the funding sources for and promotion of the products of the Micro, Small, and Medium Enterprises in domestic and foreign market; c. providing incentives and the procedure incentives are given for the Micro, Small, and Medium Enterprises - 11 - which are able to provide funding independently in the promotion activity both in domestic and foreign market; d. facilitating the right possession over the intellectual right on the products and design of Micro, Small, and Medium Enterprises in doing their domestic and export business activities. (2) The implementation of the provisions as referred to in section (1) is conducted by Government and Local Governments.

Article 15 Aspect of supporting institutional as referred to in Article 7 section (1) point h are directed to develop and improve the functions of incubator, business development services-providers, bank-partnership financial consultants of the Micro, Small and Medium Enterprises. CHAPTER VI BUSINESS DEVELOPMENT

Article 16 (1) Government and the Local Governments facilitate the enterprise development in the area of: a. production and management; b. marketing; c. human resources; and d. design and technology. (2) The business world and society actively participate in doing the development as referred to in section (1). (3) Further provision regarding development, priority, intensity, and period of the development are regulated in a Government Regulation. - 12 -

Article 17 The development in production and management as referred to in Article 16 section (1) point a, is conducted through: a. improving the production and management techniques as well as the management ability for the Micro, Small, and Medium Enterprises; b. providing ease in the procurement of infrastructure, production and management, raw materials, auxiliary materials, and packaging for the products of Micro, Small, and Medium Enterprises; c. encouraging the implementation of standardization in production and management process; and d. improving the designing-constructing and engineering ability for Medium Enterprise.

Article 18 The development in the area of marketing, as referred to in Article 16 section (1) point b, is performed through: a. conducting research and market study; b. spreading the market information; c. improving the ability of management and marketing techniques; d. providing the marketing infrastructure consisting of the implementation of market trial, marketing institution, trade customs provision, promotion of the Micro and Small Enterprises; e. providing product promotion support, marketing network, and distribution; and f. providing the professional consultants in marketing.

Article 19 The development in the human resources as referred to in Article 16 section (1) point c, is conducted through: a. socializing and culturing entrepreneurship; b. improving the technical and managerial skills; and - 13 - c. creating and developing education and training institutions to run business education, training, enlightenment, motivation and creativity, and creating new entrepreneurships.

Article 20 The development in the design and technology as referred to in

Article 16 section (1) point d is conducted through: a. improving the ability in the design and technology as well as the quality control; b. improving the cooperation and technology exchange; c. improving the ability of the Small and Medium Enterprises in research to develop new design and technology; d. providing the incentives for the Micro, Small, and Medium Enterprises which develop the technology and preserve for environment; and e. encouraging Micro, Small, and Medium Enterprises to earn the right certificate on the intellectual property. CHAPTER VII FUNDING AND UNDERWRITING Part One Funding and Underwriting of Micro and Small Enterprises

Article 21 (1) Government and the Local Government provide the funding for the Micro and Small Enterprises. (2) The State-Owned Enterprises can provide funding form the margins of annual profits which are allocated for the Micro and Small Enterprises in the form of loans, guarantee, grants, and other funding. (3) The national and foreign Large Enterprise can provide funding which is allocated for the Micro and Small - 14 - Enterprises in the form of loans, guarantee, grants, and other funding. (4) Government and Local Governments, and Business World can provide grants, attempt the foreign grants, and attempt the other legal and untied funding sources for the Micro and Small Enterprises. (5) Government and the Local Governments can provide incentives in the form of ease in getting the permission requirement, tariff reduction of infrastructure, and other incentive forms relevant to the acts for the business world providing funding for the Micro and Small Enterprises.

Article 22 In order to increase the funding sources of the Micro and Small Enterprises, the Government do the following efforts: a. the development of the funding-sources from the banking and non-banking institutions; b. the development of the join venture capital; c. institutionalizing the debt transaction; d. the improvement of the cooperation between the Micro and Small Enterprises through cooperation and conventional and sharia financial service cooperation; and e. the improvement of other funding sources in accordance with the provisions of legislation.

Article 23 (1) To improve the access of Micro and Small enterprises towards the funding sources as referred to in Article 22, the Government and the Local Government: a. grow, develop, and extend the network of non- banking financial institutions; b. grow, develop, and extend the credit guarantor institution; and c. give ease and facilities in fulfilling the requirements to gain the funding. - 15 - (2) The Business World and public also play a role actively in accessing the Micro and Small Enterprises towards the credit as referred to in Article (1) which are done through: a. improving the ability in arranging the enterprise feasibility study; b. improving the knowledge on the procedure of proposing loan; and c. improving the understanding and technical as well as managerial skills of enterprises. Part two Funding and Underwriting of Medium Enterprises

Article 24 The Government and the Local Government conduct the Empowerment of the Medium Enterprise in the funding and underwriting by: a. facilitating and encouraging the increase of work capital funding and investment through extending the funding sources and pattern, the access to the stock exchange, and other funding institutions; and b. developing the loan guarantor institution, and increasing the function of export guarantor institution. CHAPTER VIII PARTNERSHIP

Article 25 (1) The Government and the Local Government, Enterprise World, and public facilitate, support, and stimulate the mutual, trustworthy, strengthening partnership activities. (2) The partnership among the Micro, Small, and Medium - 16 - Enterprises and the partnership among the Micro, Small Medium, and Large Enterprises cover the process of skill exchange in the area of production, management, marketing, capital, human resources, and technology. (3) The Minister and the Technical Minister regulate the incentive giving to the Large Enterprise conducting the partnership with the Micro, Small and Medium Enterprises through innovation and production development of export orientation, absorbing the work force, the use of effective and environment-friendly technology, and conduct the education and training.

Article 26 Partnership is done with the pattern of: a) core-plasm; b) subcontract; c) franchise; d) general trading; e) distribution and agency; and f) other partnership forms, such as: profit sharing, joint operational, joint venture, and outsourcing.

Article 27 The implementation of partnership with the pattern of core-plasm as referred to in Article 26 point a, a Large Enterprise as the core guides and develops the Micro, Small, and Medium Enterprises which become its plasma in: a. providing and preparing the field; b. providing production facilities; c. giving the technical guidance on production and management enterprises; d. gaining, mastering, and improving the required technology; e. funding; f. marketing; h. underwriting; i. giving information; and - 17 - j. giving other necessary aids for improving the efficiency, productivity, and enterprise knowledge.

Article 28 The implementation of the enterprise partnership by sub contract pattern as referred to in Article 26 point b, to produce goods and/or services, Large Enterprises give support in the form of: a. opportunity to perform some of the production and/or its components; b. opportunity to gain the raw materials which are produced simultaneously with the normal quantity and price; c. guidance and ability of technical production and management; d. gaining, mastering, and improving the required technology; e. funding and arrangement of payment system which is not harmful to any sides; and f. the efforts not to cut the partnership without prior agreement.

Article 29 (1) The Large Enterprises which extend their business activities using franchise as referred to in Article 26 point c, provide opportunities and prioritize the Micro, Small, and Medium Enterprises. (2) The franchise providers and franchise acceptors prioritize the use of goods and/or domestic production materials as long as they fulfill the quality standard of goods and services provided and/or sold based on the franchise agreement. (3) The franchise providers are obligated to give guidance in the form of training, management operational guidance, marketing, research, and development to the franchise acceptors simultaneously.

Article 30 (1) The implementation of the partnership with general trading pattern as referred to in Article 26 point d, can be conducted - 18 - in the form of cooperation in marketing, the provision of business location, or the supply acceptance from the Micro, Small, and Medium Enterprises by the Large Enterprises which are done transparently. (2) The fulfillment of the goods and service needs conducted by Large Enterprises done by prioritizing the provision of production result of Small or Micro Enterprises as long as it meets the quality standard of the required goods and services. (3) The arrangement of payment system is done in an attempt not to harm one’ and other parties.

Article 31 In implementing the partnership with the distribution and agency pattern as referred to in Article 26 point e, Large and/or Medium Enterprises give special right to market the goods and services to the Micro and/or Small Enterprises.

Article 32 In the event that Micro, Small and Medium Enterprises conducts a joint venture with foreign partner, provisions regulated under legislation are applicable.

Article 33 The accomplishment of successful partnership between Large Enterprises and Micro, Small, and Medium Enterprises can be followed up by the share possession opportunity of Big Enterprises by Micro, Small, and Medium Enterprises.

Article 34 (1) Partnership agreement is made in the form of written agreement that at least regulates business activities, rights and obligations of parties, development, periods and conflict resolution. - 19 - (2) The partnership agreement as referred to in section (1) is reported to the authority in accordance with provisions of legislation. (3) The partnership agreement as referred to in section (1) may not be in opposition to basic independent principles of Micro, Small, and Medium Enterprises towards Big Enterprises. (4) To supervise the partnership as referred to in section (1) and (2), Minister can establish local and nation partnership coordinator agency.

Article 35 (1) Large Enterprises are prohibited to own and/or take over Micro, Small, and Medium Enterprises in the accomplishment of partnership as referred to in Article 26. (2) Medium Enterprises are prohibited to own and/or take over Micro and/or Small Enterprises as their business partner.

Article 36 (1) In the partnership implementation as referred to in Article 26 all parties own equal position before law and subject to Indonesian Law. (2) The implementation of the partnership is supervised orderly and regularly by founded and works for supervising business competition as regulated in legislation.

Article 37 Further provisions regarding partnership patterns as referred to in Article 26 are regulated by a Government Regulation. CHAPTER IX COORDINATION AND CONTROL ON EMPOWERMENT OF MICRO, SMALL, AND MEDIUM ENTERPRISES - 20 -

Article 38 (1) Minister conducts coordination and control on empowerment of Micro, Small, and Medium Enterprises. (2) Coordination and control on empowerment of Micro, Small, and Medium Enterprises as referred to in section (1) are performed locally and nationally consisting of: arrangement and integration of the policy and program, implementation, supervision, evaluation, and general control on the implementation of empowerment of Micro, Small, and Medium Enterprises, including enforcement of the business partnership and the funding of Micro, Small, Medium Enterprises. (3) Further provisions regarding coordination and control on empowerment of Micro, Small, and Medium Enterprises are regulated by a Government Regulation. CHAPTER X ADMINISTRATIVE SANCTIONS AND CRIMINAL PROVISIONS Part One Administrative Sanctions

Article 39 (1) Large Enterprises that violate the provisions of Article 35 section (1) are imposed by an administrative sanction in form of revoking the business permit and/or a fine for a maximum of Rp.10,000,000,000.00 (ten billions rupiah) by the authority, (2) Medium Enterprises that violate the provisions of Article 35 section (2) are imposed by administrative sanctions in the form of revoking the business permit and/or fine for maximum of Rp.5,000,000,000.00 (five billions rupiah) by the authority. (3) Further provisions regarding imposing sanctions procedures as referred to in section (1) and section (2) are regulated by a Government Regulation. - 21 - Part Two Criminal Provisions

Article 40 Every person taking for self-benefits or others by admitting or utilizing the name of Micro, Small, and Medium Enterprises in order to get facilities to obtain fund, business location, business fields and activities, or goods and services from the government that shall be given to Micro, Small, and Medium Enterpises are sentenced for maximum 5 years imprisonment and a fine for a maximum of Rp10,000,000,000.00 (ten billions rupiah). CHAPTER XI CLOSING PROVISIONS

Article 41 Government Regulation as the implementation of this Law is issued not later than 12 (twelve) months or 1 (one) year since the promulgation of this Law.

Article 42 At the time this Law come into forces, Law of Republic of Indonesia Number 9 of 1995 on Small Enterprises (State Gazette of the Republic of Indonesia Number 74 of 1995, Supplement to State Gazette of the Republic of Indonesia of 1995 Number 3611 are repealed and declared ineffective.

Article 43 At the time this Law come into forces, all legislation related to Micro, Small, and Medium Enterprises are declared to remain effective to the extent not contrary to the provisions of this Law.

Article 44 This Law comes into force on the date of its promulgation. -22- Inorderthateverypersonmayk*owhereof,itisorderedto promutrgate this Law by its placement in the State Gaaette sf the Republic af Indonesia- Enacted in Jakarta on 4 Juiy 2OO8 PRESIDEN? OF THE REPUBLIC OF INDONESIA, signed DR. H SUSILG BA.MBANG YODHOYONO Promulgated in Jaka-rta on 4 July 2OO8 MINiSTER OF i,A$I AND HUMAN RIGHTS OF THE REPUBLIC OF INDONESIA, sigmed ANDI MA??ALATTA STATE GAZETTE OF THE REPUBLIC CF INDONESIA OF 2OO8 NUMBER 93 Jakarta, 25 June 2O2O Has been trar.slated" as ;rqr OfEcial Ttasslatian On behaif of Mirrister ef i,arr and Human Rights crf, I*d*r:*si*:.,