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Safeguarding Business Capital and Ethics within SMEs in Indonesia from Corruption

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startup business

SMEs play a significant role for the economic growth in developing countries, such as Indonesia. They are estimated to represent around 90% of the businesses and 50% of employment worldwide (World Bank, 2022). Data per May 2021 from the Ministry of Cooperatives and SMEs shows that there are more than 64 million SMEs actors in Indonesia that contribute to roughly 61% of national GDP with over 97% of total labour absorption (Limanseto, 2021). With this such huge scale of business representation, it is rather important to put more effort bolstering SMEs in Indonesia to be more resilient and sustainable for the benefit of the national economic growth as well as public welfare improvement.

This article will discuss what so called elephant in the room. Corruption is one of the most important and urgent issue to deal with but often being left out in almost every discussion about SMEs in Indonesia. Just like any other business, SMEs cannot simply escape from the threat of corruption, especially with their nature of having limited resources, experience and knowledge. The attitude of underestimating the latent but yet imminent danger of corruption probably stems from the perception that it can only cause harm when it’s done by government officials and/or large companies (e.g. MNCs).

Clearly this point of view cannot be more wrong. Just as highlighted by UN Global Compact that the smaller the firm is, the more likely it is to be affected by corruption. In fact, SMEs are more vulnerable since they do not have same option and assistance available to avoid corruption and to implement effective anti-corruption measures compare to bigger companies (Rune, 2011).

There is a long list of categorisations made by various authors to help classify and explain corruption to their readers, such as grand-petty corruption, black-white-grey corruption, and political-private-administrative corruption, etc. Corruption can also take in many forms including bribery, embezzlement, collusion, nepotism, extortion, gifts, etc. To simplify the narratives and to make it more relevant for SMEs, we will only separate corruption into two distinguish forms, internal and external.

The Transparency International defines corruption as the abuse of entrusted power for private gain. According to Corruption Perceptions Index (CPI), Indonesia is scored 38 and is ranked 96th place out of 180 countries. This low score means that this country is still perceived to have a serious problem of corruption particularly concerning public sector.

Various sources have mentioned that bribery as part of administrative corruption is the most prevalent and well-known form of corruption that affects SMEs that goes between the business with external parties such as public officials. On the contrary, we shouldn’t simply turn a blind eye on the facts that many SMEs have failed due to corruption occurred internally, such as fraud, embezzlement or misappropriation of funds by company’s own employees.

This internal corruption is closely associated with business managerial competence and capacity. International Finance Corporation (2019) noted that SMEs commonly possess ambiguity in business roles with key personnel wearing multiple hats at the same time. This situation causes unclear separation between the company and personal cash of the owner/founder. Bushe (2019) asserted that this unprofessional conduct of using corporate cash for personal purchases often leads to business failure. Moreover, SMEs organization and structure normally have more informal relations between staff and management and therefore stimulate a great permeability to corruption and create a culture to tolerate corruption more easily throughout the business (Daniel & Alina, 2012).

There are several internal prevention and control mechanisms to future proofing SMEs from the threat of corruption according to UNODC & UNIDO (2012). First, there should be commitments from the high-level leadership and in the case of SMEs most likely to be the shareholders (owner/founder), board of directors, or other key personnel to combat corruption. This step could be fulfilled by adopting business codes of conduct that specify anti-corruption policy outlining the company’s set of value for everybody to follow and comply. Second, establish an internal system such as a reporting structure and mechanism to ensure compliance. SMEs can copy the reporting hotlines established by larger companies, or they can opt for alternative mechanisms such as an open-door policy or the establishment of anonymous complaint boxes. Third, there should be training for both SME owners and employees to raise awareness about the short and long-term consequence of corruption both for individual and for the business. The training then should move on to turn that awareness into action where the participants can directly involve, for instance by doing role plays, demonstrations or case studies.

The last and probably the most significant strategy is by joining forces and establishing partnership with other parties, such as with other business through business associations. UNODC & UNIDO (2012) underlined that the associations can increase the efficiency of anti-corruption initiatives launched by individual enterprises. They can help the company through its role as a business focal point, a channel as well as coordinator of collective action. They can also be used as platforms that reach mutual agreements, make commitments to ethical standards, and carry out joint actions to prevent corrupt practices among members.

SMEs can also build greater alliance by joining forces with larger corporations, academia, and other stakeholders to share common concerns and find solutions together. One particular organization that provides these benefits for SMEs in Indonesia is Indonesia Global Compact Network (IGCN), a local network of UN Global Compact which promotes responsible business in the area of human rights, labour, environment, and anti-corruption. Its members not only are able to build network, but they can also access learning materials and activities as well as form collaborative actions on business ethics and governance to combat corruption.

Considering the potential damage of corruption that includes financial cost, legal and reputational risk, as well as erosion of internal trust and confidence due to value degradation of the company, SMEs in Indonesia should step up their games to not only focus on profit accumulation and business expansion but rather to build resilience to shield their start-ups, small-scaled enterprises from any threats that can jeopardise business growth and sustainability. By working against corruption in all its form, companies are safeguarding both business capital and ethics which eventually getting them the stage for long-term success.

Dita Nur Hidayah is a sustainability and human rights enthusiast and is now currently working as a Program Officer of Business and Human Rights, Ethics and Governance in an international organization. Born Indonesian in 1991, Dita obtained a Master Degree in International relations from Gadjah Mada University and has been working professionally for years in non-profit organizations to take a part in the effort of advancing human rights and tackling social justice issue.

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Economy

Mosul’s recovery moves towards a circular economy

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Five years since the end of the ISIL(so-called Islamic State in Iraq and the Levant) conflict in 2017, the International Organization for Migration (IOM) in Iraq and the UN Environment Programme (UNEP), with funding from the Government of Japan, has established a debris recycling centre in Mosul. After its initial use, the centre has now been handed over to Mosul Municipality for its continued, sustainable operation.

“On behalf of the Iraqi Government, the Ministry of Environment expresses its gratitude to the Government of Japan for generously supporting this important project and to UNEP and IOM for enabling the sustainable management of the huge quantities of conflict debris and restabilization of the liberated areas in an environmentally sustainable manner,” said Iraq’s Minister for Environment, Dr. Jasim Abdulazeez Humadi.

The handover of the Mosul debris recycling centre marks a significant step in the sustainable management of the huge volumes of debris — an estimated 55 million tonnes — created by the ISIL conflict. It also opens the way for the recycling of routine construction and demolition waste, contributing to ‘building back better’ and an increased circularity in Iraq’s development.

UNEP West Asia Regional Director, Sami Dimassi, emphasized that “by reducing waste, stimulating innovation and creating employment, debris recycling also creates an important business opportunity.” Indeed, construction companies in Mosul have expressed interest in purchasing the recycled aggregate, thereby underscoring the longer-term sustainability of debris recycling.

“This project supports recovery and livelihoods by drawing on principles of a circular economy, wherein waste and land pollution is limited through production processes that reuse and repurpose materials for as long as possible,” explained IOM Iraq Chief of Mission, Giorgi Gigauri. “Collaboration and sustainability are key priorities in IOM’s work toward durable solutions to displacement, and we are pleased to have partnered with UNEP and the Government of Japan so that this is represented not only in the function of the plant itself, but also in its functioning, by supporting local authorities to be prepared to effectively operate the plant moving forward.”

On 28 July 2022, Mosul Municipality hosted an event to officially hand over the debris recycling centre, attended by senior government officials and academia, as well as representatives from IOM, UNEP and the United Nations Assistance Mission for Iraq (UNAMI).

Masamoto Kenichi, Charge d’Affaires, Embassy of Japan to Iraq stated: “We are glad to know that the project funded by the government and people of Japan has contributed to cleanup of debris and reconstruction of Mosul. We would like to commend UNEP, IOM and the city of Mosul for their tremendous efforts of turning the legacy of ISIL’s devastation into building blocks of reconstruction”.

Through the rubble recycling project, nearly 25,000 tonnes of debris have been recovered and sorted, of which around half was crushed into recycled aggregate. Material testing of the recycled aggregate endorsed by the National Center for Structural Tests of the Ministry of Planning confirms its compliance with the Iraqi State Commission for Roads and Bridges design standards for road foundational layers and its suitability for several low strength end-use applications such as concrete blocks and kerbstones.

The project created 240 much-needed jobs through cash-for-work schemes targeting vulnerable persons, including 40 women.

Building on this experience, IOM has set up two other debris recycling operations in Sinjar and Hamdaniya in Ninewa Governorate, and a third in Hawija in Kirkuk Governorate, where a pilot phase using a mobile crusher was implemented in al-Buwaiter Village in 2021. In addition, two other conflict-affected governorates — namely Salah al-Din and Anbar — have  also shown a high-level of interest in replicating and scaling up debris recycling in their own regions. 

UNEP has been supporting Iraq in cleaning up the huge volumes of debris created by the ISIL conflict since June 2017. Initially, this included carrying out technical assessments and planning workshops with UN-Habitat, and subsequently designing and implementing debris recycling pilot projects to support returns in Mosul, Kirkuk and other conflict-affected areas in cooperation with IOM.

UNEP

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Economy

Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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Economy

Empowering women-led small businesses in Nepal to go digital

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People walk down a street of shops in Kathmandu, Nepal. (file) photo World Bank/Peter Kapuscinski

Authors: Louise Anne Sophie Lavaud and Mitch Hsieh*
Throughout the years, Laxmi Shrestha and her husband saw the opportunities that opening an online shop could bring to her family business.

“Looking at the trend of TikTok and other sites, we thought selling online could help us but we weren’t technically sound,” said Laxmi, the owner ofLaxmi Hastakala Store, in Banepa, Nepal, and part of a family of artisans.

As she learned about selling online, she picked up on how to market her shop digitally and, according to Laxmi: “It has surely given our business a push we always wanted. Recently we started selling our products online and we also receive payments online.”

Laxmi Hastakala Store is among the 1,800 women-led micro, small and medium enterprises (MSMEs) in Nepal being trained on digital and financial literacy by Sparrow Pay – one of the winners of the Women Fintech MSME Innovation Fund launched in 2019 by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations Capital Development Fund (UNCDF).

Sparrow Pay has created a local digital marketplace where women-led MSMEs can offer products and services to its existing 800,000+ digital payment service users. Additionally, Sparrow Pay is supporting these women entrepreneurs in adopting digital payments and creating a payment history to support access to additional financial services.

MSMEs are a vital source of employment and a significant contributor to a country’s GDP. However, more than 45 per cent of MSMEs in Asia and the Pacific are constrained from accessing finance and other support for their businesses. Socio-cultural norms mean women-led enterprises have to overcome gender-specific barriers to access institutional credit and other financial services.

ESCAP and UNCDF aim to encourage easy access to digital finance for MSMEs in Asia and the Pacific, break the financial barriers surrounding women-led enterprises and support entrepreneur-centric growth and inclusiveness throughout the region. Initiatives by the 10 winning fintech companies are currently supporting more than 9,000 women-led MSMEs in Bangladesh, Cambodia, Fiji, Myanmar, Nepal, Samoa and Viet Nam.

Just like Laxmi, these women business owners plan on successfully growing their companies in the digital area.

The Women Fintech MSME Innovation Fund is part of a regional programme “Catalyzing Women’s Entrepreneurship: Creating a Gender-Responsive Entrepreneurial Ecosystem,” which seeks to support the growth of women entrepreneurs in Asia and the Pacific by enabling a policy environment for such business owners, providing them with access to finance and expanding the use of ICT for entrepreneurship.

*Mitch Hsieh Chief, Communications and Knowledge Management Section

UNESCAP

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