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Analysis The Determinants Of Micro Enterprises Graduation


  • Ascarya

    () (Bank Indonesia)

  • Siti Rahmawati

    () (Bank Indonesia)


Micro Enterprises (MEs) account for 55.86 million or 98.9% of total enterprises in Indonesia employing more than 90% of its people, but almost all MEs never graduate to Small Enterprises (SEs). This study aims to analyze the determinants and design the model of MEs graduation using field survey, Structural Equation Modeling (SEM) and Strategic Assumption Surfacing and Testing (SAST) methods. Survey results reveal that MEs and SEs (MSEs) are home/shop operated informal business in manufacturing or trade sectors, which is easy to enter/exit with simple technology; operated by low educated and lack experience people, or by educated entrepreneurs; financed by their own capital; and knowledgeable about their products but having problems to win the market. Unstable macroeconomic conditions and lack of external supports could not stop them to survive. They are in dire need of any kind of assistances, especially managerial, financial, technical, marketing, entrepreneurship, leadership and mindset change. SEM results show that the main determinants of ME graduation are Standard Operating Procedure and Information Technology (MANAGEMENT Know-how), Market (BUSINESS Characteristics), Infrastructure and Macroeconomic Condition (EXTERNAL), and Family Support (SUPPORT). Other important determinants are Visionary, Entrepreneurship and Business Experience (OWNER of Business) and Skilled Human Resources (RESOURCES). Most MSEs do not have the main key factors to success and graduate. Religious Islamic characteristics, do not emerge as the main key success factors of ME graduation. However, they are necessary factors, such as Spiritual uplift, Trustworthy (Amanah), and Truthful (Siddiq). SAST results show that the most important policies needed by MSEs are price stability and infrastructure (EXTERNAL), capital and financing support (SUPPORT), easy & cheap way of doing business and strategic location (BUSINESS Characteristics), easy & cheap access to finance & raw material and availability of appropriate technology (RESOURCES).

Suggested Citation

  • Ascarya & Siti Rahmawati, 2015. "Analysis The Determinants Of Micro Enterprises Graduation," Working Papers WP/1/2015, Bank Indonesia.
  • Handle: RePEc:idn:wpaper:wp012015

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    References listed on IDEAS

    1. Jasra, Javed Mahmood & Khan, Muhammad Asif & Hunjra, Ahmed Imran & Rehman, Rana Aziz Ur & Azam, Rauf i, 2010. "Determinants of business success of small and medium enterprises," MPRA Paper 40685, University Library of Munich, Germany.
    2. M. Kabir Hassan & William J. Hippler, III, 2014. "Entrepreneurship and Islam: An Overview," Econ Journal Watch, Econ Journal Watch, vol. 11(2), pages 170-178, May.
    3. Ivan Stefanovic & Sloboda Prokic & Ljubodrag Rankovic, 2010. "Motivational and success factors of entrepreneurs: the evidence from a developing country," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 28(2), pages 251-269.
    4. Robert E. Quinn & Kim Cameron, 1983. "Organizational Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence," Management Science, INFORMS, vol. 29(1), pages 33-51, January.
    5. Ian I. Mitroff & James R. Emshoff & Ralph H. Kilmann, 1979. "Assumptional Analysis: A Methodology for Strategic Problem Solving," Management Science, INFORMS, vol. 25(6), pages 583-593, June.
    6. Mead, Donald C. & Liedholm, Carl, 1998. "The dynamics of micro and small enterprises in developing countries," World Development, Elsevier, vol. 26(1), pages 61-74, January.
    7. Hampel-Milagrosa, Aimée, 2014. "Micro and small enterprise upgrading in the Philippines: the role of the entrepreneur, enterprise, networks and business environment," Studies, German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), volume 86, number 86, November.
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    More about this item


    Micro and Small Enterprises; Graduation; Microfinance; Islamic Entrepreneur;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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