By When discussing the business world in Indonesia, two terms that often come up are UKM and UMKM. Both are the backbone of the national economy, but many of you might still be confused about the difference between UKM and UMKM.
Understanding this difference is essential, especially for those of you who want to start a business or grow an existing one. By knowing the appropriate criteria and scale of a business, you can develop more effective strategies for business growth.
Read also: Easier, Automatic, and Real-Time Transactions with API Disbursement
What Are UKM and UMKM?
UKM is a type of business that has grown larger than micro-enterprises but is still not classified as a large company. In practice, UKM generally has more stable operational systems and better access to capital for business expansion.
Meanwhile, UMKM includes businesses of all sizes, ranging from micro, small, to medium. In other words, UKM is actually a part of UMKM, but UMKM also encompasses micro businesses, which are smaller in scale.
Read also: How to Choose the Best Virtual Credit Card Services
See How Jack Can Help Your Company
The Difference Between UKM and UMKM Based on Key Criteria
To make it clearer, here’s a comparison between UKM and UMKM based on several key aspects:
| Aspect | UKM (Small and Medium Enterprises) | UMKM (Micro, Small, Medium Enterprises) |
|---|---|---|
| Business Scale | Small and medium enterprises. | Micro, small, and medium enterprises. |
| Initial Capital | Rp50 million – Rp5 billion. | Rp1 million – Rp10 billion. |
| Annual Revenue | Rp300 million – Rp50 billion. | Rp50 million – Rp50 billion. |
| Legal Status | Can be a legal entity (PT, CV, cooperative). | Many are still individual or informal. |
| Coaching | Managed by provincial and national governments. | Coached by district, city, and national levels. |
| Tax | Final Income Tax 0.5% if revenue ≤ Rp4.8 billion. | Same, but medium enterprises may face higher taxes. |
From the table above, we can see that micro businesses are part of UMKM and are smaller in scale compared to UKM. This means that smaller businesses can grow into UKM as their capital and revenue increase.
Regulations and Government Policies
To support business growth, the government has set several regulations and policies, including:
Laws and Regulations Governing UKM and UMKM
- Law No. 20 of 2008 concerning UMKM as the primary foundation for developing small businesses in Indonesia.
- Government Regulation No. 7 of 2021 which clarifies the limits and categories of UMKM.
- Government Regulation No. 23 of 2018 about taxes for UKM and UMKM, with a 0.5% final tax rate for businesses with revenue below Rp4.8 billion per year.
Government Assistance and Programs
The government also provides various assistance for businesses that want to grow, such as:
- People’s Business Credit (KUR) with low interest rates.
- Capital assistance for micro businesses from various regional government programs.
- Training and digitalization of businesses to enhance competitiveness in the market.
Challenges and Solutions for UKM and UMKM
Every business faces challenges, especially micro and small enterprises that are still in the development phase. One of the main obstacles is access to capital. Many entrepreneurs struggle to secure initial or additional capital for expansion.
Competition with large businesses is also another challenge. Products from large companies are often more well-known and have extensive distribution networks, so small businesses must work harder to stay relevant in the market. Additionally, regulations and tax administration can be a hurdle for many entrepreneurs, especially those who are not familiar with managing permits or business taxes.
However, there are various solutions that can be implemented to overcome these challenges. One of them is utilizing digital platforms such as marketplaces, social media, and business websites to reach a wider market. In addition, collaborating with other businesses can be a smart strategy to expand the business network. Innovation in products and services should also be continuously done to keep the business attractive to consumers and competitive in the market.
Opportunities for Expanding UKM and UMKM
Business opportunities in the local market are still vast for UKM and UMKM. With the growing online shopping trends, many small businesses can now sell their products through local marketplaces like Tokopedia and Shopee without needing a physical store. Additionally, participating in government coaching programs or business communities can be a strategic step to gain support and improve business skills.
For UKM that want to expand, entering international markets also offers an attractive opportunity. By utilizing export platforms like Alibaba and Amazon, small businesses can reach customers abroad. However, this requires thorough preparation, such as obtaining certifications and international standards to ensure products are accepted in global markets.
Use Jack for Your Business Needs
Managing a business can be challenging, especially with efficient financial management. That’s why we recommend Jack, an All-In-One Account platform that simplifies your company’s financial transactions. With Jack, you can manage bill payments, local transfers, international transfers, and Corporate Cards all in one easy-to-use platform.
Don’t let business finances become a barrier to growth. Register your company now on Jack and manage business transactions more easily and with control!
