Opening Opportunities THE ECONOMIC COST OF GENDER GAPS IN ENTREPRENEURSHIP IN INDONESIA © [2023] International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Further permission required for reuse. iii Acknowledgements This report was produced as a collaborative effort between the World Bank’s Finance, Competitiveness and Innovation Global Practice (FCI), Social Sustainability and Inclusion (SSI) Global Practice, and the East Asia and Pacific Gender Innovation Lab (EAPGIL). It was written by Salman Alibhai, Aufa Doarest, Jescinta Isimeme Izevbigie, Forest Jarvis, and Hillary C. Johnson. The report integrated analysis provided by Bayu Agnimaruto and Rahadiyan Yana and qualitative research conducted by Romi Hartarto, Kindy Marina, and Mulyana Noy. The team also received valuable feedback and suggestions from Elizaveta Perova, Megha Kapoor, Alvaro Gonzalez, and the Australia Department of Foreign Affairs and Trade (DFAT). Special consideration is given to the Indonesian Business Women’s Association (IWAPI) and the Indonesian Employer’s Association (APINDO) for their continual support and deep collaboration in utilizing their expansive business networks across the women MSME space to facilitate the qualitative data collection. This engagement is reflective of their jointly shared goal to champion collaborative efforts that will strengthen the business ecosystem for women entrepreneurs. The World Bank is deeply thankful and appreciative of their steadfast efforts in supporting this report. Financial support for this work was provided by the Government of Australia’s Department of Foreign Affairs and Trade through the Australia-World Bank Indonesia Partnership (ABIP). EAPGIL is supported by the Umbrella Facility for Gender Equality (UFGE) in partnership with the Australian Department of Foreign Affairs and Trade. UFGE has received generous contributions from Australia, Canada, Denmark, Finland, Germany, Iceland, Ireland, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, the United States, the Bill and Melinda Gates Foundation, and the Wellspring Philanthropic Fund. iv Opening Opportunities | Table of Contents Table of Contents Acknowledgements iv List of Figures v List of Boxes vi Executive Summary 1 List of Acronyms 3 Introduction 5 Are There Gender Gaps in Entrepreneurship in Indonesia? 9 What Constrains Female Entrepreneurship in Indonesia? 15 How Much Do Gender Gaps in Business Performance Cost the Indonesian Economy? 39 What Can Be Done to Address Gender Gaps in Entrepreneurship in Indonesia? 43 List of Figures Figure 1: Share of firms owned or run by women 10 Figure 2: Gender gaps in revenues are larger for microbusinesses 11 Figure 3: Gender differences in revenues are concentrated 12 among the smallest firms Figure 4: Micro and small businesses owned/run by women 13 earn lower profits than those owned or run by men Figure 5: Conceptual framework to understand gender gaps 16 in entrepreneurship Figure 6: Women’s businesses have fewer hired workers 17 than men’s businesses Figure 7: Gender gaps in profits and revenues shrink after 20 accounting for gender differences in hired labor Figure 8: Women’s micro and small businesses have lower levels 22 of capital than men’s businesses Figure 9: The sources of capital and loans vary across women- 24 and men-owned firms Figure 10: After the birth of their first child, women are more likely 30 to be entrepreneurs and less likely to be wage workers Figure 11: Women-owned manufacturing businesses operate 32 for fewer hours per day than those owned by men v Opening Opportunities | Table of Contents Figure 12: Female microentrepreneurs are more likely to run 33 their business out of their home than their male peers Figure 13: Shorter hours of operation among women-owned 34 firms partly explain gender gaps in profits Figure 14: Female microentrepreneurs are less educated than 35 male microentrepreneurs, and small business owners are more educated than microbusiness owners Figure 15: Gender differences in formal education are 36 associated with the gender gap in microenterprise profits Figure 16: Economic cost of intensity gap from micro and 40 small manufacturing firms in Indonesia in 2015 (Rp million) Figure 17: Economic cost of participation gap, and total cost 42 of gender bias in micro and small manufacturing firms in Indonesia, 2015 (Rp million) List of Boxes Box 1: How does this report explore gender gaps 7 in entrepreneurship in Indonesia? Box 2: How does the legal and regulatory environment in 29 Indonesia affect female entrepreneurs? vi Opening Opportunities | Executive Summary Executive Summary This report examines the state of female entrepreneurship in Indonesia, outlines major binding constraints and gender gaps, and highlights the untapped potential that could be realized if key barriers were lifted. The report draws on quantitative analysis of household- and firm-level surveys, the collection and review of qualitative work with male and female entrepreneurs across the country, a review of global evidence on gender and entrepreneurship, and analysis of relevant policies, laws, and regulations in Indonesia. The report also offers a novel analysis of the potential economic dividends from closing gender gaps in business performance in Indonesia. The Indonesian economy features significant gender gaps in both firm ownership and performance. Women are approximately as likely as men to own microbusinesses, but men own more than 75 percent of small and medium 1 Opening Opportunities | Executive Summary Female enterprises (SMEs). Moreover, female-owned firms tend to record entrepreneurs lower profits and revenues than those owned by men, particularly among microbusinesses. For example, in the manufacturing interviewed sector, the revenues of female-owned microbusinesses are on described average 65 percent lower than those of their male-owned peers. traditional The gap is narrower among small businesses, at 37 percent, but the rate of female ownership of such firms remains low. gender norms as compromising Gender gaps in profits and revenues are largely attributable to business characteristics that stem from gender-specific their success barriers. Female-owned businesses typically have much lower in business, levels of capital than male-owned businesses. In particular, particularly female-owned firms tend to have significantly fewer employees, and are much more likely to rely on unpaid labor, than those with regards to owned by men, with negative effects on their productivity and acquiring capital, growth potential. Female-owned businesses also have lower hiring workers, levels of physical and financial capital—especially startup capital—partly due to discriminatory lending practices that and networking constrain their access to credit. Gender norms and the unequal with other burden of domestic work further constrain women’s participation entrepreneurs. in business activities. Female entrepreneurs interviewed for this report described traditional gender norms as an obstacle to accumulating capital, hiring workers, and networking with other entrepreneurs—in short, to their success in business. A lack of childcare options, as well as societal expectations that women should be responsible for the vast majority of child- rearing duties, force many women to limit the time they dedicate to entrepreneurship, and to keep their businesses within or near their homes. Mitigating the constraints faced by female entrepreneurs, and closing gender gaps in firm profits, revenues and ownership, could yield major economic dividends for Indonesia. Estimates using firm-level data from Indonesia show that if the revenues of women-owned businesses were to rise to the level of their men- owned peers, the annual economic benefits could total up to Rp 6.5 trillion (US$428 million). These benefits are likely understated as they account for closing gender gaps after controlling for differences in firm characteristics. Closing gender gaps in capital and hired labor would likely boost the country’s economy even further. 2 Opening Opportunities | Executive Summary Indonesia has made major strides in creating a legal framework List of that largely puts male and female entrepreneurs on equal footing. However, pre-existing gender inequalities leave room for Acronyms gender-specific legal reforms. In particular, anti-discrimination EC laws in the private sector can be strengthened, with a focus 2016 Economic Census on fostering entrepreneurship. Gender gaps also exist in the implementation of policies to promote entrepreneurship, IFLS suggesting a need for stricter reporting requirements—including Indonesian Family the provision of gender-disaggregated implementation data. Life Survey Closing gender gaps requires a concerted, multi-pronged IMK policy approach that targets the constraints faced by female 2015 Survey of Micro and entrepreneurs. The final section of this report provides a Small Enterprises (Survei breakdown of evidence-based policies that can benefit women Industri Mikro dan Kecil) in business in Indonesia. One area of focus is the provision of MSME targeted support to female entrepreneurs—including business Micro, small and skills training, networking assistance, and the deployment medium enterprises of startup capital on a competitive basis. Moreover, certain requirements for formal lending can be revisited, to ensure credit SME is available to female entrepreneurs on favorable terms. Equally Small and medium valuable are policies that lessen the disproportionate burden of enterprises domestic care shouldered by women—in particular, expanding WBES the availability of childcare services, and extending hours of World Bank operation for preschools and childcare centers to better cover Enterprise Surveys women’s working hours. Importantly, traditional gender norms often create significant barriers for women in the private sector, and need to be accounted for when designing and implementing policies in support of female entrepreneurship. 3 Opening Opportunities | Introduction 4 Opening Opportunities | Introduction Introduction Female entrepreneurs in Indonesia lag behind their male counterparts on many fronts. Women are less likely than men to own small and medium enterprises (SMEs), and female micro-entrepreneurs earn lower profits than their male peers. Such gender gaps are explained by gender norms and market failures that hinder women’s access to entrepreneurial inputs (e.g., time for own labor, hired labor, business skills, and capital), and closing them could provide a major boost to Indonesia’s economic growth. To unleash this untapped potential, Indonesian policy makers can explore interventions that enhance women’s skills, increase access to capital, facilitate hiring and training workers by women-owned businesses, and decrease women’s domestic care burden. 5 Opening Opportunities | Introduction This study draws This study draws upon quantitative analysis of existing upon quantitative data, the collection and assessment of new qualitative data, policy analysis, and a review of global evidence to analysis of existing understand gender gaps in entrepreneurship in Indonesia. It data, the collection further estimates the costs of these gender gaps, and sheds and assessment of light on what can be done to close them. The report focuses on micro, small, and medium enterprises (MSMEs) which new qualitative data, comprise over 99 percent of firms in Indonesia.1 The owner’s policy analysis, and gender has a greater influence on outcomes for MSMEs than a review of global it does for large businesses, which are more likely to have multiple owners or be part of a larger corporation. As gender evidence to understand gaps in entrepreneurship in Southeast Asia have been gender gaps in shown to vary based on firm size (World Bank 2022), this entrepreneurship in report also analyzes them across two types of businesses: Indonesia. microbusinesses, which are defined as having fewer than five paid employees; and small and medium enterprises (SMEs) are defined as having between five and 100 employees.2 Box 1 provides more methodological details. 1 Calculations based on the 2016 Economic Census. 2  his report defines business size by number of workers, since information on T firm assets and revenues is not available in all the data sets analyzed. 6 Opening Opportunities | Introduction Box 1. How does this report explore gender gaps in entrepreneurship in Indonesia? Quantitative analysis of existing data revenue and profits) and characteristics of micro and small businesses3 in the We relied on four pre-existing sources of data manufacturing sector. This survey is to measure gender gaps in entrepreneurship, used to complement other data sources, identify factors associated with them, as it includes both micro and small and estimate their economic cost: businesses in the same dataset and • The 2016 Economic Census (EC) information on both revenues and profits. provides basic information on size, Collection of qualitative data ownership, location, and formality for all firms in Indonesia. The EC offers To complement the abovementioned the most reliable information on datasets, in November and December 2022 gender gaps in business ownership, we conducted in-depth interviews with 63 but does not capture gender gaps micro, small, and medium entrepreneurs in business performance. (41 women and 22 men) in four Indonesian provinces: West Sumatra, DKI Jakarta, DI • The Indonesian Family Life Yogyakarta, and East Nusa Tenggara. The Survey (IFLS) includes a module collection and analysis of such qualitative on household businesses (which data aimed to better understand the drivers of are mostly microbusinesses), and gender gaps that cannot be easily assessed rich information on the personal, with quantitative tools, and to identify major household, and community-level constraints for female entrepreneurs. characteristics of entrepreneurs associated with them. We used panel Policy analysis data from the 2000, 2007, and 2014 We reviewed 24 applicable policies, laws, and rounds of the IFLS to assess factors regulations, to assess the extent to which associated with the choice to open a they may constrain female entrepreneurs microbusiness, measure gender gaps in Indonesia. Specifically, we aimed to in microbusiness profits, and identify identify provisions that explicitly treat men features correlated with these gaps. and women differently, as well as formal • The World Bank Enterprise Surveys rules that may reinforce or interact with (WBES) captures information on gender-related cultural norms in a way that formal businesses with five or more contributes to inequality of outcomes. employees. We used it to assess gender gaps in SME revenues. Review of global evidence • The 2015 Survey of Micro and Small To identify potential ways of addressing the Enterprises (Survei Industri Mikro constraints highlighted by our research, we Dan Kecil, or IMK) offers information reviewed rigorous academic literature, as well on the performance (including both as evidence from other countries in the region. 3  he IMK defines “micro enterprises” as those with 1 to 4 employees, and “small enterprises” as those with T 5 to 19 employees. 7 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? 8 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? Are There Gender Gaps in Entrepreneurship in Indonesia? Female entrepreneurs own or run microbusinesses at similar rates as men, but are much less likely to own or run SMEs (Figure 1). The exact share of firms owned or run by women varies slightly by dataset, but the trend is consistent:4 women in Indonesia own or run between 43 percent and 49 percent of microbusinesses, but less than a quarter of SMEs. 4  he discrepancies are likely due to the differences in the populations of firms T captured by each dataset. The EC includes both formal and informal firms across all sectors, whereas the IMK covers only manufacturing firms, and the WBES only formal businesses. Moreover, the IFLS does not capture firm ownership; therefore, we used the gender of the person primarily responsible for the business as a proxy. 9 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? Figure 1. Share of firms owned or run by women 49% 50% 44% 43% 40% 30% 22% 20% 16% 15% 10% 0 EC IFLS IMK IMK EC WBES Note: Dotted red line indicates gender parity in business ownership. IFLS data does not reflect firm ownership, but rather the share of firms for which women are primarily responsible. The acronyms refer to the data sources described in Box 1. Female entrepreneurs Gender gaps in revenues are most salient for own or run microbusinesses. Figure 2: Panel A shows that among microbusinesses in the manufacturing sector, the microbusinesses at revenues of women-owned firms are 64.9 percent lower similar rates as men, than those of their men-owned peers; for small firms5, but are much less likely the gender gap in revenues is much narrower, at 36.8 percent. Considering SMEs in both manufacturing and to own or run SMEs. services, the revenues of women-owned firms are 46.8 percent lower than those of their male-owned peers; however, the gap shrinks and becomes statistically insignificant when controlling for the different characteristics of men- and women-owned businesses— such as sector, number of workers, assets, and number of loans (Figure 2: Panel B). 5 The IMK defines small firms as those with between 5 and 19 employees,  while microbusinesses are those with between 1 and 4 employees. 10 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? Figure 2. Gender gaps in revenues are larger for microbusinesses Panel A: Raw Gender Gap in Revenue, by Firm Size Micro Small SME 0 -10% -20% -30% -40% -36.8% -50% -46.8% -60% -64.9% -70% -80% Panel B: Gender Gap in Revenues After Controlling for Differences in Characteristics, by Size Micro Small SME 0 -5 -10 -15 -20 -25 -27.3% -30 -35 -33.7% -40 -37.8% Note: bar colors indicate statistical significance. Dark blue=1% level, light blue=5% level, no color=statistically insignificant. The acronyms refer to the data sources described in Box 1. 11 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? Gender differences in revenue become less pronounced Gender differences as firm size increases. Figure 3 shows the distribution of in revenue become revenues across firms of different sizes, by gender of the less pronounced as firm’s owner. Women-owned microbusinesses earn lower revenues than men-owned microbusinesses across the firm size increases. distribution (Panel A). The same is true among small businesses across the distribution (Panel B), but gender- related revenue differences are narrower than those found among microbusinesses. When considering SMEs, differences in revenues by gender are concentrated at the bottom of the distribution, among the smallest firms in the group (Panel C). Figure 3. Gender differences in revenues are concentrated among the smallest firms Panel A: Monthly Revenue of Panel B: Monthly Revenue of Micro-Businesses, by Gender Small Businesses, by Gender .4 .25 .2 .3 Kemel density Kemel density .15 .2 .1 .1 .05 0 0 8 12 16 20 24 8 12 16 20 24 Log monthly revenue Log monthly revenue Male Female Male-micro Female-micro Panel C: Annual Revenue of SMEs, by Gender .4 .3 Kemel density .2 .1 0 15 20 25 30 35 Log revenue Male Female Notes: Panels A and B show revenues from the IMK, which covers manufacturing firms. Panel C shows revenues from the WBES, which covers both manufacturing and services. 12 Opening Opportunities | Are There Gender Gaps in Entrepreneurship in Indonesia? Raw gender gaps in profits are wider for manufacturing firms shrinks by 41 percent microbusinesses than for small businesses, (Figure 4: Panels A and B)—indicating that but after accounting for the different these variables explain a large proportion characteristics of men’s and women’s firms, of the profit differential among such firms. the gap shrinks by a larger margin for Similarly, considering microbusinesses microbusinesses. The profits of women- from various sectors, controlling for the owned manufacturing microbusinesses are different characteristics of men’s and 58.6 percent lower than those of their men- women’s businesses reduces the gender owned peers, while the gap narrows to 37.4 gap in profits from 40.4 percent to 27.8 percent among small businesses (Figure 4: percent—a 31 percent reduction. In contrast, Panel A). After accounting for differences in after accounting for differences in the firm characteristics (such as sector, number characteristics of small firms across sectors, of workers, assets, and number of loans), the gender gap in profits only drops from 37.4 the gender gap in the profits of micro-scale percent to 30.7 percent. Figure 4. Micro and small businesses owned/run by women earn lower profits than those owned or run by men Panel B: Gender Gap in Profits Panel A: Raw Gender Gap in After Controlling for Differences Profits, by Firm Size in Characteristics, by Size IFLS IMK IMK IFLS IMK IMK 0 0 -5 -10 -10 -20 -15 -30 -20 -40 -37.4% -40.4% -25 -50 -27.8% -30 -30.7% -60 -58.6% -35 -34.5% Note: bar colors indicate statistical significance. Dark blue=1% level, light blue=5% level, no color=statistically insignificant. 13 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? 14 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? What Constrains Female Entrepreneurship in Indonesia? Gender gaps in entrepreneurial outcomes are linked to gender gaps in entrepreneurial inputs, including time for own labor, hired labor, business skills, and capital (Figure 5). Women often have to rely on lower levels of entrepreneurial inputs relative to men, due to gender norms, market failures that affect men and women differently, and legal distortions that constrain their choices and shape their preferences about how to allocate scarce resources. In Indonesia, as in other countries in Southeast Asia, gender gaps in the availability of inputs are associated with a gender gap in microenterprise profits. Similarly, as the need for entrepreneurial inputs increases with the size of the firm, the rate of female ownership is lower among SMEs than among microbusinesses. Notably, women who successfully run SMEs have different characteristics and greater access to inputs than women who own and run microbusinesses; thus, the performance of women-owned SMEs is closer to that of their men-owned peers. 15 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 5. Conceptual framework to understand gender gaps in entrepreneurship Source: World Bank (2022) Women’s businesses Differences in have fewer paid Firm Characteristics employees and rely Women’s businesses have fewer paid employees and more on unpaid labor rely more on unpaid labor than men’s businesses. than men’s businesses. Between 11 and 13 percent of women’s microbusinesses have at least one paid worker, versus a share of between 26 and 35 percent of men’s microbusinesses (Figure 6: Panel A). Regardless of firm size, women’s businesses have fewer total workers and fewer paid workers (Figure 6: Panel B), while a greater share of their workers is unpaid (Figure 6: Panel C). Unpaid staff may be less reliable and have fewer incentives to exert effort than paid staff, with negative effects on business productivity and growth. 16 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 6. Women’s businesses have fewer hired workers than men’s businesses Panel A: Share of Microbusinesses with Any Paid Workers 35% 35 30 26% 25 20 15 13% 11% 10 5 0 IMK IFLS Male Female 17 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Panel B: Average Number of Paid and Unpaid Workers, by Gender and Size 15 12 9 6 3 0 Female Male Female Male Female Male Female Male Paid Unpaid 18 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Panel C: Share of Microbusiness Workers Who Are Unpaid, by Gender 100 92% 78% 80 72% 60 40 33% 20 0 IFLS IMK Male Female The gender gap in microenterprise profits shrinks The gender gap in by between 10 and 27 percent, and the gender gap microenterprise profits in SME revenues becomes statistically insignificant, shrinks by between after accounting for the lower levels of hired labor in women’s businesses (Figure 7). Across datasets and 10 and 27 percent, firm sizes, controlling for the lower amount of hired and the gender gap labor in women’s businesses attenuates the gender in SME revenues gap in profits and revenues. Specifically, the gender gap shrinks by 10 percent, with regard to the profits of becomes statistically microenterprises across sectors; and by 27 percent and insignificant, after 30 percent, respectively, with regard to the profits and accounting for the revenues of manufacturing microenterprises. Similarly, the gender gap in SME revenues narrows by 37 percent lower levels of hired and becomes statistically insignificant once gender labor in women’s differences in paid employment are accounted for. businesses. 19 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 7. Gender gaps in profits and revenues shrink after accounting for gender differences in hired labor Panel A: Gender Gap in Profits Before and After Accounting for Gender Differences in Hired Labor IFLS IMK IMK 0 -10 -20 -30 -36.6% -35.4% -40 -37.4% -40.5% -42.8% -50 -60 -58.6% Gap without controlling for labor Gap after controlling for labor 20 20 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Panel B: Gender Gap in Profits Before and After Accounting for Gender Differences in Hired Labor Micro Small SME 0 -10 -20 -30 -29.6% -34.1% -40 -36.9% -45.3% -50 -46.8% -60 -64.9% -70 -80 Gap without controlling for labor Gap after controlling for labor Note: bar colors indicate statistical significance. Dark blue=1% level, light blue=5% level, no color=statistically insignificant. Women’s micro and small businesses by men (Figure 8: Panel B). Women-owned have lower levels of capital than men’s small manufacturing businesses also tend to businesses. Between 2000 and 2014, female have lower levels of assets than their men- microentrepreneurs had less than half the owned peers, but the gender-based asset amount of start-up capital as their male peers, gap in this group of firms is concentrated and a gender gap in start-up capital exists within those with fewer than 5 employees all along the distribution of microbusinesses (Figure 8: Panel C). Moreover, a lack of capital (Figure 8: Panel A). Such gender differences remains an obstacle to starting, running, persist across sectors, and thus do not and growing a business for both male and stem from a potential concentration of female entrepreneurs. The lack of capital women in less capital-intensive industries. also hampers the acquisition of productivity- Similarly, women-owned manufacturing enhancing technologies to meet increased microbusinesses across the distribution consumer demand. have lower asset levels than those owned 21 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 8. Women’s micro and small businesses have lower levels of capital than men’s businesses Panel A: Distribution of Start-up Capital for Microbusinesses in Indonesia, by Gender Panel B: Firm Asset by Gender-size Kernel Density Estimate: Log of Startup Capital for Business 1 .2 .25 .15 .2 Kemel density .1 Kemel density .15 .05 .1 0 0 5 10 15 20 .05 Log of startup capital for business 1 0 kernel = epanechnikov, bandwidth = 0.3295 5 10 15 20 25 Male Female Log firm asset Male-micro Female-micro Panel C: Firm Asset by Gender-size .3 .2 Kemel density .1 0 5 10 15 20 25 Log firm asset Male-micro Female-micro Source: Panel A: IFLS, Panels B and C: IMK 22 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Female owners of micro and small businesses are Female owners of micro more likely than their male peers to rely on savings and and small businesses reinvested profits to finance their businesses. Although are more likely than a majority of both male and female micro and small entrepreneurs mainly rely on savings to start or run their their male peers to businesses, the share of those who do so is greater rely on savings and among women (Figure 9: Panel A). Most entrepreneurs reinvested profits interviewed relied on savings from their personal savings accounts or contributions from partners and family to finance their members in order to launch their business. Meanwhile, businesses. female microentrepreneurs are much less likely than male microentrepreneurs to take out formal bank loans, and much more likely to use contributions from family, to start their businesses (Figure 9: Panel B). While start- up capital from relatives may be essential, the informal terms and obligations to family members that come with it may hinder women’s control over the profits of their firms. Notably, the pattern reverses for small businesses; female small business owners are more likely to use bank loans, and less likely to use loans from family, than their male counterparts. 23 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 9. The sources of capital and loans vary across women- and men-owned firms Panel A: Main Source of Capital Female-small 36% 64% Male-small 45% 55% Female-micro 15% 85% Male-micro 19% 81% 0 20 40 60 80 100 From other Own account Panel B: Main Source of Loans 80 70 60 50 40 30 20 10 0 Bank Cooperatives Non-bank financial Individual Family institution Male-micro Female-micro Male-small Female-small 24 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? What did female entrepreneurs tell us? Women’s MSMEs are not well served though she was seeking a loan for her own by the financial system, particularly business, the bank‘s internal policy required private commercial banks. her spouse’s financial history to be reviewed as well (a rule that does not apply when Although female entrepreneurs are a man requests a loan). Due to concerns generally aware of government programs about borrowing from banks, another female for microenterprises, which could help them entrepreneur in West Nusa Tenggara had obtain low-interest loans, many are reluctant sought other types of resources to grow her to borrow from banks out of fear of being business. Notably, she received multiple unable to repay.6 According to a female forms of in-kind support from a major hotel entrepreneur in West Nusa Tenggara, unfair chain, assistance on the digitization of her and discriminatory lending practices hamper firm from the Ministry of Communication the expansion of women’s businesses. and Information Technology, and business When this entrepreneur sought to take out skills development and training from Bank a loan to expand her business, her request Indonesia (the country’s central bank) and was rejected because her husband had an the commercial bank Mandiri Bank.7 outstanding loan payment with the bank. Even 6 Interview in DI Jakarta 7 Interview by in DI West Nusa Tenggara Gender Norms Gender norms hinder women’s ability to hire and manage workers. Although female and male entrepreneurs interviewed for this report asserted that they do not consider gender in the recruitment of staff, they still apply gender stereotypes to the division of labor in their firms. Our interviewees broadly voiced a normative belief that men are better suited for tasks involving physical labor, while tasks requiring precision, accuracy, and administrative management are more appropriate for female employees. Businesses with a mixed-gender staff thereby tend to have more female employees in sales, marketing, and administrative roles, whereas men are primarily employed in technical positions in factories and warehouses.8 Gender norms also compromise the ability of female entrepreneurs to manage staff, and particularly male employees. 8 Interview in DI Yogyakarta 25 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? What did female entrepreneurs tell us? A female entrepreneur in Jakarta, owner of a ceramic and stones business, reported that she employs 14 men and only one woman because she believes men are better suited to the nature of the work—which entails lifting heavy objects and often working overtime.9 A female entrepreneur in Yogyakarta, owner of a batik and souvenir retail shop, relayed that gender norms around women’s roles in society cause her male employees to look down on her, creating a workplace environment marred by dishonesty and lack of trust. Finally, a female entrepreneur in West Nusa Tenggara expressed wariness about hiring men, because she is a widower, but also married women, as she is concerned that their husbands will eventually push them to prioritize household responsibilities over work commitments.10 9 Interview in DI Yogyakarta 10 Interview in DI West Nusa Tengarra Gender norms also emphasize women’s business, working late at night, or purportedly primary role in domestic work, which paying insufficient attention to household and limits the amount of time they can spend family care duties.11 While society expects on labor market activities, including a man to have an established career before running a business. Women in Asia and marriage, for a woman, society expects the Pacific spend, on average, spend four that after marriage, a woman is expected times as long on unpaid care work as men to focus on taking care of the home, rather (International Labor Organization 2018). than advancing her career.12 These attitudes Interviews conducted in the course of are partially encoded into law; for instance, our research suggest that in Indonesia, the Indonesian Marriage Law designates prevailing social norms continue to affect the husband as the party responsible for society’s perceptions of male and female providing the means to support the family, entrepreneurs, often imposing discriminatory while the wife is responsible for managing the stigmas and constraints on the latter. While household.13 male entrepreneurs are socially perceived Financial and emotional support from family as capable of managing a business full- members can both enable and constrain time, women are often only trusted to run female entrepreneurs. Most female one part-time, to better accommodate their entrepreneurs interviewed for this report household responsibilities. Social perceptions noted that support from their partners and position men as being more adept and family members had been crucial for them to flexible in managing a business, while start and run their businesses; however, such women entrepreneurs are often stigmatized support is often conditional on respecting for working outside the home, travelling for 11 Interview in DI Yogyakarta 12 Interview in DI Jakarta 13 Indonesian Marriage Law, Article 34 26 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? certain underlying gender norms. For example, a female entrepreneur in Jakarta said that her husband supported her on the condition that she does not spend the night away from home for work reasons, which has inhibited the growth of her business, and prevented her from expanding her networks and customer base beyond Jakarta.14 Notably, one entrepreneur believed that exposure to a business-minded environment from an early age could help overcome such social constraints, as those who grow up in a commercially focused setting tend to disregard gender as a relevant trait for entrepreneurship.15 14 Interview in DI Jakarta 15 Interview in DI Yogyakarta What did female entrepreneurs tell us? According to an unmarried successful female entrepreneur in Jakarta, Indonesian society maintains a widespread belief that men should be more successful than women. A female entrepreneur in West Nusa Tenggara recounted that in the past, she was a member of an association of women entrepreneurs in West Lombok, which had helped her expand her business network and access to markets; however, since her husband did not approve of her involvement in association activities, she had subsequently limited her engagement, with a negative impact on the growth of her business.16 16 Interview in DI West Nusa Tengarra 27 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Legal Environment Legal distortions may limit access to capital for female entrepreneurs. Indonesian law enshrines the legal right to equal conjugal ownership of assets obtained during marriage.17 In practice, however, traditional social norms assume that husbands hold greater control over financial and physical capital, including capital accumulated by women-owned businesses. Additionally, not all women have equal right to inherit property and capital from parents or spouses; among Muslim Indonesians, surviving male spouses are entitled to inherit twice as much as female spouses, just as sons are entitled to inherit twice as much as daughters.18 These customs help perpetuate structural inequalities, by limiting the ability of women to inherit family-owned businesses, or to pass their own businesses and assets on to female heirs. The legal framework for female entrepreneurship in Indonesia is further discussed in Box 2. 17 Indonesia Marriage Law, Art. 36 18 Compilation of Islamic Laws of Indonesia, Arts. 176, 179, & 180 28 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Box 2. How does the legal and regulatory environment in Indonesia affect female entrepreneurs? In recent decades, Indonesia has made law22 can make it more difficult for women major strides toward ensuring that women to accumulate property, exacerbating gender enjoy the same legal status as men. In differences in access to capital. Furthermore, 1970, only 20 percent of the legal rights certain regional policies—such as curfews afforded to men were also applicable to imposed on women in certain areas—may women, while in 2022 that figure stood at constrain women’s autonomy, and impose more than 70 percent. Notable improvements additional burdens on female entrepreneurs. include the 1974 amendment to laws that The policy environment for female inhibited women’s ability to work, move, entrepreneurship may be largely favorable, or sign contracts without their husbands’ but policy implementation suffers from permission; laws passed in 2004 to prohibit major gaps. Legal reforms have marked real gender-based discrimination in employment, change for women throughout Indonesia, restrictions on women’s labor, and gender- and helped level the playing field for female based violence; and an anti-sexual entrepreneurs. However, the implementation harassment and violence law passed in 2022. of relevant laws has been uneven, in part due Overall, Indonesia’s legal framework is to entrenched gender norms. For instance, supportive of female entrepreneurship. Men women have de jure equal rights to purchase and women have equal rights under the law to and control property, but in practice, traditional acquire and own property, and to administer attitudes may still consider male family their separate and joint properties under members as holding greater decision-making marriage.19 Men and women are considered power. Similarly, while gender discrimination equal in legislation focusing on MSMEs,20 in hiring is legally prohibited, our interviews and the National Strategy for Inclusive with female entrepreneurs revealed this to be Finance recognizes the need for greater a common issue. Discrimination in access financial inclusion for women.21 Regulations to formal credit—such as bank loans and covering private business, the banking microcredit—is also frequently reported, and sector, and the non-banking financial sector is not explicitly prohibited under the law. do not discriminate on the basis of gender, Additionally, various policies and rules that are and at least in theory provide a level playing legally gender-neutral may still leave female field for male and female entrepreneurs. entrepreneurs in a position of disadvantage, due to pre-existing gender imbalances. For Although men and women are largely equal instance, the high capital threshold required before the law, certain policies create to incorporate a formal MSME23 may be additional barriers for female entrepreneurs. especially daunting for female entrepreneurs, In particular, gender inequalities in inheritance due to gender inequalities in access to capital. 19 Art. 36 of Law No. 1 of 1974 of Marriage (Law 1/1974) 20 Arts. 2 and 4 of Law No. 20 of 2008 on MSMEs (Law 20/2008) 21 Section E, Chapter 1, Appendix Presidential Regulation No. 114/2020 on National Strategy for Inclusive Finance 22 Compilation of Islamic Laws of Indonesia, Arts. 176, 179, & 180 23 Arts. 3 and 4 of Government Regulation No. 8 on Companies Authorized Capital and the Registration of  Establishment, Amendment and Dissolution of Companies that meet the Criteria for MSMEs (GR 8/2021) 29 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 10. After the birth of their first child, women are more likely to be entrepreneurs and less likely to be wage workers Panel A: Effect of First Childbirth on Entrepreneurship .4 Selection into entrepreneurship .3 .2 .1 0 -.1 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Years from first childbirth First childbirth Panel B: Effect of First Childbirth on Wage Work .4 .2 Wage work 0 -.2 -.4 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 Years from first childbirth First childbirth Note: Estimates from an event study analysis based on IFLS data. 95% confidence interval is plotted by short-dash lines. 30 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? The Unequal Burden of Domestic Work Domestic work responsibilities can influence women’s decision to become entrepreneurs, as well as how they manage their business. After the birth of their first child, women are more likely to work as entrepreneurs and less likely to be wage workers than before motherhood (Figure 10). Entrepreneurship can offer more flexibility in hours and business location, enabling women to better balance work with childcare responsibilities (Giminez- Nadal, Molina, and Ortega 2012; Lim 2019). Notably, among micro and small manufacturing businesses, women-owned firms are open fewer hours on average than their men-owned peers (Figure 11). Moreover, women’s microbusinesses across sectors are more likely to be operated out of the entrepreneur’s home than men’s microbusinesses (Figure 12). Many female entrepreneurs interviewed for this report cited their domestic duties as a critical reason for starting their business in close proximity to their home. Among entrepreneurs who work from home, both men and women described cost- saving as the main driver of such an arrangement; for women, however, it also provides greater flexibility and ease to simultaneously fulfill household and family care duties. When women run larger businesses, a higher income affords them the means to offset household responsibilities by hiring housekeepers, concurrently freeing up their time to focus on business growth. What did female entrepreneurs tell us? Multiple female entrepreneurs noted that even though they have a job and/or are the primary earners in their households, their husbands still expected them to cook daily for the entire family.24 In another scenario, a female entrepreneur running multiple medium-sized construction companies in Jakarta stated that thanks to the growth of her business, she was able to empower and train her staff to manage day-to-day operations autonomously, thereby affording her more time to spend with her family and focus on business development.25 24 Interview in DI Jakarta 25 Interview in DI Jakarta 31 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 11. Women-owned manufacturing businesses operate for fewer hours per day than those owned by men 10 8.19 7.99 8 7.10 6.23 6 4 2 0 Micro Small Men Women Source: IMK. Gender differences in hours of operation are statistically significant at the 1% level for microbusinesses, and at the 5% level for small businesses. 32 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 12. Female microentrepreneurs are more likely to run their business out of their home than their male peers 59% 60 50 40 34% 30 20 10 0 Male Female Source: IFLS. Gender differences are statistically significant at the 1% level. Strategic choices that are likely influenced those earned by women who work out of a by women’s domestic responsibilities, such separate location.26 Moreover, 21 percent as hours of operation and business location, of female microentrepreneurs declare that are associated with a gender gap in profits, housekeeping is their primary activity. especially among microbusinesses. For Notably, female entrepreneurs who consider example, differences in hours of operation running their business their main activity play a significant role in the gender-related earn 28 percent more profits than their peers profit gap among manufacturing firms— who report a different primary activity, even indeed, when accounting for the shorter after accounting for a range of business hours of operation among women-owned characteristics such as sector and number firms relative to those owned by men, the of employees.27 Finally, female entrepreneurs gender gap in profits shrinks by 12 percent for who have access to time-saving domestic microbusinesses, and by 4 percent for small infrastructure—e.g., cooking fuel that ignites businesses (Figure 13). The profits earned quickly, and a water supply in the household— by women who operate their businesses earn higher profits than those who do not.28 from home are 16 percent lower than 26 Among men, the correlation between profits and business location is not statistically significant.  27 Estimates from a regression using individual fixed effects to account for observed and unobserved characteristics. 28 Higher profits can enable women to invest in time-saving infrastructure and/or rent a separate business location. However, the  fact that female entrepreneurs would consider such investments signals that domestic work remains a constraint they need to address. 33 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 13. Shorter hours of operation among women- owned firms partly explain gender gaps in profits Micro Small 0 -10 -20 -30 -36.0% -40 -37.4% -50 -51.6% -60 -58.6% Before accounting for hours After accounting for hours Source: IMK Gender Gaps in Education profits by 11 percent for firms across sectors, and by 3.8 percent for manufacturing firms and Business Skills (Figure 15). Consistently with evidence from Women tend to be less educated than Vietnam (World Bank 2022), SME owners in men, which contributes to a gender gap in Indonesia tend to be more educated than microenterprise profits and SME ownership. microentrepreneurs (Figure 14: Panel B). This Female microentrepreneurs have, on average, suggests that the lower levels of education lower levels of formal education than male among working-age women relative to men microentrepreneurs (Figure 14). Accounting may be connected to the gender gap in SME for women’s lower levels of education ownership (Figure 14: Panel A). reduces the gender gap in microenterprise 34 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 14. Female microentrepreneurs are less educated than male microentrepreneurs, and small business owners are more educated than microbusiness owners Panel A: Average Years of Education of Entrepreneurs and Working-age Adults, by Gender 10 8.9 8.1 8 7.7 7.1 6 4 2 0 Entrepreneurs Working-age population Men Women Source: IFLS Panel B: Educational Attainment Manufacturing Firm Owners, by Size and Gender Female-small 7% 24% 21% 36% 12% Male-small 9% 23% 24% 34% 10% Female-micro 26% 37% 18% 17% 2% Male-micro 17% 40% 20% 20% 3% 0 20 40 60 80 100 No Schooling Elementary Lower High School Higher High School Higher Education 35 Source: IMK Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? Figure 15. Gender differences in formal education are associated with the gender gap in microenterprise profits IFLS IMK IMK 0 -10 -20 -30 -36.0% -40 -37.4% -38.0% -40.5% -50 -56.4% -60 -58.6% Gap without controlling for education Gap after controlling for education Limited business skills can be an obstacle enhancing skills.29 In addition, technical for women when starting and running a obstacles in finding quality suppliers and firm, while greater access to markets and gaining access to markets for their products networks can boost growth for female-owned further hinder growth for female-owned firms. businesses. In interviews conducted for this Limited business experience, particularly report, female entrepreneurs—particularly among female microentrepreneurs, is often micro-entrepreneurs—cited a lack of business associated with concerns about competition skills as a key barrier to running a firm. Such that lead to fear and anxiety when it comes to skills encompass public speaking, business starting a business.30 confidence, and leadership and management, among others. Many female micro- entrepreneurs noted that staff management duties constrained the time available to them for developing their own business- 29 Interview in DI Jakarta 30 Interview in DI Yogyakarta 36 Opening Opportunities | What Constrains Female Entrepreneurship in Indonesia? What did female entrepreneurs tell us? A female microentrepreneur in Jakarta spoke of her difficulty in confidently presenting and pitching her products to potential buyers, and in appropriately delegating tasks to her staff.31 A female entrepreneur in Jakarta noted that by participating in MSME competitions and other government-organized events, and by selling through online marketplaces and social media (Instagram and TikTok), she was able to expand her business, gain clients in the public and private sectors, and increase sales outside of Jakarta.32 Another entrepreneur in West Nusa Tenggara said that while government institutions do facilitate bazaar and showcase events for microenterprises, as well as meetings with potential buyers, greater coordination and communication among institutions are necessary to ensure that such engagements are better tailored to the business needs of female entrepreneurs.33 31 Interview by Mulyana Noy, DI Jakarta 32 Interview by Mulyana Roy, DI Jakarta 33 Interview by Kindy Marina, DI West Nusa Tenggara The COVID-19 pandemic presented a major challenge for entrepreneurs, but also created opportunities for some. Although the pandemic affected virtually the entire Indonesian economy, SMEs and microbusinesses suffered particularly—with the latter especially vulnerable due to the lack of a social safety net, and limited or negative profitability for many even pre-pandemic. The pandemic-induced economic slowdown caused widespread revenue losses, and forced certain firms to permanently lay off employees. Although some businesses were able to adapt to changing economic priorities—particularly those active in the healthcare sector and related industries—the shocks deriving from the pandemic have magnified the precarious situation of many microentrepreneurs, and the need for additional support and capacity-building. 37 Opening Opportunities | How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? 38 Opening Opportunities | How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? This section aims to provide an approximate estimate of the economic cost of gender gaps in business performance in Indonesia. To do so, we construct a parameter of gender bias using the 2015 IMK—which covers micro and small manufacturing firms—as the key source of data. Due to this data availability and usage, the simulation focuses on manufacturing sector. 39 Opening Opportunities | How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? Gender bias affects women entrepreneurs of this report). The result of this second through intensity and participation effects. stage calculation provides the intensity gap The intensity effect measures the revenue estimation. gap between existing men- and women- The annual cost of the intensity effect in owned businesses within the same sector 2015 and manufacturing sector was Rp 6.48 and size. This intensity gap is calculated trillion (US$426 million), mostly deriving using several steps. First, we calculate the from the revenue gap among micro firms revenue of male entrepreneurs within the (Figure 15). Controlling for several important certain business owner characteristics (e.g., characteristics, firms owned by women, education, age) and firm’s characteristics on average, earn lower revenues than their (e.g., sector, business forms -LLCs, men-owned counterparts. The gap among Cooperatives, CV-, and size). The revenues micro-firms accounts for Rp 5.48 trillion out of these male entrepreneurs are the of the total intensity effect, driven by the large benchmark revenues of the corresponding number of micro-enterprises in Indonesia. For female entrepreneurs. Second, we multiply small firms, the intensity effect amounts to Rp these revenue benchmarks by the estimated 996 billion. coefficient from the gender-gap revenue estimation (covered in the second chapter Figure 16. Economic cost of intensity gap from micro and small manufacturing firms in Indonesia in 2015 (Rp million) 8000 7000 6,480 6000 5,480 5000 4000 3000 2000 996 1000 0 Micro Small All 40 40 Opening Opportunities | How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? The participation effect measures the provides an estimate of the total number economic loss due to the gender-based of additional female entrepreneurs needed differential in entrepreneurial opportunities to achieve gender parity in the sector. We and is estimated at Rp 6.8 billion multiply this number of potential entrants (US$454,000) in 2015 in the manufacturing by the average revenue in that sector to sector (Figure 16). This participation effect estimate the potential revenue for these new is calculated based on the ratio of women- entrepreneurs. owned businesses to total businesses The total economic cost of the 2015 gender in the sector, with a 50 percent ratio gap in entrepreneurship in the manufacturing representing equal access to entrepreneurial sector is estimated at Rp 6.487 trillion, opportunities. In this simulation, we assume equal to 0.27 percent of the manufacturing a participation gap in a sector exists if the sector’s total value added that year. Notably, ratio of woman-owned entrepreneurs is less the intensity effect accounts for 99 percent of than 50 percent (i.e., unequal access). The the total cost. This suggests that creating the economic loss of the participation effect conditions to boost the revenues of existing in a sector is calculated by multiplying the women-owned businesses can yield sizable participation gap (i.e., 0.5 minus existing economic benefits. In addition, addressing the share), the total number of entrepreneurs, constraints faced by women who are already and the average revenue in that sector. The entrepreneurially active may encourage the total number of firms and average revenue creation of more women-owned businesses, are computed using the IMK 2015. The first compounding benefits for the economy as a result, given by multiplying the participation whole. gap and the total number of entrepreneurs, 41 Opening Opportunities | How Much do Gender Gaps in Business Performance Cost the Indonesian Economy? Figure 17. Economic cost of participation gap, and total cost of gender bias in micro and small manufacturing firms in Indonesia, 2015 (Rp million) 8 6,487 7 6 5 4 3 2 1 6.8 0 Economic Cost Total Economic Cost of Gender Bias of Participation Gap in Entrepreneurship 42 Opening Opportunities | What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? Five policy interventions to close gender gaps in entrepreneurship in Indonesia: 1. Promote training programs and networking opportunities, to enhance the skills of female entrepreneurs and deepen their business networks. 2. Provide information, opportunities for peer-to-peer learning, and training on recruiting and managing staff, to facilitate the hiring of paid workers by female entrepreneurs. 3. Expand women’s access to formal credit by addressing discrimination in lending practices, providing start-up capital on a competitive basis, and facilitating the opening of formal bank accounts. 43 Opening Opportunities | What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? 4. Reduce the disproportionate share of field for female entrepreneurs. However, domestic care responsibilities faced gender-blind policies are not always sufficient by women, including by providing to address gender-specific issues, leaving accessible, high-quality, and affordable room for a more targeted approach that childcare, extending maternity leave, and explicitly focuses on women’s needs and encouraging a more balanced distribution challenges. This chapter outlines a set of of domestic work across genders. evidence-based policies, encompassing targeted assistance and capacity-building 5. Help overcome constraining gender norms for female entrepreneurs, as well as legal by introducing formal anti-discrimination and institutional reforms to afford women measures, and making commercial equal access to entrepreneurial inputs. spaces more accessible to women (i.e., The recommended policies fall into five for use as a business location) categories: 1) promote skills development Addressing the needs of female for women; 2) support female entrepreneurs entrepreneurs in Indonesia requires a multi- in hiring and managing workers; 3) expand pronged approach that recognizes existing women’s access to capital; 4) reduce gender inequalities, and targets them with the domestic care burden shouldered by appropriate policies. Indonesia has made women; and 5) introduce legal reforms to commendable advances in gender equality reduce discrimination against women, and before the law, helping to level the playing improve the implementation of existing 44 Opening Opportunities | What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? gender-related policies.34 At the same time, a mindset,36 or training on specific aspects comprehensive policy agenda for supporting of business where female entrepreneur in entrepreneurship across genders is desirable, Indonesia may need additional support.37 as male and female entrepreneurs face many Finally, efforts to promote peer-to-peer of the same barriers to success. learning and network formation have shown great promise in other countries.38 While Closing gender gaps in skills and networks formal and informal business networks can make it easier for female entrepreneurs already exist in Indonesia, there may be room to start and run a business. Many female for making them more accessible to female entrepreneurs interviewed for this report did entrepreneurs—e.g., by promoting women- not feel confident in some of their business focused networking events and organizations; skills, such as public speaking, networking, offering online or other remote networking and leadership and management. Women’s activities, to mitigate women’s mobility and under-representation and lack of visibility financial constraints; and offering childcare in business may constrain opportunities during networking events, or holding such for networking, and thus hinder the ability events when women are less constrained by of female entrepreneurs to establish household duties. partnerships and share skills and resources. Furthermore, patriarchal social norms may The relatively small size of women-owned limit women’s access to resources and social businesses in Indonesia suggests the capital necessary to acquire and practice need for interventions to facilitate hiring, business skills. Female entrepreneurs may managing, and training workers. Female- lack accurate information on the potential owned firms in the country tend to have benefits of business training—particularly fewer employees, and to be more likely to microentrepreneurs, who suffer from the use unpaid workers, than those owned by largest gender skills gap—as well as funds men—a gap that partially explains the gender to invest in it. While standardized business gap in firm profits. Female entrepreneurs cite training can be valuable,35 gender-sensitive social norms, and a lack of self-confidence policies adapted to the Indonesian context in their ability as managers, as reasons why may be especially effective in addressing the they struggle to hire or manage workers. specific concerns of female entrepreneurs. Formal interventions to address information Examples include psychology-based barriers and enhance knowledge of labor training focused on personal initiative or the regulations among entrepreneurs have shown development of a future-oriented, proactive promise for raising MSME employment in 34  or a more detailed breakdown of recommended policies to address gender gaps in entrepreneurship in Southeast Asia, see the F World Bank’s Enterprising Women: Toward a targeted, gender-informed entrepreneurship policy. 35  McKenzie, D. (2020). Small Business Training to Improve Management Practices in Developing Countries Reassessing the Evidence for “Training Doesn’t Work”. World Bank Policy Research Working Paper. 9408. 36 Glaub, M. E., Frese, M., Fischer, S., & Hoppe, M. (2014). Increasing Personal Initiative in Small Business Managers or Owners  Leads to Entrepreneurial Success: A Theory-Based Controlled Randomized Field Intervention for Evidence-Based Management. Academy of Management Learning & Education, 13(3). https://doi.org/10.5465/ amle.2013.0234 37 Anderson, S. J., & McKenzie, D. (2020). Improving Business Practices and the Boundary of the Entrepreneur: A Randomized  Experiment Comparing Training, Consulting, Insourcing and Outsourcing. Policy Research Working Paper, 9502. Retrieved from https://openknowledge.worldbank.org/ handle/10986/34979 38 Cai, J., & Szeidl, A. (2018). Interfirm Relationships and Business Performance. The Quarterly Journal of Economics, 133(3),  1229–1282. https://doi. org/10.1093/qje/qjx049 45 Opening Opportunities | What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? other countries;39 concurrently, peer-to-peer while minimizing the risk of default. Finally, learning may be particularly useful to female legal reforms that enhance women’s right to entrepreneurs, many of which face similar inherit assets and control their own finances challenges related to gender norms at work would help increase the amount of capital and on the market. Training on hiring and available to them. management of staff may be most effective A more balanced distribution of domestic if tailored to the Indonesian context and its care responsibilities can have far-reaching specific gender norms and power dynamics. benefits for female entrepreneurs and Expanding access to capital for women is key wider society. Societal expectations about to supporting potential entrepreneurs and women’s role in the household, particularly in closing gender gaps in MSME performance. relation to childcare and other domestic labor, In Indonesia, women are much more likely strongly constrain the time and resources than men to rely on their own savings, that female entrepreneurs can dedicate to and less likely to take out formal loans, their businesses. Evidence from Indonesia to start a business—particularly among suggests that an expansion of preschools microentrepreneurs. Gender discrimination in nationwide was associated with increases banks’ lending practices and legal distortions in female labor force participation41 and may partially account for the gap in access to firm productivity.42 However, preschools in capital. Interventions that enhance women’s the country are generally only open half the ability to hold formal bank accounts may day, forcing many female entrepreneurs to help boost their savings—an important input work from home and/or limit their working for opening a microbusiness. They may also hours. Thus, increasing the availability of reinforce women’s control over the income high-quality, affordable childcare remains and financial assets of their businesses, a priority. Expanding access to time-saving and facilitate formal borrowing from banks. domestic infrastructure, such as easily Business plan competitions that offer cash ignited cooking fuel or in-home running prizes to startups have been shown to water, would also alleviate some of the time encourage entrepreneurship among both men constraints that women typically face.43 and women,40 and targeting them to female However, interventions to shift gender entrepreneurs may help address gaps in norms about household labor are key to access to capital. Interventions focusing on sustainably addressing the root causes banks and other formal lenders may also be of gender inequality in entrepreneurship. appropriate, to reduce gender discrimination Programs engaging men and boys have in lending, and determine loan conditions that proved effective in increasing men’s parenting meet the needs of female-owned MSMEs skills, promoting gender-equal social views, 39 Chatterji, A., Delecourt, S., Hasan, S., & Koning, R. (2019). When does advice impact startup performance? Strategic  Management Journal, 40(3), 331-356. 40 McKenzie, D. (2017). Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan  Competition. American Economic Review, 107(8), 2278–2307. https://doi. org/10.1257/aer.20151404 41 Halim, Johnson & Perova et al., 2022 42 Cali et al., 2022 43 Tewari, I., & Wang, Y. (2019). Durable Ownership, Time Allocation and Female Labor Force Participation: Evidence from China’s  “Home Appliances to the Countryside” Rebate. Economic Development and Cultural Change. https://doi. org/10.1086/706824 46 Opening Opportunities | What Can be Done to Address Gender Gaps in Entrepreneurship in Indonesia? and reducing intimate partner violence.44 regulation can help maximize their impact. Tailoring these programs toward Indonesia’s For instance, an explicit ban on gender- female entrepreneurs and their households based discrimination on the part of local could help reinforce family support for governments and financial institutions would entrepreneurship and women’s control over strengthen existing laws aiming to establish their finances and business activities, as a favorable business climate for MSMEs. well as reduce their burden from domestic Recent legislation requiring commercial areas care duties. Finally, government-supported to set aside space for MSMEs45 may further maternity leave in line with the standards of benefit female entrepreneurs and women-led the International Labor Organization (ILO) can cooperatives by also mandating the provision greatly improve working conditions for female of childcare facilities. Finally, although entrepreneurs and their employees. policies to support entrepreneurs in Indonesia (including women) offer a promising Traditional gender norms can affect the framework for MSME growth, there is room outcomes of programs meant to benefit to strengthen reporting requirements to female entrepreneurs, and need to be ensure their implementation at the local level. accounted for during policy design and Such requirements could include gender- implementation. While policies focusing on disaggregated indicators, to verify whether entrepreneurship in Indonesia generally treat female entrepreneurs benefit from available men and women equally, a gender-sensitive support to the same extent as men. approach to implementation and related 44 Doyle, K., Levtov, R.G., Barker, G., Bastian, G.G., Bingenheimer, J.B., Kazimbaya, S., et al. (2018). Gender-transformative  Bandebereho couples’ intervention to promote male engagement in reproductive and maternal health and violence prevention in Rwanda: Findings from a randomized controlled trial. PLoS ONE, 13(4). https://doi. org/10.1371/journal.pone.0192756 45 Art. 60, Government Regulation No. 7 of 2020 on Ease of Protection and Empowerment of Cooperatives and MSMEs 47 48