The government has issued a New Regulation* governing the classification and development stages of Micro, Small and Medium Enterprises (Usaha Mikro, Kecil, dan Menengah or “MSME”), which revokes the corresponding provisions previously set out in Minister of Cooperatives and Small and Medium Enterprises Regulation No. 3 of 2021.
The New Regulation introduces a two-tier classification framework comprising standard criteria and additional criteria. The standard criteria provide the primary basis for determining whether an enterprise falls within the micro, small or medium business scale, while the additional criteria allow for a more detailed assessment of its characteristics and contribution.
This represents a shift from the previous framework, under which classification criteria were assessed by reference to the issues and/or potential of an MSME across five aspects: design, production and processing; marketing; human resources; technology; and capital.
The standard criteria consist of either business capital or annual sales. Business capital is used for the establishment or registration of a business, while annual sales are used to determine business scale and assess economic capacity.
Based on business capital, excluding land and buildings used as business premises:
- a micro enterprise has business capital of up to IDR1 billion;
- a small enterprise has business capital of more than IDR1 billion and up to IDR5 billion; and
- a medium enterprise has business capital of more than IDR5 billion and up to IDR10 billion.
Based on annual sales:
- a micro enterprise records annual sales of up to IDR2 billion;
- a small enterprise records annual sales of more than IDR2 billion and up to IDR15 billion; and
- a medium enterprise records annual sales of more than IDR15 billion and up to IDR50 billion.
In addition to these financial thresholds, the New Regulation introduces five additional criteria: the number of employees, investment value, Domestic Content (Tingkat Komponen Dalam Negeri or “TKDN”), incentives and disincentives, and the adoption of environmentally friendly technologies.
These additional criteria do not replace the business-capital or annual-sales thresholds. Instead, they support a further assessment of MSMEs and may be used for policy formulation, programme planning and implementation, the provision of facilitation, and the assessment of MSME contributions based on their potential and business characteristics.
More specifically, the number-of-employees criterion distinguishes between household MSMEs employing up to four people, MSMEs with moderate labour absorption employing five to 19 people, and MSMEs with high labour absorption employing 20 to 99 people.
Under the investment-value criterion, MSMEs are categorised as low-investment MSMEs where the investment value is up to IDR300 million; medium-investment MSMEs where it exceeds IDR300 million and is up to IDR1 billion; and high-investment MSMEs where it exceeds IDR1 billion and is up to IDR15 billion. Land and buildings used as business premises are excluded from these calculations.
Under the TKDN criterion, MSMEs are categorised as low where the domestic content used in the production of goods or services is below 25%, medium where it ranges from 25% to 40%, and high where it exceeds 40% and is no more than 100%. The calculation must follow the applicable TKDN principles and methodology under the relevant laws and regulations.
The incentives-and-disincentives criterion assesses administrative, fiscal and environmental compliance. MSMEs may be placed into high-incentive, medium-incentive, medium-disincentive or high-disincentive categories, depending on their degree of compliance and, in the highest disincentive category, whether administrative sanctions have previously been imposed.
The environmental-technology criterion similarly distinguishes between conventional MSMEs, green-potential MSMEs, applied-green MSMEs and fully green MSMEs, based on the extent to which environmentally sustainable technologies, production processes and management practices have been adopted.
The Ministry determines MSME criteria, categories and development stages electronically through the MSME Service Application System (Sistem Aplikasi Pelayanan UMKM or “SAPA UMKM”). The determination is based on verified and validated data and documents submitted by MSME owners or obtained through integration with the information systems of relevant ministries, institutions and regional governments.
The new framework increases the importance of maintaining complete and up-to-date financial records, employment data, investment documents, licensing information, compliance records and evidence of environmental practices. These records will support the verification and classification process and may inform the assessment of eligibility for relevant government programmes and facilitation.
Taken together, the New Regulation retains business capital and annual sales as the standard basis for classifying micro, small and medium enterprises, while adding a broader set of indicators to capture their operational characteristics and economic contribution. This article focuses on the classification framework and does not address the separate provisions governing MSME development stages.
*Minister of Micro, Small and Medium Enterprises Regulation No. 2 of 2026 on Guidelines for the Classification and Development Stages of Micro, Small and Medium Enterprises