BUSINESS LICENSING REFORMMicro, small and medium-sized enterprises (MSMEs)account for around 99% of all businesses in Indonesia,and employ a similar proportion of the labor force. MostMSMEs are in the informal sector and do not have per-mits, which makes it difficult for them to obtain bankloans, sell to large retailers, or export their products.

The high cost of securing a business license forces busi-nesses, especially MSMEs, to weigh carefully whether thebenefits of getting a license will outweigh the significanttime and money needed to obtain permits. The cost oflicensing is high because Indonesia’s systems are inefficientand non-transparent, and suffer from a high level of cor-ruption. Moreover, the permits that MSMEs must hold togain a license are issued by different agencies, causing fur-ther difficulties.

SIMPLIFICATION OF BUSINESS LICENSING

Since 1999, The Asia Foundation has supported initiativesto simplify business licensing at the local level. Initially,programs supported local governments to establish agen-cies that integrated the “front office” receipt of licensingapplications, but kept “back office” processing of permitsdecentralized across various other agencies. While thisresulted in some improvements, the impact of these “One-Roof One-Stop Shop” (OSS) licensing reforms remainedlimited.

The Foundation then supported further reforms whichhave resulted what is now known as the “One-Door” OSS,in which both front office and back office authorities areunited in a single location. Therefore, One-Door OSSenables various permits to be processed concurrently,

speeding up the licensing process tremendously. Moreover,other key aspects of licensing reform such as application ofstandard operating procedures and minimum service stan-dards, complaint handling mechanisms, information tech-nology systems, and establishing payment mechanismsthrough, can also be applied at the OSS.

A study by the Foundation (2007) found that introduc-tion of OSS have reduced the time needed for arrangingbasic permits – building permit (IMB), business locationlicense (SITU/HO), trading business license (SIUP) andcompany registration certificate (TDP) – by 47% andreduced licensing costs by 44%. This has resulted in a risein the number of business registrations each year since the

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establishment of an OSS. In several regions, OSShas emerged as a model for bureaucratic reform,and spurred improvements in related areas such asmore transparent staff recruitment, integration ofprocurement authorities in a single governmentagency, and enhanced quality of services fromcommunity health centers and hospitals.

THE MOMENTUM FOR LICENSING REFORM

As of 2010, The Asia Foundation and its localNGO and university partners have assisted over70 districts and municipalities in Sumatra, Java,Kalimantan, Sulawesi and Nusa Tenggara toestablish an OSS. Nevertheless, there are stillmany other regions in need of support to simplifytheir business licensing services. In 2006, theFoundation and its partners assisted the Ministryof the Home Affairs (MOHA) to formulate regu-lations and guidelines on the establishment ofregional OSS, based on the experience to date oflocal governments. These guidelines were revisedand issued in 2009.

At the provincial level, the Foundation and itspartners are promoting the role of the provincialgovernment to monitor and facilitate OSS estab-lishment, and to provide technical support toupgrade the quality of OSS services. Sixprovinces are using Provincial OSS PerformanceIndexes to measure the performance of regionalOSS, and have facilitated forums of regional OSSin their jurisdictions to promote interregionallearning.

According to MOHA monitoring data, as of2010 over 60% of Indonesia’s regions have estab-lished OSS services for licensing (both “One-Door” and “One Roof”). Even so, many of theseOSS are not yet fully functional and still needfurther technical support. The Foundation iscommitted to continued support for licensingreform through cooperation with government atall levels.

10/2010

The Asia Foundation is

a private, non-profit,

non-governmental

organization. Through

its programs, the

Foundation builds

leadership, improves

policies, and strengthens

institutions to foster

greater openness and

shared prosperity in the

Asia-Pacific region. It is

funded by contributions

from corporations,

foundations, individuals,

and governmental

organizations in the

U.S., Europe, Canada,

Australia, and Asia, and

an annual appropriation

from the U.S. Congress.

The Asia Foundation’s business licensing reform program has received funding from the United States Agency for International Development (USAID), theCanadian International Development Agency (CIDA), the UK government’s Department for International Development (DFID), the Australian Agency forInternational Development (AusAID), the Multi Donor Fund for Aceh and North Sumatra (MDF), the Decentralization Support Facility (DSF), and the InternationalFinance Corporation (IFC).

Kota Cimahi – From OSS to Other Types of Reform

The Asia Foundation and its local partners facilitated the Kota Cimahi (West Java) Government tosimplify its licensing processes through the establishment of OSS in 2007. The reduction in thetime and cost required to arrange permits led to a tremendous increase in the number of basic per-mits issued – nearly two and a half times as many within two years after the OSS was established –and also produced a strong increase in Locally-Generated Revenue (PAD) without raising the ratesfor licensing and investment in the region.

This success encouraged the Cimahi City Government to replicate OSS in the procurement process.They have also improved other aspects of public services such as population registry and health ser-vices based on the principles of OSS: transparent, quick, procedure-based, and with simple, clearrequirements.