70 million rural MSMEs (micro, small, and medium-sized enterprises) are the backbone of food security in Southeast Asia, accounting for about 80% of agricultural production. Yet these small businesses often suffer a lack of access to finance, hindering their ability to increase productivity and adapt to the impacts of climate change – $31 billion of financing needs remain unmet in Southeast Asia. [1]
The Indonesian Government is pioneering one new approach to tackle these challenges with its innovative “inclusive closed loop model”. This public-private partnership concept is being rolled out with the backing of industry leaders across multiple sectors and has been endorsed by Grow Asia through its partnership with the Partnership for Indonesia’s Sustainable Agriculture (PISAgro).
Public-private partnerships are integral to the accomplishment of the UN Sustainable Development Goals and lie at the heart of Grow Asia's mission to broker commercial and non-profit partnerships between public, private, civil society, academic and farmer organizations. Indonesia’s inclusive closed loop model offers a scalable way to leverage multistakeholder delivery mechanisms like Grow Asia and PISAgro, to act as trusted conveners and coordinating bodies to implement the model in practice.
Under the inclusive closed loop model, MSMEs, including smallholder farmers, aggregators, traders, and processors, sit at the heart of Indonesia’s development effort to improve livelihoods while transforming the country’s food systems to become more resilient to climate change. Access to finance becomes a powerful driver of change and the closed loop model incentivizes a flow of capital to these businesses by providing tax incentives to larger businesses in the value chain. This holistic approach ensures that smaller enterprises are not just passive beneficiaries, but active drivers of growth, innovation, and sustainability within their sector.
Indonesia, a nation rich in agricultural diversity, is a trailblazer in the development and adoption of socially inclusive practices. In October 2022, the inclusive closed loop model was officially launched by President Joko Widodo as a national movement to uplift MSMEs. This model was brought to global attention during Indonesia’s presidency of G20, where it was also promoted through the B20 under the Indonesian Chamber of Commerce and Industry (KADIN) leadership. These efforts to encourage the adoption of this model have been strengthened at a regional level during Indonesia’s chairmanship of ASEAN this year.
The inclusive closed loop model thrives on the principle of equitable participation. MSMEs, the engine for economic growth in Southeast Asia, find themselves in a position of power within this framework. Access to finance, which can be a significant barrier for MSMES, is transformed into a catalyst for progress. This model ensures that MSMEs are not left to navigate the financial labyrinth alone and provides them with the tools and support needed to secure financing.
Case study – Sinar Mas Agribusiness
Within the palm oil industry, Sinar Mas Agribusiness has paved the way for successful implementation of the inclusive closed loop model. Sinar Mas Agribusiness provided good agricultural practices, quality seedlings, access to finance, and institutionalized off-take agreements for smallholder farmers of palm oil in Indonesia. The result: a significant shift in productivity, with yields rising from 2-3 tons per hectare per year to the industry standard 5-6 tons per hectare per year – an achievement that not only bolsters smallholder farmers' incomes but also responds to the global demand for sustainable cooking oils and fats. In addition, through biofuel usage, the increase of smallholder farmer productivity will reduce greenhouse gas emissions as well as contributing to energy security.
Recognizing the transformational impact of the inclusive closed loop model and its scalability throughout ASEAN, Grow Asia has taken decisive steps to support its adoption. Grow Asia’s country chapter in Indonesia, PISAgro, is committed to supporting the promotion of the inclusive closed loop model, working collaboratively with the Indonesian government as well as companies like Sinar Mas Agribusiness.
The Grow Asia network of Country Chapters across Southeast Asia offers the opportunity to foster South-South collaboration on the implementation of the inclusive closed loop model within Southeast Asia and beyond. By acting as conduits for knowledge exchange, the Country Chapters facilitate the transfer of expertise, lessons, and successes.
The inclusive closed loop model is an innovative approach to public-private partnerships for food systems transformation and acts as a powerful force for change in increasing farmer livelihoods and reducing greenhouse gas emissions. Sinar Mas Agribusiness' success story in the palm oil sector serves as a testament to its transformative power. Through the collaborative efforts of nations like Indonesia and organizations like Grow Asia, the model is breaking down barriers and empowering MSMEs to be champions of change.
In September, Grow Asia will launch a new public-private Climate Fund to provide blended capital for businesses that wish to adopt the inclusive closed-loop model in their value chains.
The new GrowBeyond fund aims to unlock $1 billion of inclusive finance for small agri-businesses over the next 10 years, by helping 200,000 MSMEs to access suitable financial products and technical assistance. The fund will prioritize investments in climate-smart agriculture, regenerative practices, and innovative technologies, addressing the pressing climate challenges faced by farmers and rural communities in Southeast Asia. Through these investments, it is estimated that each farm will see an increase in productivity of between 20% and 30%, and a corresponding reduction in greenhouse gas emissions by up to 30%.
If you are Interested in participating in our GrowBeyond pilots in Indonesia and Viet Nam please contact info@growasia.org
[1] CASA report: The state of the agri-SME sector – Bridging the finance gap (March 2022)