Indonesia’s Social Enterprise Sector Gains Momentum with New Legal Recognition

Social enterprises – businesses that aim to address social and environmental challenges while remaining financially sustainable – have reached an important milestone here in Indonesia.
The government now officially recognizes social enterprises as legal entities, thanks to a newly launched registration service on the AHU Online system. This initiative marks a significant step in advancing inclusive and sustainable development in the country.
The Ministry of Law and Human Rights (Kemenkumham), through the Directorate General of General Legal Administration (Ditjen AHU), launched a social enterprise registration service which was followed up with a press conference on November 13, 2024.
During this press conference, the Minister of Law, Supratman Andi Agtas, highlighted the importance of this initiative stating:

With this step, social enterprises will become a new economic force that supports social solidarity and inclusive development.

This new framework provides social enterprises with a stronger legal foundation and signals increased government and stakeholder support, paving the way for new growth opportunities and collaboration.

The Landscape of Social Entrepreneurship in Indonesia

While social enterprises have been active in Indonesia for some time, they still represent a small portion of the country’s business ecosystem.
A 2018 study by PLUS and the British Council identified around 342,000 social enterprises. Although this number is small compared to the country’s 65 million MSMEs, it underscores the sector’s potential for growth. Key insights from the report include:

Requirements

Kemenkumham has adopted an iterative approach to regulating social enterprises, starting with specific criteria outlined in the Circular of the Minister of Law and Human Rights Number M.HH-1.AH.01.01 of 2024.
To qualify as a social enterprise, a company’s deed of establishment and articles of association must include the following:
These requirements ensure that social enterprises not only pursue financial sustainability but also prioritize positive societal and environmental impacts.

Unlocking Opportunities and Capital

The recognition of social enterprises paves the way for incentives and growth opportunities. Official registration creates a pathway for:
In the press conference, Director General of AHU, Cahyo R. Muzhar, emphasized the importance of this initiative:

"The forms of contributions from impact investors include grants, loans, and equity. We also target investors who will provide training in creating business models such as world educational institutions that are already connected in a global impact investor network. Thus, we are not only opening opportunities for the development of social enterprises at the national level but also expanding access to the global capital market”

By fostering trust and visibility, the registration system could attract diverse forms of capital – grants, loans, or equity – as well as training opportunities and global partnerships.

Challenges and Questions to Address

While this initiative is a step in the right direction, several challenges remain:

A Collaborative Path Forward

The government recognizes that this is just the beginning. Ongoing collaboration with social enterprises, ecosystem builders, and impact investors will be critical to refining policies and programs.
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