STRENGTHENING DISASTER AND CLIMATE RESILIENCE OF SMALL & MEDIUM ENTERPRISES IN ASIA. Indonesia SME RESILIENCE SURVEY RESULTS

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1 STRENGTHENING DISASTER AND CLIMATE RESILIENCE OF SMALL & MEDIUM ENTERPRISES IN ASIA Indonesia SME RESILIENCE SURVEY RESULTS

2 The iprepare Business facility for engaging the private sector in Disaster Risk Management is a joint initiative by the Asian Disaster Preparedness Center (ADPC), the Asian Development Bank (ADB) through the Integrated Disaster Risk Management (IDRM) Fund and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH within the framework of the Global Initiative on Disaster Risk Management (GIDRM). It focuses on building disaster-resilient businesses in the region through partnerships to strengthen the resilience of the private sector, particularly SMEs; providing technical assistance in strengthening resilience on a demand-driven basis; supporting governments in strengthening the enabling environment that promotes risk sensitive and informed investments by private sector; and facilitating knowledge sharing at the regional and national levels. The Asian Disaster Preparedness Center (ADPC) is an independent regional nonprofit organization that works to build the resilience of people, communities and institutions to disasters and climate change impacts in Asia-Pacific. Over the past 30-years, ADPC has expanded its scope and diversified its operations for a programmatic approach that offers long-term and sustainable solutions to addressing the underlying causes of disasters and climate change risks. The Asian Development Bank (ADB) is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific. ADB assists its members, and partners, by providing loans, technical assistance, grants, guarantees, and equity investments to promote social and economic development. With support from the Government of Canada, ADB established the Integrated Disaster Risk Management (IDRM) Fund in 2013, to assist the development of proactive IDRM solutions on a regional basis within ADB s developing member countries in Southeast Asia, including Cambodia, Indonesia, Laos, Myanmar, Philippines, Thailand and Viet Nam. The Fund provides a strong mechanism for supporting ex ante investment in IDRM and complements the existing financing modalities of ADB for supporting ex post relief and recovery activities. In order to respond more effectively to the global challenges posed by disaster risks, the German Government, led by the Federal Ministry for Economic Cooperation and Development (BMZ), has founded the Global Initiative on Disaster Risk Management (GIDRM). The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ GmbH) has been commissioned to manage the GIDRM. The aim of the Global Initiative is to bring together German and regional experts from the public and private sectors, civil society and the academic and research community, to facilitate mutual learning across national boundaries as well as to develop and pilot innovative disaster risk management solutions. The Global Initiative focuses on three priority areas including Disaster Response Preparedness and Civil Protection; Critical Infrastructure and Risk-sensitive Economic Cycles; and Early Warning Systems. Publication details On behalf of the iprepare Business facility, Published by the Asian Disaster Preparedness Center (ADPC) SM Tower, 24th Floor 979/69 Paholyothin Road, Samsen Nai Phayathai, Bangkok 10400, Thailand Tel: Fax: adpc@adpc.net

3 i Acknowledgements The iprepare Business facility would like to express our immense appreciation to everyone who contributed in the formulation of the survey questionnaire and in conducting the survey. We are very grateful to more than 400 enterprises from all over Indonesia who participated in the survey. We are particularly thankful to our project partner, the Ministry of Cooperatives and Small and Medium enterprises (MoCSMEs) and country level research support provided by Dr. Eugenia Mardanugraha in coordinating, collating and analyzing the survey results. We would also like to acknowledge the support and advice provided by Stephan Huppertz and Hanna Maier of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ); Arghya Sinha Roy and Mary Jane David of Asian Development Bank (ADB); and Aslam Perwaiz of Asian Disaster Preparedness Center (ADPC).

4 ii SURVEY REPORTS INDONESIA Executive Summary The Republic of Indonesia is one of the largest archipelagos in the world and is the world s 16th largest country in terms of land area 1. The ASEAN Disaster Risk Management Initiative considers Indonesia one of the ASEAN countries most vulnerable to natural hazards. These include forest (wild) fires, earthquakes and tsunamis, floods, volcanoes, droughts, landslides, typhoons (storms), and epidemics. As a tropical country with forestland, forest fire events are frequent in Indonesia. The country is located in the Ring of Fire where three earthquake belts run through the country, subjecting the areas of Sumatra, Java, Bali, East Nusa Tenggara, Maluku, Sulawesi and Irian Jaya to seismic activity. Rapid population growth and unregulated development and management of rivers, exacerbate the effects of seasonal floods during the rainy season and droughts during the dry season - almost every year in some parts of Indonesia. Droughts also cause significant socio-economic losses in the country. SMEs play a very important role in Indonesian economy. Data from the Ministry of Cooperatives and SME (2013) show that the SME sector contributed 75% of GDP and employed 94 % of the labor force. Disasters that disrupt SME business can therefore damage the economy of the country, meaning that disaster risk reduction and preparedness for SMEs is very important for Indonesia. However, SME disaster resilience has not so far been a priority for either the government or the private sector in developing Indonesian SMEs. This survey was conducted through a questionnaire administered to 400 SMEs in Indonesia, who were located in urban areas in Jakarta, West Java, Yogyakarta and Aceh. The survey results therefore reflect the disaster preparedness needs of Indonesian SMEs in urban areas of three disaster-prone regions. It is not a random sample across the whole territory, but a focused survey on these areas. The results also identify the types of disasters that are often encountered and considered as major dangerous for their business. Of the various types of disasters, SME respondents considered the top 3 hazards that the most potential disrupt their business activity are economic crisis (48%), Fire (43%) and Theft (35%). SMEs respondents expressed a need for BCP training, especially to avoid economic losses of the business. They would prefer that the Government could facilitate such training at little or no cost to them, as well as providing incentives for preparing BCP. The form of incentives preferred is a grant/subsidy. 1 Synthesis Report on Ten ASEAN Countries Disaster Risks Assessment, ASEAN Disaster Risk Management Initiative, December 2010.

5 iii Table of Contents 01 Project Background 1 02 SME Survey and Methodology 2 Purpose of the Survey 3 Survey Questions 3 Survey Respondents 3 03 Findings 6 Risk Exposure and Previous Disaster Experience 6 Business Continuity Plan (BCP) Adoption 13 Incentives and Training Needs 15 Disaster Risk Reduction (DRR) and Preparedness Conclusion 19

6 iv SURVEY REPORTS INDONESIA List of Figures and Tables Figure 1 Percentage respondents according to year of commencing business operation 5 Figure 2 The hazards that have the potential disrupt to SMEs business operations 8 Figure 3 Percentage of respondents that consider Natural Disaster as Top 3 hazards 9 Figure 4 Percentage of respondents that consider Technological Risks as Top 3 hazards 9 Figure 5 Percentage of respondents that consider Other Risks as Top 3 hazards 9 Figure 6 Percentage of respondents that experiences the major disruption 10 Figure 7 The Year when major disruption takes place 11 Figure 8 Percentage of respondents with written BCP 13 Figure 9 Preferred government incentives to encourage BCP adoption 15 Figure 10 Top risk finance mechanisms in use 16 Figure 11 Top coping mechanisms used to deal with business disruption and emergencies 17 Figure 12 Type of disaster preparedness plans in use 18 Table 1 Respondents by location 3 Table 2 Respondent Business Sector Distribution 4 Table 3 Respondents by number of workers employed 4 Table 4 Respondents by business asset value 5 Table 5 Status of respondent ISO Standards Certification 5 Table 6 Number of days stopping business operations due to the disruption 11 Table 7 Estimated Cost of Damages Caused by the disruption 12 Table 8 Disruption Effect 12 Table 9 Top reasons for not preparing BCP 14 Table 10 Reasons that motivate to develop BCP 14 Table 11 Percentage of SMEs answer about the participation in disaster preparedness 18

7 Project Background 01 The survey aimed to collect results from 400 SME respondents in areas of Indonesia that have experienced disasters from natural hazards. DKI Jakarta and surrounding areas (Bogor, Depok, Tangerang, Bekasi) often experience flooding; Yogyakarta experienced the eruption of volcano Merapi in 2010; Aceh experienced the Indian Ocean tsunami disaster in This survey report describes SME respondents perceptions of disaster risk to their business operations (especially what kinds of hazard concern them), their experience of disaster disruptions, and how they prepare for it and cope with them. The report provides recommendations about what kind of activities are needed for Indonesian SMEs to enhance their resilience to disasters. All respondents were also located in urban areas. So the survey results reflect the disaster resilience needs of urban SMEs in regions that are subject to extreme natural hazards.

8 SME Survey and Methodology 02 The survey was conducted in two ways. The first method was one-on-one interviewing with the selected respondents, using the survey questionnaire, and the second way was distributing the questionnaires during seminars. In the seminars, SME participants were briefed on the questionnaire, and then completed it by themselves. The University of Indonesia (UI) conducted two similar seminars, on the 26th of November 2015 in UI Campus, Depok, and on 10th December 2015 in University Gajah Mada (UGM) Campus, Yogyakarta. The first seminar produced 65 valid questionnaires, and the second seminar produced 70. The remaining respondents were interviewed in the selected localities, by which means 100 responses were gathered from Aceh, and 165 from Jabodetabek (Jakarta, Bogor, Tangerang, Bekasi, the cities around Jakarta located in West Java Province). Both seminars were announced to the public on the website and social media. Participants are requested to register online to book a seat in the seminar. However, many participants who did not register in advance still attended the seminar or the participants brought their friends or relatives who are actually not SMEs. The theme of the first seminar that was held at the University of Indonesia was Business Management Services for SMEs and for the second seminar was Overcome Economic Crisis and Disaster. Most of the participants came with a motivation to have more knowledge for developing their business and also networking to other SMEs and academes.

9 SME Survey and Methodology 3 Purpose of the Survey The purpose of the SME Survey was to investigate the disaster experiences of Indonesian SMEs, and their readiness to deal with disasters. It aimed to identify what kinds of hazards SMEs consider to pose the greatest risk, including economic risk, natural hazard or technological hazard. It also aimed to gauge the level of knowledge and understanding of SMEs about disaster risk and business continuity plans, as the basis for identifying what types of support can help them to become more disaster resilient. Survey Questions Survey questions were prepared by ADPC and translated into Bahasa Indonesian by the Ministry of Cooperatives and SMEs, Republic of Indonesia. The categorization of survey questions was also adjusted to the context in Indonesia. Survey Respondents The geographical distribution and number of respondents to the survey is presented in Table 1 below. One-on-one interviews using the same questionnaire were conducted for the respondents in Aceh and Jabodetabek. Table 1 Respondents by location Place taken Number of respondents One-on-one interview in Aceh 100 One-on-one interview in Jabodetabek 165 Seminar in Depok 65 Seminar in Jogja 70 Total 400

10 4 SURVEY REPORTS INDONESIA Respondent s business sectors were the following. Table 2 Respondent Business Sector Distribution No Business Sector Percentage 1 Agriculture, forestry, and fishery 6% 2 Mining and quarrying 0% 3 Manufacturing 1% 4 Automotive 1% 5 Construction 0% 6 Wholesale and retail trade 39% 7 Transportation and storage (logistics) 0% 8 Accommodation service activities (hotel, lodge, boarding house) 1% 9 Food service activities 8% 10 Tourism 1% 11 Information and communication 1% 12 Financial and insurance activities 0% 13 Real estate activities 1% 14 Others 42% Most of the respondents (80%) employed fewer than 5 workers, and none employed more than 99 workers. Table 3 Respondents by number of workers employed Number of workers Percentage Less than 5 80% % % More than 99 0% According to government of Indonesia law No. 20 year 2008 about categorization of SMEs based on assets, most respondents are categorized as micro enterprises: 75% micro, 24% small, 1% medium, and 1% large.

11 SME Survey and Methodology 5 Table 4 Respondents by business asset value Asset amount Percentage No more than 50 million rupiahs (micro) 75% 50 million million rupiahs (small) 24% 500 million - 10 billion rupiahs (medium) 1% More than 10 billion rupiahs (large) 1% Only 2% of respondents have a certificate for relevant ISO standards. Table 5 Status of respondent ISO Standards Certification Certificate Percentage ISO 9001 (Quality management) 2% ISO (Environmental management) 0% ISO (Business continuity management) 2% None 96% Figure 1 shows frequency of respondent according to their year of commencing business operation. The table shows that most of the business ages are relatively young (under 5 years old). But among them, there are businesses that have already operated since Figure 1 Percentage respondents according to year of commencing business operation Before % % % % % % 0 20% 40% 60% 80% 100% Gender of respondents in this survey is quite proportional, with 52% male and 48% female.

12 Findings 03 Risk Exposure and Previous Disaster Experience The survey asked respondents about the hazards they think are likely to disrupt their business, and the hazards they have experienced in the past that did disrupt their business. Each respondent chose their top three hazards from a list. Percentage of respondents above for the next discussion are presented by grouping the list of hazards into 4 categories: 1. Economic Risk: foreign currency fluctuations; and regional or global economic crises. 2. Natural Disaster: drought; earthquake; fire; flood; insect infestation; landslide; lightning; pandemic / epidemic (e.g., mers-cov, Ebola, dengue fever, bird flu, swine flu, etc.); tornado; tsunami; typhoon; volcanic eruption; water shortage or contamination; and wild fire. 3. Technological Disaster: cyber-attacks; data loss; power blackout; and transportation system breakdown. 4. Other disruptions: accidents; armed conflict; civil unrest; terrorism; and theft.

13 Findings 7 Concern over potential hazards Respondents were asked to answer the following questions: What are the Top 3 hazards that have the potential to disrupt your business operations? Figure 2 show the percentage of respondents that choose the answer listed in the questionnaires. The percentage is calculated by dividing the number of responses by 400 (number of total respondents). From Figure 2 the top 3 hazards that have the most potential disruption to their business activity are economic crisis (48%), Fire (43%) and Theft (35%). Economic crisis is considered to be the hazard with the highest potential to impact business - the fact that respondents were based in urban areas may have some bearing on this response as well as the fact they are rarely faced by natural disasters. Notably even respondents located in Aceh (where the 2004 Tsunami occurred) reported no significant distribution from natural disasters. Flood and earthquake hazard are considered as two main hazards that can disrupt their business operation. Because the survey location is the urban area, the responses presented in Figure 2 basically represent the urban SMEs. For SMEs in rural areas, such as farmer and fishermen, the response may be different. This is an example of sampling bias of this survey. Generally, the sufficiency of electricity supply is a problem of Indonesian infrastructure development. Sometimes SMEs cannot pay the high electricity bills to fulfill their needs. Blackouts often happen in certain location, especially outside Jakarta. SMEs are not able to provide its own generator when a blackout happens. Public transport does not generally service SMEs to any great extent, therefore transport system breakdown was not considered to be a particularly significant risk. Computer literacy of Indonesian SMEs is still low, so that the problems associated with computer are not considered as hazards that endanger their business. In cities that are densely populated, fires are often caused by a short circuit because the electrical installation is not installed properly. The sample in this survey mostly includes SMEs that are located in densely populated urban areas, so fire is considered as a high potential hazard. The percentage of respondents who answered questions relating to computer systems such as data loss and cyber-attacks are not too high. This is because the number of SMEs in Indonesia reliant on computer or IT systems is relatively low. Most respondents in the survey were micro-entrepreneurs who perform financial calculations manually and tend to rely less on formal financial records.

14 8 SURVEY REPORTS INDONESIA Figure 2 The hazards that have the potential disrupt to SMEs business operations Regional or global economic crisis 48% Fire 43% Theft 35% Foreign currency fluctuations 27% Power blackout 26% Accidents 19% Flood 15% Data loss 12% Earthquake 8% Drought 7% Water shortage or contamination 7% Cyber attacks 6% Transportation system breakdown 5% Insect infestation 5% Volcanic eruption 4% Civil unrest 4% Pandemic/Epidemic 3% Armed conflict 3% Tsunami 2% Terrorism 2% Tornado 1% Typhoon 1% Lightning 1% Landslide 1% Wildfire 0% 0 20% 40% 60% 80% 100% Figure 5 shows that theft is considered a major hazard that can disrupt the business operations of Indonesian SMEs.

15 Findings 9 Figure 3 Percentage of respondents that consider Natural Disaster as Top 3 hazards Flood 15% Earthquake Fire 8% Drought Theft 7% Water shortage or contamination 7% Insect infestation 5% Volcanic eruption 4% Pandemic/epidemic 3% Tsunami 2% Tornado 1% Typhoon 1% Lightning 1% Landslide 1% Wildfire 0% 0 5% 10% 15% 20% 25% Figure 4 Percentage of respondents that consider Technological Risks as Top 3 hazards Fire 43% Power blackout 26% Data loss 12% Cyber attacks 6% Transportation system breakdown 5% 0 10% 20% 30% 40% 50% Figure 5 Percentage of respondents that consider Other Risks as Top 3 hazards Theft 35% Accidents 19% Civil unrest 4% Armed conflict 3% Terrorism 2% 0 10% 20% 30% 40% 50%

16 10 SURVEY REPORTS INDONESIA Past experience of hazards Figure 6 presents the type of major disruption experienced by respondents. Figure 7 presents the year of the major disruption took place. The percentage shown in Figure 6 is the number of respondents who chose the respective hazards as a major disruption divided by the total number of respondents (400). The same calculation was done for Figure 7. Figure 6 Percentage of respondents that experiences the major disruption Regional or global economic crisis 31.5% Foreign currency fluctuations 14% Flood 9.5% Power blackout 9% Theft 8.3% Fire 8% Accidents 7.5% Earthquake 4% Volcanic eruption 2.8% Drought 2.8% Transportation system breakdown 2% Data loss 2% Water shortage or contamination 1.8% Cyber attacks 1.5% Insect infestation 1.5% Terrorism 1% Pandemic/Epidemic 1% Armed conflict 0.8% Tsunami 0.8% Civil unrest 0.5% Wildfire 0.3% Typhoon 0.3% Lightning 0.3% Landslide 0.3% Tornado 0% 0 10% 20% 30% 40% 50%

17 Findings 11

18 12 SURVEY REPORTS INDONESIA Table 6 above displays the percentage of respondents according to the number of days they ceased their business operations due to disruption caused by disaster events. The majority of respondents closed their business for up to 1 year during which time they were able to repair damage and resume business operations. Table 7 below presents the estimated cost (in rupiah) of damages caused by the disruption. Some of the respondents answered the cost by a decrease in sales. For SMEs in Indonesia, a loss of more than 10 million rupiahs is quite large. The enterprise that is categorized as micro, according to the law, is the one with sales of less than 100 million per year. Table 7 Estimated Cost of Damages Caused by the disruption Estimated cost (in rupiahs) Percentage Less than 1 million 13% 1-5 milions 26% 5-10 millions 19% more than 10 millions 34% the sales decrease 10-30% 6% the sales decrease more than 30% 4% Total 100% Table 8 presents the type of disruption experienced by respondents. The deterioration of relations with the client is much more experienced by respondents compared to the damage on their relationship with their supplier. In general, SMEs do not write a contract with client, so that when a disaster occurs, the SMEs may lose their clients. Table 8 Disruption Effect Disruption effect Percentage Damage to facilities and equipment 15% Damage to raw materials 10% Damage to finished products 5% Empoyees unable to go to work 13% Suppliers were not able to deliver material/services 7% Inability to deliver products to market/suctomers 7% Cancelation of orders/contracts 7% Loss of clients 28% Delay in collection of payments/receivables from 7% Total 100%

19 Findings 13 Regional or global economic crises are experienced more often than foreign currency fluctuation. It is very rare that Indonesian SMEs are engaged in foreign trade. Therefore they do not consider exchange rate fluctuation as a risk. SMEs who do consider it a risk are those which rely on imported raw materials. In such cases a depreciation in the value of Rupiah can lead to a halt in production. The percentage of respondent SMEs that suffered natural disasters was less than those who suffered economic risks. Flood and fire were the most commonly experienced type of disaster by SMEs located in urban areas. Poor drainage systems and dense settlements with little regard for safety are likely factors in the high incidence of floods and fires, particularly in Jakarta, the capital city of Indonesia. Fires are often caused by a short electrical circuit in densely populated areas. When the electric supply is disconnected, there is no solution for SMEs to continue their production. In the small cities or villages outside Jakarta, power cuts can last for more than 24 hours, meaning SMEs may be prevented from working for some time. Lack of production then reduces turnover and profit. Indonesian SMEs require enhanced knowledge of how to handle power supply problems during the production process. The ability to provide a backup or temporary power generators for a group of SMEs in neighboring locations may be an alternative solution. Other risks often faced by SMEs is theft and accidents. Lack of security in production and storage place will increase the risk of theft. Many of Indonesian SMEs still usually use cash transaction. Cash money they get from sales today is not directly deposited in the bank but often kept at home. The involvement of banks in SMEs business is still very small. There are many SMEs that have never utilized banking services at all. Business Continuity Plan (BCP) Adoption Although only 14% of SME respondents had a BCP, a quarter of them (25%) were in the process of developing one. Figure 8 Percentage of respondents with written BCP 14% 25% 61% No Preparation of BCP is ongoing Yes

20 14 SURVEY REPORTS INDONESIA The reasons why respondents did not prepare BCP are listed in Table 9. The survey result shows that lack of information and knowledge of SMEs about BCP is the main reason. Table 9 Top reasons for not preparing BCP Reasons for not preparing BCP Percentage Our enterprise has not heard of BCP before 62% Lack of information on procedure for preparing a BCP 32% Lack of human resources to handle BCP preparation 19% Lack of company BCP knowledge and expertise 17% Don t know 17% Lack of budget for preparing a BCP 15% Management s awareness is low 15% Difficulties coordinating within the company in preparing a BCP 10% Employees awareness is low 9% No need for written BCP 5% The expected impact of disruption is less than the cost of preparing & maintaining a BCP 3% BCP is impractical 2% Our enterprise is not likely to experience any disaster or disruption 1% In the survey conducted in the seminars, respondents were given a brief explanation about BCP. For most of them it was the first time they heard of BCP. Table 10 lists the percentage of respondent answers based on their identified motivation to develop a BCP amongst those SMEs who already possess a BCP or were preparing to do so. Table 10 Reasons that motivate to develop BCP Reasons that motivate to develop BCP Percentage To avoid economic losses 55% To protect employees 26% To gain our clients confidence 17% BCP is a good business practice 16% Fear of not being able to meet supply or service commitments if business is interrupted 16% Don t know 13% BCP will help us gain competitive advantage 10% Because of a previous disaster experience 10% Having a BCP will attract more business 9% It is a customer s requirement 8% An enterprise-level BCP is needed to participate in area-level BCP 6% BCP is a symbol of reliability 3% It is prestigious to have a BCP 2% It is a legal or mandatory requirement 2%

21 Findings 15 The main reason to develop BCP is to avoid economic losses. The above survey results also demonstrate the enthusiasm of the respondents to have a BCP. Respondents demonstrated a willingness to develop a BCP even though this was not currently a legal or mandatory requirement. Incentives and Training Needs Although in many cases the respondents are willing to develop BCP voluntarily, incentives are still needed. Figure 9 below shows the percentage of respondents answer in terms of the incentives that they believe the government should provide for SMEs to develop BCP. Information about BCP, why SMEs need BCP, etc. is very important for SMEs. Although the majority of respondents were not familiar with BCP, 10% of respondents had already attended a training related to BCP. The other 90% that had never attended a training for BCP did not have information on BCP training nor had the chance to participate in the training. Likewise, with a training related to disaster management: 91% of respondents have never attended, and 9% have. Figure 9 Preferred government incentives to encourage BCP adoption Provision of technical assistance, consultancy service, or training in BCP preparation & disaster preparedness 57% Subsidies, grants & soft loans for the preparation of BCP 43% Tax credits, deductions & exemptions for SMEs with BCP 30% Certification schemes 19% Awards & recognitions for disaster resilient SMEs 17% Legislation, policies & institutional arrangements that encourage SME participation in disaster risk management (DRM) 16% Don t know 16% 0 20% 40% 60% 80% 100%

22 16 SURVEY REPORTS INDONESIA Disaster Risk Reduction (DRR) and Preparedness On the question of whether respondents had established a mutual aid agreement with another organization to help each other during and after emergencies (such as privately-run emergency teams, fire brigades, search and rescue teams and mutual help associations) the support from organizations in contributing to SME resilience was quite high. 21% among respondents has established a mutual aid agreement with another organization during and after emergencies. BNPB is the organization of disaster management in Indonesia to organize the training / seminar / DRR activities concerning the SMEs. 14% among respondents participated the activities organized by the BNPB. The participation of SMEs in the activities organized by national organizations, as well as the involvement of other organizations in terms of reducing business risk reflects awareness for SMEs in reducing risk. Insurance and other risk finance Figure 15 shows that 43% of respondents listed no risk financing mechanism, while 18% said they had fire insurance. This shows a very low uptake of formal risk financing mechanisms, in the form of the most basic types of insurance cover, and then only by a minority of respondents. Figure 10 Top risk finance mechanisms in use None 43% Fire insurance 18% Emergency response plan 8% Insurance for employees 7% Natural catastrophe insurance 4% Insurance for profit losses 4% Commitment lines 3% Theft insurance 3% Performance bonds 1% Key person insurance 1% Derivatives 0% 0 10% 20% 30% 40% 50%

23 Findings 17 For SMEs and Indonesian people in general, insurance is still not regarded as a necessity. Mass insurance in the country only began in 2015, when the government implemented a health insurance program for the entire population of Indonesia in 2015 known as Badan Penyelenggara Jaminan Sosial (BPJS). Top coping mechanisms Figure 16 shows that use of personal savings was the highest ranked coping mechanism to deal with disaster losses (61% listed it in their top 3 coping strategies), followed by obtaining a loan without interest, presumably from their family and friends, (34%). The next two main coping strategies were to generate more income by working more (21% listed in their top 3) and reducing expenses (19%). Hence, the respondents coping mechanisms were very self-reliant and dependent on close connections and support from family and friends. Such mechanisms are obviously effective for micro and some very small businesses, but they could be less effective following major disasters with large losses for small and medium enterprises especially if the entire community is affected and those support mechanism are not available because everyone has the same need. Figure 11 Top coping mechanisms used to deal with business disruption and emergencies By using savings 63% Through loan without interest 34% With support from family & friends 24% By working more to generate additional income 21% By reducing expenses 19% We don t have any coping mechanisms Through loan from non-bank institutions Through loan from banking institutions 9% 8% 13% By selling or pawning assets 7% Through loan with interest 7% Through loan from suppliers & traders 5% By claiming insurance 5% Through donations/gifts 3% 0 20% 40% 60% 80% 100%

24 18 SURVEY REPORTS INDONESIA Disaster preparedness Figure 17 below presents the types of disaster preparedness plan used by SMEs. Although some SMEs have developed a disaster preparedness plan, most of them do not have a plan in written form. Figure 12 Type of disaster preparedness plans in use None 35% Risk reduction measures 25% Emergency response plan 22% Risk assessment 16% Evacuation plan 13% System recovery manual 4% Emergency communications plan 4% Pandemic protection plan 2% System down manual 1% 0 10% 20% 30% 40% 50% Most SMEs stated their wish for participation in a national planning process to support SMEs to prepare for and recover from hazards and disasters as stated in their answer displayed in Table 11 below. Table 11 Percentage of SMEs answer about the participation in disaster preparedness Response YES NO Like to participate in a national planning process to support SMEs to prepare for and recover from hazards and disasters 82% 18% Previously participated in another study or survey on SME disaster resilience 8% 92%

25 Conclusion 04 This survey was conducted by gathering responses from 400 SMEs in Indonesia primarily located in urban areas to determine their disaster preparedness needs. The survey was conducted in the sense of normal conditions when there were no disaster events prevalent. Among various types of disasters, the top 3 hazards with the most potential to disrupt business activities of the surveyed SMEs were economic crisis (48%), Fire (43%) and Theft (35%). The surveyed SMEs stated a demand for BCP training with Government facilitation so that SMEs can participate for free. According to the responses the government should also provide incentives for SMEs to prepare BCP with the preferred form of incentives taking the form of grants or subsidies. The survey revealed that SMEs realize the importance of having a BCP. According to their responses they would attend BCP training voluntarily, suggesting that a government regulation that requires them to have a BCP is not necessarily required for the time being. The survey responses also revealed that SMEs use their savings, borrowing from relatives, as well as relying on the help of others when impacted by disasters and when they suffer disruption to their business operations. Therefore, support for enhanced financial management and management of asset portfolio - such as the type which BCP can help provide - is necessary in order to cope with business risks, particularly economic risks, more effectively in the Indonesian context.

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28 This publication is an output of the regional project Strengthening the Disaster Resilience of Small and Medium Enterprises in Asia. The overall objective of the project is to build disaster-resilient capacities in SMEs in Indonesia, the Philippines, Thailand and Viet Nam by undertaking the following activities: 1) Identifying actions to strengthen resilience of SMEs; 2) Providing technical assistance in strengthening resilience to selected SMEs on a demand-driven basis; 3) Supporting governments in strengthening the enabling environment that promotes risk sensitive and informed investments by SMEs; 4) Facilitating knowledge sharing; 5) Up-scaling, leveraging and formalizing business resilience tools, platforms and initiatives. National Partners Indonesia Ministry of Cooperatives and SMEs (MoCSME) Indonesian National Board for Disaster Management (BNPB) Philippines Department of Trade and Industry (DTI) National Disaster Risk Reduction and Management Council (NDRRMC) Thailand Office of Small and Medium Enterprises Promotion (OSMEP) Department of Disaster Prevention and Mitigation (DDPM) Viet Nam The Ministry of Planning and Investment (MPI) The Disaster Management Center (DMC)