Expert Opinion

The ASEAN DEFA: Empowering Indonesia’s MSMEs

The ASEAN Digital Economy Framework Agreement (DEFA) — the world’s first major region-wide digital economy agreement — has entered its two-year negotiation phase. In this article, we invite OVO, Indonesia’s leading e-wallet application, to share insights on DEFA’s implementation, its impact on private sector operations, current challenges, and future strategies.

By Karaniya Dharmasaputra, President Director of OVO, and Raissa Imandari, Public Affairs Manager of OVO Finansial

A decade ago, Indonesians relied on local word-of-mouth to find the best meatball soup in their neighbourhood, often enjoying it at a small street stall that had survived generations thanks to repeat customers. Today, technology has fundamentally altered this experience. What appears to be a simple process of finding, ordering, and paying for meatball soup via a smartphone is, in fact, a profound transformation of Indonesia’s economic landscape. Digital platforms have not only streamlined access to favourite foods but have also democratised economic opportunity.

As Indonesia’s digital ecosystem matures, the challenge now lies in sustaining the growth of micro, small, and medium-sized enterprises (MSMEs) amidst an evolving economic climate and the recent ‘tech winter’, where subsidies from tech companies are declining. In this context, alternative support mechanisms, such as government initiatives and regional agreements like DEFA, could play a vital role in maintaining momentum and broadening economic opportunities.

The Impact of Digitalisation on MSMEs

Digitalisation has enabled micro-restaurants and food stalls to compete directly with large, established restaurant chains. Ten years ago, a small meatball stall required significant investment and marketing capital to reach a broader audience. Tech companies addressed this challenge by offering digital platforms that effectively subsidised the growth of these small businesses. This approach increased MSME revenues and created a multiplier effect, encouraging these businesses to purchase more from fellow MSMEs, open new ventures, and hire more employees.

Digital services such as online payments, e-commerce, and peer-to-peer (P2P) lending have emerged as essential tools for MSME growth. A 2021 study by CORE Indonesia found that digital payments increased MSME monthly revenues by 68% and improved financial inclusion and literacy among business owners by 20-50%. By simplifying processes, making capital more accessible, and enhancing financial literacy, these tools have strengthened Indonesia’s digital economy. DEFA’s emphasis on standardising digital payments and enhancing cross-border e-commerce can further accelerate this growth by expanding market reach and improving transaction efficiency.

Challenges Amidst the Tech Winter

For a time, investors measured the success of tech companies by their growth rates, which, in turn, drove subsidies that supported MSMEs. However, the COVID-19 pandemic and the subsequent ‘tech winter’ disrupted this trend, leading to a 50% decline in global and local tech funding and affecting startup valuations and operations. Today, tech companies must demonstrate profitability, cutting subsidies and shifting focus towards stable, bottom-line growth. This raises an important question: where can incentives be found to continue supporting MSMEs?

DEFA offers a promising solution by providing a unified framework that supports digital trade and financial services across ASEAN. By facilitating cross-border data flows, enhancing cybersecurity, and streamlining digital payments, DEFA can reduce operational costs and inefficiencies for MSMEs. This will help businesses remain resilient and competitive, even in challenging economic conditions. Digital platforms like OVO can utilise DEFA to standardise digital trade and payment processes, strengthen interoperability, and expand their capacity to support MSMEs through innovative payment systems and initiatives that promote financial inclusion.

Public-Private Partnerships and DEFA’s Potential

Indonesia has already reaped significant benefits from public-private partnerships in its digital initiatives. The Prakerja programme, a large-scale government skill development scheme, effectively leveraged technology to streamline its operations. Through interoperable partners like OVO, job seekers and entrepreneurs received incentives upon completing training modules. As of 2022, the programme has disbursed benefits to 12.8 million beneficiaries. The government recognises Prakerja’s success in reducing inefficiencies, enhancing financial inclusion, and boosting purchasing power.

One promising avenue for expanding such success is President Prabowo Subianto’s Free Meals Program, aimed at reducing child stunting and improving education by providing free daily meals to students. Though primarily a health and education initiative, the programme offers significant economic potential for MSMEs. By 2025, the government aims to serve 15 million students nationwide with central kitchens, supported by a budget allocation of up to IDR 71 trillion. However, limited fiscal resources may present operational challenges.

Tech companies can help address these challenges by offering cost-efficient capital expenditure (CAPEX) and operational expenditure (OPEX) models. With systems in place for transparency and fraud prevention, on-demand and delivery tech platforms can streamline meal distribution, ensure compliance, and integrate MSMEs, traditional markets, and local farmers into the supply chain. Early pilot programmes led by Grab-OVO since September 2024 have already shown promising results, with MSMEs experiencing significant revenue growth, local farmers gaining new skills, and job opportunities expanding within communities.

DEFA’s provisions on ‘Payments and Invoicing’ and ‘Online Safety and Security’ can further enhance these public-private partnerships. By establishing clear standards for digital transactions and improving cybersecurity, DEFA can ensure that programmes like Prakerja and the Free Meals Program are more efficient, secure, and transparent. This will open more opportunities for MSMEs to participate in these government-backed initiatives, strengthening the digital economy and fostering long-term growth.

Driving Sustainable Growth Through DEFA

Indonesia’s digital transformation has enabled MSMEs to reach wider markets and compete more effectively. Digital tools like online payments and e-commerce platforms have promoted financial inclusion and economic growth. However, as tech subsidies decline, government and regional support are essential to sustain this progress.

DEFA provides a timely framework for integrating tech platforms with public programmes, enhancing market access, and ensuring secure digital transactions. By leveraging DEFA’s provisions, MSMEs can benefit from streamlined digital trade, improved cross-border data flows, and robust cybersecurity measures. This collaborative approach between the private sector, government, and ASEAN partners can propel Indonesia’s digital economy forward.

In conclusion, the ASEAN Digital Economy Framework Agreement (DEFA) presents a transformative opportunity for Indonesia’s MSMEs. By addressing key challenges in digital trade, payments, and cybersecurity, DEFA can help create a more integrated and resilient digital economy. Public-private partnerships, exemplified by initiatives like the Prakerja and Free Meals Programs, demonstrate the potential for tech companies and governments to work together effectively. By embracing DEFA’s framework, Indonesia can ensure its MSMEs are well-equipped to thrive in a competitive and dynamic regional market, fostering financial inclusion, job creation, and sustainable economic growth.

About the writers

Karaniya Dharmasaputra

President Director, OVO

Karaniya Dharmasaputra is a leading figure in Indonesia’s fintech industry, serving as President Director of OVO, Grab Indonesia’s fintech arm. Under his leadership, OVO has grown from payment solutions to investment and lending platforms, driving financial inclusion and advancing Indonesia’s digital economy.

He also co-founded Bareksa, Indonesia’s first integrated mutual fund marketplace, offering over 200 investment products, and founded the Indonesia Fintech Society to promote fintech innovation. Previously a journalist with prominent media outlets, Karaniya also founded the digital media company VIVA.co.id. He holds a Master’s in Public Policy from George Washington University and a Bachelor’s in Political Science from Gadjah Mada University.

Raissa Imandari

Public Affairs Manager, OVO Finansial

Raissa Imandari is a public policy and government relations expert specialising in regulatory strategy, stakeholder engagement, and project management across Southeast Asia. As Public Policy and Government Relations Lead at OVO Finansial, she focuses on P2P lending, financial literacy, and regulatory compliance. Previously, she managed international government relations and policy initiatives at Gojek in markets like Singapore, Vietnam, and the Philippines.

A University of Oregon Economics graduate, Raissa has worked with Boston Consulting Group and PwC Consulting, contributing to initiatives like Indonesia’s B20, the World Economic Forum, and digital economy advocacy.

The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.