Ministerial Regulation of MSMEs Number 2 of 2026 Introduces New Criteria for MSME Upgrading

Introduction

On 27 April 2026, the Ministry of Micro, Small, and Medium Enterprises issued Minister of Micro, Small, and Medium Enterprises Regulation Number 2 of 2026 on Guidelines for the Classification and Development Stages of Micro, Small, and Medium Enterprises (“MSME Regulation 2/2026”), which took effect on 4 May 2026. This regulation aims to establish a new standard for classifying business scales and assessing the development stages of MSMEs in a structured and integrated manner.

MSME Regulation 2/2026 implements the mandate under Article 92 paragraph (3) of Government Regulation Number 7 of 2021 on Ease, Protection, and Empowerment of Cooperatives and Micro, Small, and Medium Enterprises. This regulation addresses the urgency of improving data management and establishing more comprehensive parameters so that MSME development, facilitation, and empowerment policies can be implemented more objectively, measurably, and accurately throughout Indonesia.

 

Comparison

MSME Regulation 2/2026 revokes and replaces the provisions on the Classification and Development Stages of MSMEs previously regulated under Minister of Cooperatives and Small and Medium Enterprises Regulation Number 3 of 2021 on the Implementation of Government Regulation Number 7 of 2021 on Ease, Protection, and Empowerment of Cooperatives and Micro, Small, and Medium Enterprises (“MSME Regulation 3/2021”). The following table compares MSME Regulation 2/2026 and MSME Regulation 3/2021:

 

Key Provisions

MSME Classification Criteria

According to Article 6, the government classifies MSMEs using two types of classification criteria, namely standard criteria and additional criteria. The standard criteria consist of Business Capital Criteria specifically for the business legality registration process, while the Annual Sales Revenue Criteria function to determine business scale status and assess economic capacity. In addition, Article 8 stipulates that the additional criteria include: number of employees, investment value, domestic component level (TKDN), implementation of environmentally friendly technology, as well as incentive and disincentive criteria.

Business Scale Thresholds Based on Capital and Sales

Article 9 stipulates the nominal thresholds determining the scale status of a business entity. Based on business capital (excluding land and building assets used for business operations), the government determines that Micro Enterprises have a maximum capital of IDR1 billion, Small Enterprises have capital exceeding IDR1 billion up to IDR5 billion, and Medium Enterprises have capital exceeding IDR5 billion up to IDR10 billion. Meanwhile, based on annual sales revenue, Micro Enterprises record sales of up to IDR2 billion, Small Enterprises record sales exceeding IDR2 billion up to IDR15 billion, and Medium Enterprises record sales exceeding IDR15 billion up to IDR50 billion.

Assessment of Business Development Stages (Scoring System)

Article 16 in conjunction with Annex I requires the government to assess MSME development stages quantitatively based on five aspects, namely legality and formality, business management and governance, marketing and digitalization, financial aspects and access to financing, as well as partnerships and business networks. The system calculates business development scores based on the completeness and availability of supporting documents (such as Business Identification Numbers, Standard Operating Procedures, and digital transaction evidence) owned and uploaded by businesses. Based on the mathematical calculation of such scores, the system classifies MSMEs into four stage criteria, namely:

1. Initial business stage criteria (score of 0% to 25%); 
2. Business growth stage criteria (score exceeding 25% up to 50%); 
3. Developing business stage criteria (score exceeding 50% up to 75%); and 
4. Ready-to-upgrade stage criteria (score exceeding 75% up to 100%). 

Service Integration Through SAPA UMKM

Article 2 requires the Ministry to process all stages of determining MSME criteria and development stages through an integrated platform called the MSME Service Application System (SAPA UMKM). This electronic system executes all verification and validation processes centrally based on data submitted by businesses or relevant ministries/agencies. Furthermore, Article 20 requires MSME entrepreneurs to independently register through SAPA UMKM so that the system can process and provide the most appropriate facilitation recommendations.

Forms of Facilitation and Measurement of Success (MSME Development Index/IP-UMKM)

According to Article 19, the central government, regional agencies, and State-Owned Enterprises are required to provide special facilitation interventions for MSMEs whose identities have been officially verified within the single SAPA UMKM database. Articles 21 through 27 describe the scope of such facilitation, including assistance for legal registration, human resource competency training, subsidized interest guarantees for capital financing, access to international exhibitions, business incubation facilities, production machinery assistance, as well as insurance and tax protection incentives.

To evaluate the effectiveness of these facilitation programs, Article 31 and Annex II mandate the Ministry to prepare an MSME Development Index (IP-UMKM) report card for each region, which calculates the actual percentage of MSMEs that successfully utilize and benefit from such government support programs.

Determination of Facilitation Duration for Businesses

Based on Articles 28 and 29, the government establishes clear time limitations (duration) for providing facilitation programs to MSMEs so that development programs remain measurable and businesses can become independent. Article 28 emphasizes that government agencies determine such duration by considering classification results, development stages, development approaches, and the types of facilitation received by MSMEs. Furthermore, Article 29 paragraphs (1) through (4) divide the duration of facilitation into the following three categories:

1. Short-term facilitation, provided to businesses for a maximum period of 1 (one) year; 
2. Medium-term facilitation, provided for a duration exceeding 1 (one) year up to a maximum of 3 (three) years; and 
3. Long-term facilitation, provided for more than 3 (three) years up to a maximum of 5 (five) years. 

Although the duration limits are clearly defined, Article 29 paragraph (5) still provides flexibility for ministries, regional agencies, and State-Owned/Regionally-Owned Enterprises as implementing institutions. These institutions may modify or readjust the duration of assistance if there are changes in the actual condition of the MSMEs concerned, shifts in government policy, or recommendations resulting from program evaluations.

 

Transitional Provisions

According to Article 34, the Ministry, government agencies, and all levels of Regional Government are responsible for integrating all sectoral MSME development information systems they operate into SAPA UMKM no later than 4 November 2026.

 

Closing

MSME Regulation 2/2026 introduces a more objective, measurable, and integrated system for organizing and developing MSMEs. This regulation establishes a quantitative scoring system that classifies business development stages into four definite categories, while also requiring the use of a centralized electronic platform called SAPA UMKM for all verification processes through to the distribution of government facilitation programs with clearly defined duration limits. Supported by performance evaluation through the MSME Development Index (IP-UMKM) and the mandate to integrate all sectoral systems into SAPA UMKM no later than 4 November 2026, this regulation is expected to accelerate business independence and encourage more MSMEs in Indonesia to successfully “move up to the next level.”