The Level of Expected Returns, the Level of Risk and the Relationship between Return and Risk in MSME Investment Decisions

Abstract

There is a vast amount of business and economic literature that provide empirical findings suggesting that business units will naturally grow from small businesses to large businesses. In the context of Micro, Small and Medium Enterprise (MSMEs), the idea of ​​growth is translated as the idea of ​​increasing the business class from a small business to a medium business, up until becoming a large business. Furthermore, the concept of ​​‘graduating’ is not easily applied to MSMEs in Indonesia. The classic problem of MSMEs in developing their business is related to funding and marketing issues. It is emphasised the ability of MSMEs still depends on adequate funding. The Indonesian government has provided solutions to this problem by providing commitment through Bank Indonesia (BI). Bank Indonesia has instructed banks to increase the portion of MSME loans to a minimum of 20% of total loans. Although this supports government policy, SMEs as the main actors are not yet progressively participating in the competition. The growth ability of MSMEs is highly dependent on the potential to invest, innovate, and qualify. In order to carry out the ‘grade-up’ strategy in line with the idea conveyed, namely ‘enterprise  upgrading’. Companies that can grow must prioritise the role of internal characteristics (entrepreneurs and companies), these characteristics are referred to as, ‘demographic characteristics’.