Overview Timor-Leste, the youngest country in Asia, gained independence in May 2002. Its economy remains heavily dependent on the oil and gas sector, making economic diversification crucial for promoting resilient growth amid heightened global uncertainty. In this context, strengthening the dynamics of micro, small, and medium-sized enterprises (MSMEs) has thus become a critical policy priority, as they remain a potential yet untapped resource for building a framework for sustainable development. In 2023, the government enacted Decree No. 30, which outlines a set of support measures for MSMEs. These include business incubation, essential training, seed funding, concessional financing, and credit guarantees. However, as of May 2025, a concrete policy action plan for MSME development has yet to be formulated. A major obstacle to designing an effective policy framework is the lack of comprehensive data on the MSME landscape. To address this, the Asian Development Bank (ADB), in collaboration with the Ministry of Commerce and Industry, conducted a nationwide business mapping survey in July 2024. The survey aimed to assess business conditions on the ground and support the development of an evidence-based national MSME policy. It gathered 3,080 valid responses from all 13 municipalities. The findings also contribute to ADB’s broader support for Timor-Leste’s planned accession to the Association of Southeast Asian Nations (ASEAN) in October 2025. Uniform MSME Business Conditions Across Timor-Leste The survey revealed that MSME business conditions are largely homogeneous across the country. Most MSMEs are self-employed individuals or microenterprises, typically engaged in distributive trade with limited market reach and modest monthly revenues. Tourism-related MSMEs represent only a small fraction of the total. The workforce is predominantly male, with limited or no employee benefits. MSMEs mainly rely on part-time or contractual labor. Few are involved in international trade, and most import goods and raw materials from Indonesia. Despite these limitations, the business environment remains relatively stable. Most MSMEs reported feeling either optimistic or unconcerned about future prospects. However, a relatively large share of women-led MSMEs expressed concern that rising production costs could worsen business conditions. Employment and wage levels among MSMEs have remained stable and relatively insulated from external shocks. Many MSMEs indicated that their small scale allows them to manage operations using personal funds, with bank credit supplementing working capital needs—particularly among women-led businesses. These findings suggest that MSMEs in Timor-Leste are at a very early stage of enterprise development, where household industries such as garments and handicrafts typically dominate (Shinozaki, 2014). These enterprises are generally stability-oriented—mostly family-run or self-employed microenterprises engaged in small-scale, routine operations within a limited geographic area. Growth-oriented firms and innovative entrepreneurship have yet to take root in the country. Policy Support Demands from MSMEs MSMEs are looking to the government for support in several key areas, including business subsidies, tax relief, business development services, improved access to public procurement, and workforce skills development. Respondents also highlighted the need for various forms of financial assistance, such as business restructuring funds, simplified loan procedures, trade finance, and supply chain finance, along with concessional lending schemes. Notably, demand for concessional loans and credit guarantees was higher among women-led MSMEs compared to those led by men. In contrast, there was relatively low demand for government support in business digitalization and digital financial services. Following the coronavirus disease (COVID-19) pandemic, only a small fraction of MSMEs entered the e-commerce space. This limited interest in digital tools can be attributed to several factors: low levels of financial and business literacy, limited awareness of available digital products, poor internet connectivity, and concerns about security and fraud. Policy Approaches to Unlock MSME Potential In Timor-Leste, there is significant growth potential among young firms, start-ups, and women-led MSMEs, which together account for about half of the businesses surveyed. The findings suggest seven key policy directions to support MSME development: Adopt a targeted, growth-oriented support cycle for MSMEs, with a focus on green and technology-based enterprises. Beyond traditional distributive trade, priority should be given to MSMEs that incorporate green technologies and digital tools, supported by enhanced business literacy and development programs. Promote national business clustering to foster a base of young and innovative entrepreneurs. This includes supporting youth- and women-led firms, green technology adopters, and tourism-related businesses. One promising area is linking agricultural value chains—such as coffee and organic oils—with ecotourism (e.g., coffee plantation agritourism). Encourage MSME participation in global value chains by making exports more attractive. This requires strengthening national product branding, business development services, and skills upgrading, as well as investing in hard infrastructure. Given rising geopolitical tensions and supply chain disruptions, improving logistics and connectivity is essential for MSME competitiveness. Accelerate business digitalization to help MSMEs expand at lower cost. Digital adoption remains low due to limited digital literacy. Improving ICT infrastructure and promoting digital skills should be prioritized. Support job creation, especially for women, by investing in skills development. Women-led MSMEs have strong potential to drive the emergence of growth-oriented and innovative firms. Enhance financial literacy and expand access to alternative financing, including digital finance solutions, to help qualified MSMEs secure growth capital. Develop a comprehensive mid- to long-term national MSME strategy, supported by a robust monitoring framework. Regular, updated data on the MSME landscape is essential for designing evidence-based and effective policy interventions. Challenges to MSME Growth Several key factors must be addressed to build a strong foundation for growing firms in Timor-Leste. First, the mindset of MSME owners and managers needs to shift from a passive, stability-oriented approach to a more proactive, growth-driven strategy. Second, MSMEs require access to skilled workers who are technologically capable of supporting business expansion both domestically and internationally. Third, formalization is essential—MSMEs must transition into registered businesses to fully benefit from government-supported growth opportunities. The ADB’s business mapping survey offers valuable insights into the current state of MSMEs in Timor-Leste and underscores the need for targeted government interventions. By addressing these challenges and implementing the recommended policies, the country can create a more supportive environment for MSMEs, contributing to economic diversification and long-term sustainable growth. Resources Asian Development Bank (ADB). 2025. Asia Small and Medium-Sized Enterprise Monitor 2024—Volume II: Trends and Challenges Facing Small Businesses in Timor-Leste—Key Survey Findings. ADB. 2024. Enhancing MSME Development in Timor-Leste. S. Shinozaki. 2014. A New Regime of SME Finance in Emerging Asia: Enhancing Access to Growth Capital and Policy Implications. Journal of International Commerce, Economics and Policy, 5(03), p.1440010. Ask the Experts Shigehiro Shinozaki Senior Economist, Economic Research and Development Impact Department, Asian Development Bank Shigehiro Shinozaki supports ADB’s developing member countries in improving small and medium-sized enterprise (SME) access to finance through various technical assistance projects. His advisory and research expertise includes policy issues in SME development, inclusive finance, and financial sector development, especially in developing Asia. Prior to joining ADB, he held several expert positions at Japan’s Ministry of Finance, OECD in France, and as JICA expert in Indonesia. He holds a PhD in International Studies from Waseda University in Japan. Bold Sandagdorj Country Economist, Timor-Leste Resident Mission, Asian Development Bank Bold Sandagdorj has 23 years of experience in public management, central and commercial banking, and economic research. He leads programming, economics, and knowledge work initiatives, and actively contributes to various projects. He has been working in the Southeast and East Asia departments since 2020. He holds a Master of Science degree from Michigan Tech. Follow Bold Sandagdorj on Kavita Iyengar Senior Country Economist, Southeast Asia Department, Asian Development Bank Kavita Iyengar is a senior country economist at the Southeast Asia Department. Previously, she was country economist at ADB’s Timor-Leste Resident Mission and focal for regional cooperation and knowledge management at the India Resident Mission. Her varied work experience includes teaching, environment consulting, and publishing. She has a PhD from Clark University in the United States. Asian Development Bank (ADB) The Asian Development Bank is a leading multilateral development bank supporting sustainable, inclusive, and resilient growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members—49 from the region. Follow Asian Development Bank (ADB) on Leave your question or comment in the section below: View the discussion thread.