ILO Showcases Inclusive Finance Model in Aceh: Patchouli Sector Emerges as Blueprint for Rural Economic Transformation

Patchouli oil, a key ingredient in the global perfume industry, is one of Aceh’s flagship commodities, with strong export demand in markets such as France and Europe.

A group of national and local journalists has completed an on-ground visit to Aceh, Indonesia, revealing how inclusive finance, digital innovation, and multi-stakeholder collaboration are transforming the region’s patchouli oil industry into a model for sustainable rural development and grassroots economic growth.

The field visit, organised under the ILO Media Fellowship Programme, offered rare, first-hand insights into how targeted financial interventions and partnerships are strengthening micro, small, and medium-sized enterprises (MSMEs)—particularly in one of Indonesia’s most valuable essential oil sectors.

Revitalising a High-Value Export Sector

Patchouli oil, a key ingredient in the global perfume industry, is one of Aceh’s flagship commodities, with strong export demand in markets such as France and Europe. However, the sector has historically faced challenges including:

• Limited access to formal financing

• Inconsistent product quality

• Fragmented supply chains

• Low adoption of technology

The ILO’s Promoting SME Enterprises through Improved Entrepreneurs’ Access to Financial Services (Promise II Impact) project is addressing these gaps by combining financial inclusion with innovation and capacity-building.

Financial Inclusion Unlocking Growth

A key highlight of the visit was the role of BPRS Mustaqim, a local Islamic rural bank that has developed customised financing schemes for MSMEs, particularly patchouli farmers who often lack collateral or formal credit histories.

Through these tailored financial products:

• Farmers are able to increase production capacity

• Maintain consistent quality standards

• Improve business continuity and resilience

Journalists observed how access to finance is acting as a catalyst for productivity and income growth, particularly in rural communities where traditional banking services remain limited.

Digital Innovation Driving Transparency

The integration of digital tools is another cornerstone of the transformation.

At the Lhoong Aceh Sejahtera Patchouli Cooperative (Nilas), farmers are using MyNilam, a web-based application that enables:

• Transparent production tracking

• Real-time transaction records

• Improved supply chain coordination

This digitalisation is helping formalise the sector, enhance trust among stakeholders, and meet international buyer requirements.

Research and Quality Standards for Global Markets

At the Atsiri Research Center of Syiah Kuala University (ARC-USK), researchers are working to improve cultivation and distillation techniques to meet global standards.

“Consistency and quality are critical for competing in international markets,” said Dr Syaifullah Muhammad. “Innovation in processing methods ensures that Aceh’s patchouli oil remains globally competitive.”

With over 90% of global patchouli oil production concentrated in Indonesia, improving quality standards is essential for maintaining market leadership.

Multi-Stakeholder Collaboration as a Growth Engine

The Aceh model demonstrates how coordinated efforts between public institutions, financial entities, research centres, and private companies can drive sector-wide transformation.

Key partners include:

• ILO (technical support and programme design)

• Local government (policy and promotion)

• Financial institutions like BPRS Mustaqim and PT Pegadaian

• Research institutions such as ARC-USK

• Private sector players like PT U Green Aromatics International

This ecosystem approach is enabling farmers to move up the value chain—from raw production to export-ready, high-quality products.

Local Vision: “Aceh as the City of Perfume”

Banda Aceh Mayor Illiza Sa’aduddin Djamal reiterated the city’s ambition to position itself as a global hub for perfume ingredients.

“Aceh as the City of Perfume is not just a vision—it’s an economic strategy,” she said, emphasising the importance of media in promoting local industries to national and international audiences.

Youth Engagement and Job Creation

The project is also creating new opportunities for young people in rural areas.

Entrepreneur Teuku Razuan, a former farmer, now employs more than 20 young workers in Aceh Jaya and is actively promoting sustainable practices in the patchouli sector.

His journey reflects a broader shift toward entrepreneurship-driven rural development, where agriculture is becoming more attractive to younger generations.

Media as a Catalyst for Development Awareness

Participating journalists highlighted the importance of field-based reporting in understanding complex development issues.

“The fellowship provides deeper insights into how inclusive finance and collaboration drive sustainable enterprise development,” said Aning from Kompas.com.

The ILO emphasised that engaging the media is critical to amplifying successful models and encouraging replication across regions.

Scaling a Model for National Growth

The Aceh experience is increasingly being viewed as a replicable model for other regions seeking to:

• Strengthen MSME competitiveness

• Expand financial inclusion

• Promote sustainable rural industries

• Enhance export-oriented value chains

By linking finance, innovation, and collaboration, the model aligns with broader national goals of inclusive economic growth and job creation.

The ILO-led initiative in Aceh demonstrates how targeted interventions in finance, technology, and partnerships can unlock the potential of traditional industries. As the patchouli sector evolves into a globally competitive value chain, it offers a powerful example of how grassroots innovation can drive national economic transformation.