Social Innovation Transformation in Rural MSMEs: A Qualitative Study of Innovative Practices of Village-Owned Enterprises Post-Pandemic

Abstract

The COVID-19 pandemic has forced various economic sectors, including rural MSMEs, to rapidly adapt to social and economic disruptions. Village-Owned Enterprises (BUMDes), as local economic institutions, were also impacted; however, a number of them demonstrated extraordinary resilience and capacity for social innovation to sustain and expand their businesses. This study aims to examine how social innovation transformations have occurred in BUMDes practices post-pandemic, particularly in the context of community-based micro and household enterprises. Using a descriptive qualitative approach, this research employed in-depth case studies of three BUMDes located in different rural areas. Data were collected through in-depth interviews with managers and community members, participant observation, and analysis of institutional documents.The findings indicate that social innovation in BUMDes is reflected not only in new product development and technology adoption, but also in adaptive distribution networks, collaborative partnerships with farmer groups and local cooperatives, as well as innovative governance practices rooted in values such as gotong royong (mutual cooperation) and community solidarity. For instance, two BUMDes successfully converted traditional products into health-related goods during the pandemic, while another established digital-based marketing platforms to reach urban consumers. These practices contributed to maintaining household income levels and reducing vulnerability, even as more than 70% of rural MSMEs reported declining turnover nationally (Bank Indonesia, 2021).Theoretically, this study enriches the literature on rural social innovation by offering an alternative perspective beyond urban and high-tech contexts, emphasizing the socio-cultural foundations of innovation. Policy-wise, the research provides practical insights for designing inclusive, participatory, and innovation-based village development strategies. The novelty of this study lies in presenting a typology of village-level social innovation that integrates economic adaptation with local cultural values, an aspect that has received limited attention in prior studies.