TRANSFORMING RURAL MSMES TOWARDS SUSTAINABILITY: SYNERGY BETWEEN LOCAL WISDOM, CIRCULAR ECONOMY, AND PENTAHELIX COLLABORATION

The transformation of MSMEs in rural Indonesia in the digital 5.0 era faces major challenges due to the dominance of a survival mindset, low digital literacy, and limited adoption of technology, such as NFC-based payment systems. This study aims to develop an integrative model that connects local wisdom, circular economy principles, and pentahelix collaboration to strengthen the competitiveness and sustainability of rural MSMEs. A systematic literature review was conducted to analyze the role of SMEs as local heroes, the integration of local wisdom as the foundation of competitive advantage, the application of the circular economy to enhance product efficiency and value addition, and the effectiveness of multi-stakeholder collaboration in developing an inclusive business ecosystem. The research findings indicate that rural SMEs remain focused on meeting daily needs, so innovation and long-term planning are not yet top priorities. However, local wisdom has proven to be integrable with the circular economy to enhance product value and competitiveness. Pentahelix collaboration involving the government, academia, businesses, communities, and the media is key to accelerating innovation adaptation and strengthening the SME ecosystem. This study recommends improving digital literacy, strengthening multi-stakeholder networks, and empowering local wisdom as the main strategies for transforming rural SMEs toward sustainability and competitiveness in the digital era.