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Financing MSMEs in Indonesia: Credit and Financial Inclusion

Author

Listed:
  • Maretha Roseline Syahnie

    (Department of Economics, Faculty of Economics & Business, Universitas Gadjah Mada)

  • Muhammad Ryan Sanjaya

    (Department of Economics, Faculty of Economics & Business, Universitas Gadjah Mada)

Abstract

MSMEs, also known as micro, small, and medium-sized enterprises, are the backbone of the economy in developing countries. Empirical studies indicate that SMEs generally face obstacles, particularly in financing. This study focuses on two main aspects: indexing financial inclusion using principal component analysis (PCA), and analyzing credit and financial inclusion using vector autoregression (VAR) for forecasting. Through a two-stage indexing methodology, the study emphasizes the importance of geographical reach in financial inclusion availability compared to demographic reach, with availability being the most crucial dimension compared to accessibility and usage. VAR models and forecasting were developed for the period from March 2012 to July 2022 in Indonesia, incorporating other variables,such as accessto credit, credit risk, and real GDP. The use of VAR demonstrates consistency, accuracy, and reliability in producing predictions that closely approximate reality, providing a critical basis for policymakers.

Suggested Citation

  • Maretha Roseline Syahnie & Muhammad Ryan Sanjaya, 2024. "Financing MSMEs in Indonesia: Credit and Financial Inclusion," Gadjah Mada Economics Working Paper Series 202407007, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.
    • Handle: RePEc:gme:wpaper:202407007
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    File URL: https://simpan.ugm.ac.id/s/2dP6zgb3hxKwsZw
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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