Examining the impact of microfinance on microenterprise performance (implications for women-owned microenterprises in Indonesia)

Adwin Surja Atmadja, Jen-Je Su and Parmendra Sharma

International Journal of Social Economics, 2016, vol. 43, issue 10, 962-981

Abstract: Purpose - The purpose of this paper is to examine the impacts of microfinance on women-owned microenterprises’ (WMEs) performance in Indonesia. It especially observes how financial, human and social capital influences performance of enterprises. Design/methodology/approach - Data were collected from a survey conducted in Surabaya, Indonesia’s second largest city, covering more than 100 WMEs. The ordered probit technique is applied to estimate the performancevis-à-visfinancial, social and human capital relationships. Findings - This study finds a negative relationship between performance and financial capital, and positive relationships between performance-human capital and performance-social capital. However, with respect to human capital, the level of education has a marginally significant relationship with performance. Practical implications - Microcredit for the purposes of enhancing business performance might not necessarily be a good idea, if it is unable to generate higher returns. As a business develops, the volume of microcredit should be reduced, and replaced by owners’ own savings and retained profits. Regarding the non-financial factors, it might be useful for policy makers to contemplate providing incentives for spouse involvement in microenterprises run by women, and to consider them in designing credit policies. Group meetings activities should be extended to facilitate members to engage in business-related conversations and to develop social relationships. The ability of loan officers and group leaders to facilitate such conversations appears important. Originality/value - To the best of the authors’ knowledge, this study provides the first in-depth understanding of the role of microfinance programmes in the case of performance of WMEs in Indonesia, one of the world’s most populous economies.

Keywords: Microcredit; Business performance; Microenterprise (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijsepp:v:43:y:2016:i:10:p:962-981

DOI: 10.1108/IJSE-08-2014-0158

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