Financing MSMEs in Indonesia: Credit and Financial Inclusion

Maretha Roseline Syahnie () and Muhammad Ryan Sanjaya ()
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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

No 202407007, Gadjah Mada Economics Working Paper Series from Department of Economics, Faculty of Economics and 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.

Keywords: Micro; small; and medium enterprises (MSMEs) financing; principal component analysis (PCA); financial inclusion index; credit; vector autoregression (VAR); forecasting; Indonesia (search for similar items in EconPapers)
JEL-codes: C32 E44 G21 O16 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-07
New Economics Papers: this item is included in nep-fdg, nep-fle, nep-for, nep-pay and nep-sbm
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