Can Public Credit Schemes Improve Access to Finance for Small Businesses ? Evidence from Indonesia

Hillary C. Johnson, Cecile Thioro Niang, Francesco Strobbe and Salman Alibhai

No 10894, Policy Research Working Paper Series from The World Bank

Abstract: Examining one of the world’s largest public business support programs, this paper studies how subsidized credit and partial credit guarantees shape access to finance for micro and small businesses in Indonesia. The analysis uses administrative data on more than 8.4 million borrowers and unique quantitative and qualitative data to show that subsidized credit can enable firms to access formal credit for the first time and boost financial inclusion. However, subsidized credit does not alleviate longer-term credit constraints by serving as a stepping stone to unsubsidized commercial credit in this context. The results highlight the challenge of reaching borrowers without collateral, even in programs that explicitly target them using instruments such as partial credit guarantees. The paper sheds light on how public credit schemes for small businesses can be designed to optimize inclusiveness and additionality.

Date: 2024-09-04
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fle and nep-sea
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