MICROFINANCE PENETRATION AND ITS INFLUENCE ON CREDIT CHOICE IN INDONESIA: EVIDENCE FROM A HOUSEHOLD PANEL SURVEY

Authors


  • This research is part of the project “Role of Small-Scale Finance in Rural Development: Rural Finance and Microfinance” undertaken at the Institute of Developing Economies (IDE-JETRO). We are grateful to an anonymous referee for invaluable comments. We are also indebted to, among others, Afmad Efendi, Sabita Maharja, Subi Alwi, Risidianto, Tadianto Saputro, Alfan Vahad, and Dedy Aryanto for their help in field surveys. The opinions expressed in this paper are the sole responsibility of the authors and do not reflect those of IDE-JETRO.

Abstract

This paper studies empirical determinants of how heterogeneous households are matched to different types of loan products in a credit market in Indonesia. A unique situation arose when a microfinance institution launched operations in our survey area during the survey period, and we utilized its market entry for conducting mixed logit analysis of households’ credit choices. Time-varying choice sets help us identify parameters regarding preferences for various credit attributes. Our results show that the new availability of small-scale loans without collateral requirement greatly increases households’ probability of obtaining credit overall. Households in self-employed business prefer formal credit as a stable financing source but are impeded in receiving it when they locate in a rural area, probably because of large transaction costs. The poorest households, however, might not be able to exploit new credit opportunities as much as richer households, even if the scale of credit is very small.

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