Argado, Carlos Emmanuel
(2024)
Determinants of credit lending: empirical evidence from Indonesia with a sectoral and provincial approach.
[Dissertation (University of Nottingham only)]
Abstract
Micro, Small, and Medium Enterprises or known as MSMEs have played an integral role in growth and development of the Indonesian economy. The contributions from businesses of these scales have provided significant merits in terms of Gross Domestic Product (GDP), employment manufacturing, and labour productivity which impact financial stability and economic resilience on a national scale. Despite its substantial roles to the country, MSMEs in Indonesia still face major constraints in obtaining credit and financing which have caused them to have such narrow limits in cultivating advancement and progress.
With the issues being identified, the main objective of this paper is to examine the determining factors and identifying the significant variables towards MSME Credit Lending in Indonesia with a sectoral and provincial approach, which are the classifications that have been used by the government and previous scholars. The observed MSME sectors were identified to be from 18 different industries where the independent variables being examined were Credit, Investment, Working Capital, and Non-Performing Loan (NPL). On the other hand, the provinces being studied was distinguished into 33 different regions where the examined independent variables were Third-Parties Fund, Bank Branch Office growth, Credit, People’s Savings, and NPL. Another objective of this study is to examine how credit lending towards one particular size of business would affect credit lending towards other sizes of business, which would be examined through modifications of the main calculations. The datasets used in this study were constructed in panel data form, where the Ordinary Least Squares (OLS) regression was firstly performed, followed by the Fixed Effect and Random Effect model. Finally, the Hausman test was conducted to determine the most appropriate model to be used for this study.
The results concluded that the Fixed Effect model was the most appropriate model to be used. All independent variables were found to be statistically significant towards MSME Credit Lending, in which the sectoral approach was positively affected by Credit and Working Capital while the provincial approach was positively affected by Third-Parties Fund and also Credit variables. The remainder of the variables imposed inverse relationships. Regarding the impact of credit lending based on the size of business, there were mixed results of both effects when variables from one particular size of business were regressed against the others.
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