Financial Inclusion: Household Access to Credit in Indonesia

Literatures on financial development and economic growth nexus have rapidly grown. Over more than a decade, research topics have been extended to a wider nexus of financial sector development-economic growth-and poverty alleviation. Regarding to the topic, access to finance becomes an important one. The World Bank (2010) reports only 21% of Indonesia's population has access to banks and another 2% engages in other formal financial services. The figure shows that access to financial services in Indonesia is still very low. This study is to examine determinant factors that deter households from access to financial services, particularly business credits. The study employs desciptive analysis and performs microeconometric exercise utilizing the 2008 and 2012 Susenas data. The results of the study provide the household profile and identify determinant factors for households to access business credit from several sources, namely bank, non-bank, and individual. The probabilities for household to obtain business credit is affected by the demographic characteristics (age, sex, marrital status, location, education) and social-economic factors (employment sector, employment status, status of poverty) and the effectiveness of the implementation of banking public education program. The study employs multinomial logit method. The findings of this study is vital in providing policy recommendation to alleviate poverty in Indonesia.