Financial Inclusion and Financial Literacy: Impact on MSME Development in Indonesia

Edward Rosali; Bernard Dwito

Authors

Edward Rosali Management Study Program, Batam College of Economics (STIE Batam), Indonesia
Bernard Dwito Management Study Program, Batam College of Economics (STIE Batam), Indonesia

Keywords:

Creative Economy, Local Economic Growth, Collaboration, GRDP, Creative Tourism

Abstract

This study aims to analyze the influence of financial inclusion and financial literacy on the development of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia. In addition, this study also examines the role of financial literacy as a moderating variable that can strengthen the relationship between financial inclusion and MSME development. The research method used is a quantitative approach with a survey technique on 350 MSME actors spread across various regions in Indonesia. Data analysis was carried out using multiple linear regression and moderated regression analysis (MRA). The results of the study indicate that financial inclusion and financial literacy have a positive and significant effect on the development of MSMEs. In addition, financial literacy has succeeded in strengthening the influence of financial inclusion on the development of MSMEs, which means that MSME actors with a better level of financial literacy are able to utilize access to financial services more optimally. The coefficient of determination (R²) value of 0.635 indicates that 63.5% of the variability in MSME development can be explained by financial inclusion and financial literacy. The implications of this study underline the importance of increasing access to formal financial services for MSMEs and providing effective financial literacy programs. Synergy between the government, financial institutions, fintech, and educational institutions needs to be improved to strengthen financial literacy and facilitate access to formal financial services. Further research is expected to examine other variables that have the potential to influence MSME development and evaluate the effectiveness of financial literacy programs that have been implemented.

References

Atkinson, A., & Messy, F.-A. (2012). Measuring Financial Literacy: Results of the OECD / INFE Pilot Study. OECD Publishing.

Bank Indonesia. (2020). Laporan Perkembangan UMKM di Indonesia. Bank Indonesia.

Chen, H., & Volpe, R. P. (1998). An analysis of personal financial literacy among college students. Financial Services Review, 7(2), 107–128.

Demirguc-Kunt, A., Klapper, L., & Singer, D. (2017). Financial Inclusion and Inclusive Growth: A Review of Recent Empirical Evidence. World Bank Policy Research Working Paper No. 8040.

Fatoki, O. (2014). The financial literacy of micro entrepreneurs in South Africa. Journal of Social Sciences, 40(2), 151–158.

Ghosh, S., & Vinod, D. (2017). Financial inclusion, technology, and social welfare in India. Journal of Financial Economic Policy, 9(3), 255–271.

Karlan, D., & Morduch, J. (2010). Access to Finance. Handbook of Development Economics, 5, 4703–4784.

Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy. Journal of Economic Literature, 52(1), 5–44.

Otoritas Jasa Keuangan (OJK). (2021). Survei Nasional Literasi dan Inklusi Keuangan. OJK.

Remund, D. L. (2010). Financial literacy explicated: The case for a clearer definition in an increasingly complex economy. Journal of Consumer Affairs, 44(2), 276–295.

Salia, S., Hussain, J., & Karim, M. (2018). Is women’s financial inclusion affecting entrepreneurship? Evidence from Sub-Saharan Africa. Journal of Developmental Entrepreneurship, 23(4), 1–24.

Shankar, S. (2013). Financial inclusion in India: Do microfinance institutions address access barriers? AIM Journal of Management Research, 1(1), 53–64.

World Bank. (2020). Financial Inclusion Global Findex Database. World Bank.

Xiao, J. J., & O’Neill, B. (2016). Consumer financial education and financial capability. International Journal of Consumer Studies, 40(6), 712–721.

Zins, A., & Weill, L. (2016). The determinants of financial inclusion in Africa. Review of Development Finance, 6(1), 46–57.