Abstract
Micro, small, and medium enterprises (MSMEs) have strategic roles in economic structure, especially in developing countries, so, they need supports from the banking industry, including foreign banks, by giving loans they need. This study aims to find the effect of bank ownership and mode of entry on credit allocation to MSMEs. We use 110 samples of conventional commercial banks and 41 samples of foreign-owned banks in Indonesia during 2010-2017, with 686 and 266 observations. The results of multiple regression show that banks with government ownership have higher credit allocation to MSMEs than non-government ownership and banks with foreign ownership have lower credit allocation to MSMEs than domestic ownership. Based on their mode of entry, banks with foreign ownership via greenfield have lower credit allocation to MSMEs than via takeover.
Highlights
The development of micro, small and medium enterprises (MSMEs) is vital for national economic growth
= Mode of Entry is dummy variable for banks with foreign ownership based on their mode of entry of bank i at time t-1, which takes the value of 1 if foreign investor enter the market via greenfield with more than 50% of the bank shares and 0 if foreign investor enter the market via takeover with more than 50% of the bank shares
18 percent of the banking industry is owned by the government, and 39 percent of the banking industry is owned by foreign investors and based on their mode of entry, 49 percent of all foreign banks entering banking markets via greenfield
Summary
The development of micro, small and medium enterprises (MSMEs) is vital for national economic growth. MSMEs usually face many financial constraints (as opposed to large companies which usually have more opportunities to obtain external financing), this is because creditors face difficulties in accessing information about MSMEs (Cariola et al, 2020). To overcome this problem, the government through Bank Indonesia Regulation (PBI) No 17/12/PBI/2015 requires banks, including foreign banks, to increase their credit allocation to MSMEs, namely 5% in 2015, 10% in 2016, 15% in 2017, and 20% in 2018.
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