The Determinants of Financial Inclusion for Competitiveness Improvement of SME’s in East Java Province

Abstract

Abstract: Financial inclusion is an effort to eliminate all forms of constraints with price and non-price characteristics on public access to use financial services. Financial inclusion is a national strategy to boost economic growth through equal income distribution, poverty reduction, and financial system stability. Financial inclusion is defined as the availability and equality of opportunities to access financial services. The elements of financial inclusions are financial literacy, access to financial services, saving habits, education, and government policy. Financial inclusion can also be defined as the use of formal accounts can bring many benefits to individuals. This paper explores the most dominant factor of financial inclusion that generates significant value for competitiveness improvement of Small Medium Enterprises (SME's), especially in East Java Province. Based on the data 2017, total SME's in East Java is 12.1 million units, but only 1.3 million readies for the competition and ready for collaboration in the digital era (Kompas, 19 October 2018). The method that used is multiple regression analysis using SPSS 24 statistics tools. The total respondent is 205 SME's owners that spreading all over East Java. Based on the validity and reliability test, all variables are valid and reliable(see table 7 and table 8). Based on multiple regression analysis – under stepwise method, we found that bank access has the most significant effect that other variables. The second step of the significant variable is education background and the third step is government regulation (see table 10). That means bank access, education and government regulation have a significant effect on competitiveness improvement of SME's in East Java Province. The recommendation from the researcher can be stated as follows: to the SME's owners, they must improve the knowledge through improving educational background to increase their competitiveness. To the banking institution, they shall improve their policy and regulation for giving easiness to the SME's on increasing their working capital. To the government, shall improve their policy orregulation that related to the improvement of the competitiveness of SME’s. Keywords: Financial literacy, bank access, saving habits, education, government policy, competitiveness