The direct effect of commercial banks on poverty reduction: evidence from provinces in Indonesia

Abstract

ABSTRACT Many studies at the macro-level have proved the direct influence of savings and credit on poverty reduction. This study aimed to correct this finding and employed commercial banks as the research case because most poor people had major barriers to directly access services provided by commercial banks. This study revealed that savings did not affect poverty reduction by employing panel data composed from provinces in Indonesia from 2004 to 2018. This finding indicated that the poor people did not prefer commercial banks for saving their money which functions as an instrument for their fund accumulation or emergency savings. On the contrary, this study proved that the credit of commercial banks affected regional poverty. Besides, this study revealed that poverty among regions in Indonesia was heterogeneous. The regions with more developed banking infrastructures do not automatically have a low poverty rate. Therefore, anti-regional poverty policy should focus on commercial bank reinforcement as intermediary institutions and regional aspects.