Formal Financial Institutions Research Articles

Faktor Yang Mempengaruhi Rumah Tangga Untuk Mengakses Lembaga Keuangan Formal: Studi Kasus SUSENAS 2015

Bank Dunia pada tahun 2014 melaporkan hanya 36% penduduk Indonesia memiliki akses ke lembaga keuangan formal. Angka ini menunjukkan tingkat keuangan inklusif di Indonesia. Masih ada tugas yang harus dilakukan karena pemerintah Indonesia karena Pemerintah bertujuan meningkatkan tingkat keuangan inklusifnya menjadi 70% pada tahun 2019. Survei BPS, yaitu Susenas 2015, memiliki informasi baru tentang profil tabungan rumah tangga. Informasi ini tidak tersedia dalam survei Susenas sebelumnya. Studi ini adalah yang pertama yang menguji faktor-faktor penentu yang menghalangi keluarga dari akses ke layanan keuangan formal, terutama tabungan berdasarkan Susenas 2015. Hasil dari penelitian ini memberikan profil rumah tangga dan mengidentifikasi faktor penentu untuk rumah tangga untuk mengakses lembaga keuangan formal, khususnya tabungan. Dengan menggunakan metode multinomial logit, probabilitas bagi rumah tangga untuk mendapatkan tabungan di lembaga formal dipengaruhi oleh karakteristik demografi seperti usia, jumlah anggota keluarga, tanggungan anak-anak dan orang tua dalam rumah tangga. Pendidikan, pekerjaan, dan sektor lapangan kepala rumah tangga, serta status kredit dan lokasi kepala rumah tangga sebagai faktor penentu bagi kepala keluarga untuk membuka rekening tabungan di lembaga keuangan formal. Temuan penelitian ini sangat penting dalam memberikan rekomendasi kebijakan untuk meningkatkan tingkat keuangan inklusif di Indonesia.

DETERMINAN INKLUSI KEUANGAN DI INDONESIA (GLOBAL FINDEX 2014)

Financial inclusion has been a trend since post 2008 crisis especially derived from the effects of the crisis towards the class in the bottom of the pyramid. Financial inclusion rate in Indonesia, if seen from three main indicators, is still low. Indonesians who have an account in financial institutions is at 35,95 percent and those who save is at 25,56 percent. Meanwhile, Indonesians who borrow in formal financial institutions are only at 13,3 percent. This study aims to examine individual characteristics in influencing three main indicators of financial inclusion, the ownership of the account, saving, and borrowing from formal financial institution in Indonesia. The data used is the micro-level data with 1000 respondents of the Indonesian population obtained from Global Findex 2014 issued by the World Bank. In accordance with the objectives of this study, the method used is the logit regression model.The results of the research shows that individual characteristics such as income level, education level, and age significantly affect ownership and savings accounts in formal financial institutions. While gender has no significant effect. In the third indicator which is the borrowing from formal financial institutions, only the poorest income quintile and age has a significant effect.

English

This paper examines the major socioeconomic and demographic determinants of rural households’ saving behavior in Sinana district, Ethiopia. A random sample of 267 rural households was selected from four rural kebeles of the district. The study used both descriptive statistics and econometric model for the analysis of primary data. The result of descriptive statistics demonstrates that 47.2% of the sampled households preferred formal saving, 33.3% preferred informal saving and 19.5% preferred both formal and informal saving behaviors, respectively. Econometric result confirms that the probability of preferring informal saving increases with increase in access to credit and distance from formal financial institution, and decreases with increase in square root of annual total income as compared to preferring formal saving behavior. Similarly, the probability of preferring both formal and informal saving behaviors increases with increase in the tropical livestock holding, and decreases with increase in land size as compared to preferring formal saving behavior. Therefore, these variables need special attention in addition to the intervention of concerned authority if the saving behavior of rural households is to be improved. Key words: Multinomial logistic model, households, saving behavior, Sinana district.

ROLE OF BANKS IN BRINGING FINANCIAL INCLUSION IN RURAL INDIA

Banking sector plays considerable role in bringing financially excluded people in to formal financial sector as policies of the government and Reserve Bank towards financial inclusion are implemented through banking sector. In order to expand the credit and financial services to the wider sections of the population, a wide network of financial institutions has been established over the years in India. The organized financial system comprising Commercial Banks, Regional Rural Banks (RRBs), Urban Co-operative Banks (UCBs), Primary Agricultural Credit Societies (PACS) and post offices caters to the needs of financial services of the people. The initiatives taken by the Reserve Bank and the Government of India towards promoting financial inclusion since the late 1960s have considerably improved the access to the formal financial institutions. However, the banking industry's penetration to un-banked areas is still found sluggish. “The role of the Indian banker is challenging. At one end of his spectrum lies the demand to achieve financial inclusion as nearly 50 per cent of the population is yet to be covered under the formal system of banking and at the other end lies the task to fulfil the needs of the existing customer,” said RBI Deputy Governor K. C. Chakrabarty while speaking on ‘Connecting the dots' at the CII conference. This article makes an attempt to assess the role of banking sector in financial inclusion process in India.

ANALISIS GULIRAN DANA SIMPAN PINJAM KHUSUS PEREMPUAN (SPP) PNPM MANDIRI PERDESAAN DI KECAMATAN SAMATIGA

The country's economic growth depends not only on export and industrial output from factories scattered throughout Indonesia. Factories and other large-scale companies only provide macro economic growth, in fact people can not enjoy the growth of the economy directly. Therefore, in order for the people to be prosperous, the State must boost economic growth through micro enterprises run in real terms by the (small) people themselves. In fact, it is difficult for small people to gain access to formal financial institutions to stimulate the growth of micro-enterprises in the community. Finally, the State makes it easy for its people to develop micro businesses managed by the community itself through a program of women's special savings and loans (SPP) PNPM Mandiri Perdesaan. Based on the results of the research shows that this program succeeded in increasing the growth of Micro Enterprises and able to absorb the work force in Kecamatan Samatiga. The SPP-PNPM program is able to generate the creativity of the community in entrepreneurship among the housewives. The SPPPNPMfund roll is used to form the community-run business such as making food andbeverage, raising, producing salted fish, and other businesses. Meanwhile, to run the new business is always needed human resources as a manager. Thus, the amount of effort in the community is directly proportional to the needs of the workforce, the SPP PNPM fund spools greatly affect the development of SMEs and labor. Key words: SPP PNPM, Savings and Loans, Samatiga, Aceh Barat.

Financial Inclusion and Demand for Money: a Dynamic Panel Data Approach

Financial inclusion is designed to increase the opportunities and society participation in the formal financial institution, especially for unbanked people. Moreover, financial inclusion is one of strategy inclusive economic growth. However, financial inclusion may lead an ineffectiveness of monetary policy. It is because financial inclusion can affect the sensitivity of interest rate, and it could cause instability demand for money. Therefore, the research aims to analyze the impact of financial inclusion on demand for money, reserve money (M0), in 36 countries for the period 2004 to 2014. The method that used is Dynamic Panel Approach. The result shows that financial inclusion stimulates the increase of demand for reserve money (M0) in developed countries. In the other hand, the increasing of financial inclusion could decrease the demand for reserve money (M0) in developing countries.DOI: 10.15408/sjie.v7i2.6838

Tackling Poverty through Women Empowerment: The Role of Social Capital in Indonesian Women’s Cooperative

Women in poverty discourse are considered as a highly vulnerable group. Women empowerment through micro-financing program is the appropriate way to solve the issue of woman poverty. Women, who often had difficult credit access in a formal financial institution, become facilitated in accessing capital to improve her business by the existence of woman cooperative ( Koperasi Wanita ). Cooperative is an organization who depicts social capital, which has important elements that refer to network, trust, and norm. The objective of this study was to found out the effect of network, trust, and norm as social capital dimension toward women empowerment and its impact toward poverty. This study used quantitative approach through questionnaire and documentation. The population of this study consists of members of Kelompok Pengusaha dan Pedagang Kecil (KPPK) Kopwan SU “ Setia Budi Wanita ” in East Java, with samples using 251 respondents. Based on Partial Least Square (PLS) analysis result, it showed that network, trust, and norm social capital dimensions has positive and significant effect toward women empowerment. Network, trust, and norm social capital dimensions have negative and significant effect toward poverty. And women empowerment has negative and significant effect toward poverty. Keywords: social capital, woman empowerment, poverty, cooperative JEL Classification: I32, J16, O15, Z13

Relevance of informal institutions for achieving sustainable crop intensification in Uganda

Informal institutions play an important role in the socio-cultural lives of rural communities in Uganda. However, little attention is given in research and development to understanding the influence of informal institutions in efforts to achieve Sustainable Crop Intensification (SCI). Such evidence is, however, pertinent to addressing low crop productivity by designing and implementing interventions that take into account the socio-cultural and institutional barriers and opportunities for SCI. This paper analyzes the influence of informal institutions on farmers’ access to land resources, financial resources, and farm inputs. The analysis is based on qualitative and quantitative data collected between January and May 2015 using 61 in-depth interviews, field surveys with 120 farmers and 18 gender-segregated focus group discussions in Eastern and Southwestern Uganda. Results indicate that informal institutions play a central role in enhancing farmers’ investment in SCI interventions by facilitating access to land through inheritance, land rentals, and labor sharing arrangements, although they are biased against non-clan members and female members of the communities. Informal institutions also enable access to financial resources by farmers at lower transaction cost compared to formal financial institutions. Yet, the informal institutions face challenges related to poor rule enforcement and limited financial reserves. The contribution of informal institutions in improving farmers’ access to (i) external farm inputs, (ii) serving as forums for knowledge sharing and (iii) regulating quality of farm inputs is minimal. Findings imply that development interventions could benefit from using informal institutions as entry points for investment in SCI and building on institutions’ strengths in influencing access to land and financial resources. Policies and programs that promote the SCI approach need to recognize the role of informal institutions for increased implementation and impact.

The Impact of Financial Interlinkage on Credit Rationing in Developing Countries: An Investigation in Rural China

Financial interlinkage has become an innovative way for rural households to get loan with connection of formal financial institutions and rural intermediaries. This paper is examining the rural households’ explicit and implicit demand for credit, and empirically investigates different types of credit rationing that occurred in China, and then use the Probit model to identify the impact of financial interlinkage on credit rationing. Quantity rationing, and transaction cost rationing turns out to be released by financial interlinkage significantly. The respondents join in the financial interlinkage appear to be effective to increase their wealth characteristics, especially agricultural income.

WOMEN'S ECONOMIC EMPOWERMENT AND MICRO-FINANCE OPERATION IN BANGLADESH: FROM POLICY TO OPERATIONAL LEVEL INTERVENTIONS

In the present context of women’s socio-economic empowerment, Bangladesh has played a revolutionary role in microcredit movement and has proved that the poor women are creditworthy and they can even do better in repaying the debt. This movement is no longer limited to only microcredit program; rather it includes more service-oriented in the frame of microfinance operation. Microcredit institutions in Bangladesh have dramatically increased the credit available to poor rural women since the mid-1980s. Moreover, Microfinance Institutions (MFIs) have become a dominant financial institution for the poor section of people, especially women who cannot access formal financial institutions in a large extent. Though poor women have access to microfinance, later it has been explored that due to various kind of patriarchal norms and other socio-economical constraints, women in most cases lose the control on proper utilization of debt. Even though, sometimes women’s decision-making power and the expansion of enterprise became shrink due to lack of control over the loan utilization process. This paper mainly focuses on how microfinance intervention in Bangladesh played a decisive role in women’s economic empowerment and to what extent government policy initiatives and institutional building approach assist in flourishing microfinance discourse more friendly for the most vulnerable poor women. Moreover, this paper also evaluates the most prominent two selected institutions named BRAC and Grameen Bank’s microfinance operation from a critical viewpoint and assess to what are the existing ambiguity in the arena of microfinance operation at the field level. Article visualizations:

The Influence of Rural Financial Diversity on Farmer Entrepreneurship

The 19th CPC National Congress clearly proposed that to support and encourage employment and business startups in rural areas, and open up more channels to increase rural income” is taken as the important content of pursuing rural vitalization strategy”. Since a new round of rural finance reform in 2006, the institutions of rural financial services have been gradually increasing, and the level of financial diversity has been constantly improving. Is the improvement of rural financial environment helpful in easing rural residents’ financing constraints and increasing rural residents’ probability of being entrepreneurs? To answer this question is helpful to the understanding of economic and social effects of rural financial diversity reform, and the exploration of effective paths to promote entrepreneurship in rural areas. Using the village-level financial diversity data in CLDS2012, this paper studies the effect of financial diversity on farmer entrepreneurship. In theory, financial diversity can promote effective competition between different financial institutions and reduce the information asymmetry in rural credit market. These effects help to ease rural residents’ financing constraints and promote their entrepreneurship. The results suggest that, village financial diversity significantly increases rural residents’ probability of being entrepreneurs, and increases on average by 0.8 percent while the financial diversity increases by one standard deviation. This conclusion still holds after changing key variables and taking the endogeneity into account. Meanwhile, the individual characteristics（such as party membership, age and education years）, family income and village business culture also have significant effects on farmer entrepreneurship. We also find that rural financial diversity has different effects on different styles of entrepreneurship. It comes to the following conclusions: firstly, village financial diversity has promotion effect on employer” entrepreneurship, but no significant effect on self-employed” entrepreneurship; secondly, informal financial institutions have stronger promotion effects on entrepreneurship than formal financial institutions; thirdly, formal financial institutions have promotion effects on employer” entrepreneurship, while informal financial institutions have promotion effects on self-employed” entrepreneurship; fourthly, village financial diversity improves rural residents’ employer” entrepreneurship willingness in future. This paper provides not only the empirical evidence for understanding the micro-mechanism that financial development affects economic growth, but also policy suggestions about promoting entrepreneurship in rural areas. In the future reformation of rural financial areas, the establishment of multi-level rural financial services system, the reduction in rural financial institutions’ barriers to entry, and the improvement of the level of rural financial diversity are helpful in improving rural financial environment and inspiring the enthusiasm of farmer entrepreneurship. These effects provide new drivers for the healthy and sustainable development of rural economy.

Formal Financial Credit Constraints and Solutions for Entrepreneurial Farmers

With the deepening of China’s economic reforms, in the process of gradual diversification of farmers’ incomes, the income growth brought by farmers’ entrepreneurship plays an important role in increasing farmers’ income. The importance of formal financial support for entrepreneurial farmers is self-evident. However, due to various factors between entrepreneurial farmers and formal financial institutions, the supply and the demand of formal financial credits of entrepreneurial farmers are unbalanced. This paper firstly analyzes the formation of formal financial credit constraints of entrepreneurial farmers by combining the current situation of supply and demand of formal financial credits of entrepreneurial farmers, and then proposes countermeasures to alleviate the formal financial credit constraints of entrepreneurial farmers.

Economic inclusion of un-bankable micro-scale traders in Indonesian traditional market: learning from micro-scale traders in Islamic financial co-operative

Central Bank in Indonesia has launched an inclusive economy strategy, whose aim includes people of low income and micro-scale business owner. Micro-scale traders in rural traditional market in Indonesia in general face the challenge of limited access to formal financial institution, since they are considered un-bankable. The difficulty of accessing capital from banking financial institutions becomes an obstacle to increasing the scale of their business. The situation often causes market micro-scale traders to fall into the practice of loan sharks. As an alternative, traditional market traders turn to Islamic microfinance co-op. This paper studies the case of micro-scale traders in a rural are in Central Java, in their relationship with a local Islamic Financial Cooperative (Syariah Baitul Maal Wat Tamwil) that provides financial products/services. Using qualitative approach, the findings field research conducted from 2016 until 2018 points out to the success of Islamic Financial Coop as an inclusive financial institution for the local micro-scale traders, which supports promotion of sustained economic growth and productivity, despite (or, because of) its traditional way of trust-building.

EFFECTS OF REMITTANCES ON POVERTY REDUCTION: THE CASE OF INDONESIA

Remittances have been reported as a tool for fighting poverty in some selected countries, such as Indonesia. An increase of income through remittances tends to improve the economic status of the migrant’s household. Once they get a high salary, they will remit money (a remittance) to their household in Indonesia via formal institutions, such as banks. The migrant’s household can fulfil their basic needs and can use the remittance for educational investment and productive activities. The education investment aims to educate the children or grandchildren of migrants, which will be beneficial for the future generations of the family, allowing them the chance of a more prosperous life. The poverty rate would be reduced gradually, and economic welfare can be achieved. The main objectives of this paper are first to estimate the effects of remittances on poverty in Indonesia from 1983 to 2015 and second, to propose several strategic policies related to remittances and poverty reduction. Other variables considered include inflation, exchange rates, income, income inequality and the labor force participation rate. An Ordinary Least Square (OLS) method was used to explore the econometric and estimated results. The study found that an increase in remittances led to a reduction in poverty by 2.56%. Inflation and the exchange rate have positive and negative effects on poverty, respectively. The small effect of remittances on poverty’s reduction could possibly be explained by the low educational background of the migrants, low wage jobs, expensive remittance costs, and migrants not knowing how to remit money through formal financial institutions. Hence, to reduce the poverty level, the government needs to first facilitate skills training for the workers so that they could get a better job and earn more, second, lower the transaction costs of remittances, and lastly, provide agents at Indonesian banks overseas to provide better facilities to Indonesian workers to remit money back to their home country.

FAKTOR SOSIAL EKONOMI YANG MEMPENGARUHI ADOPSI PENGELOLAAN TANAMAN TERPADU (PTT) JAGUNG DI GORONTALO

Integrated Crop Management (ICM) of maize has been disseminated since long time in all production centers in Indonesia, including Gorontalo. However, the application at the farmer level has not been optimal so that it has not yet expanded. This study aims to measure the adoption rate of the components of maize ICM technology, and to identify socio-economic factors that affect the application of maize by farmers in Gorontalo District. The study was conducted on lowland dryland agro ecosystem in Tibawa Subdistrict and highland dryland agro ecosystem in Bongomeme Subdistrict, Gorontalo District. Site selection was done purposively with the consideration that the district and sub-district were maize production centers, and had implemented various programs to increase maize production with the application of ICM from various government agencies. The survey was carried out in February-May 2015. The adoption rate of maize ICM component by respondents farmers used the weighting (score). Socio-economic factor analysis methods that influence the application of maize ICM using logistic regression model. The results showed that the accessibility of farmers to the supporting sources of farming such as capital (credit), market, and technology sources significantly affected the adoption of ICM technology. Steps that can be taken to improve farmers access to credit in formal financial institutions (banks) include providing flexible credit scheme, easy, not procedural, and not burdensome. Increased access of farmers to the source of technology can be done through increased frequency of extension, the implementation of technology dissemination that reaches more farmer groups and farmers.

Social Inclusion of Women Through Microfinance: With Special Reference to Plantation Region of Karnataka State

The Self Help Group bank linkage programme in the last 22 years is becoming a well-known tool for banker’s developmental agencies and even for corporate houses. For the poverty alleviation, SHG bank linkage programmes are becoming popular and powerful means of providing financial assistance to needy and deserved. India is a land of villages and 60% of the population is depending upon agriculture. Agriculture is an unorganized and unrecognized industry in India. For the last 6 decades, the hopes of millions of people who depended on agriculture are not changed. All the government-sponsored programmes are a failure on account of many issues like favoritism, weak linkage, duplication, and bribery. The rural people are weak and lack of resource to solve their problem. This tendency gave the way for searching alternative ways to serve the rural people who are untouched by formal financial institutions, mainly rural women in particular and rural poor in general. The concept of an SHG is a new hope for the development of the rural area and empowerment of women. SHGs are becoming highly popular and recognized as useful tools to help the poor and as an alternative mechanism to meet the immediate requirement of the poor through savings creation, and thereby the harassment by the money lenders, traders have been reduced though not eliminated. Against this background, an attempt is made to understand the empowering of women. The study is an explorative study and statistical analysis are used in order to process the data and present in a meaningful manner. This study is carried out in plantation region of Chikkamgaluru District.

Households, Financial Distress, and Predatory Lending: An Experimental Study

A substantial part of households and micro enterprises, particularly in developing countries including Indonesia, did not have access to formal financial institutions which then lead them to borrow money from illegal loan providers. Using an experimental study, we tested whether predatory loan, an illegal short-term loan with high-interest rate, was preferable or not by comparing with pawnshop loan, bank loan and household’s limited saving when households confront with financial distress. We divided the participants into three groups: lower low, low, and upper low income. We found that predatory loan was preferable especially for the lower low and low-income group. Result also confirmed that even if the predatory loan charge was increased, the lower low- and low-income groups still prefer to ease their financial distress through predatory loans. Moreover, the longer the duration of the predatory loan, the higher its probability to be chosen as a funding source in times of household financial distress. DOI: https://doi.org/10.26905/jkdp.v21i3.1261

Household Financial Access and Use of Alternative Financial Services in the U.S.: Two Sides of the Same Coin?

Financial access, or the household use of formal financial services, includes the ability to access transaction, credit, and investment products and services from formal financial institutions. In contrast, households that use Alternative Financial Services (AFS), or products and services from non-bank sources, lack full financial access and are considered financially excluded. Financial access is a necessary component of strong household financial well-being. Some researchers discuss the two as opposite sides of the same construct, or “two sides of the same coin” because they are closely related features of one idea. Using national data from the 2015 Financial Capability Study (n = 27,564), this study sought to explore the nature of the relationship between financial access and AFS use using confirmatory factor analysis. Results suggest that the two concepts are weakly and positively related, which suggests that they are not “two sides of the same coin”. The determinates of AFS use are complex, and may include social factors. A holistic approach to expanding financial access may be most effective. Policy implications are also discussed.

The impact of microfinance on microenterprises

The provision of and access to financial services, particularly credit, can contribute greatly to the development of microenterprises in South Africa. Such provision has been an issue ignored by conventional banks or formal financial institutions. The problem associated with this ignorance includes high transaction and operation costs, lack of collateral, and the inability to obtain information about microenterprises resulting in difficulties to extend such credit. Microfinance therefore becomes an alternative to conventional banking and a mainstream and sustainable development activity for extending credit to microenterprises. However, the benefits of microfinance, which include, among others, the ability to provide the much-needed financial support for microenterprises, have not been fully harnessed in South Africa. The objective of this article is to evaluate the impact of microfinance on microenterprises in a typical South African township and to propose specialized financial mechanisms to support and improve the provision of credit to microenterprises. The article draws on the findings of a study undertaken in the Ga-Rankuwa township located in the Tshwane Metropolitan area in the Gauteng province of South Africa. It further draws on a wide range of extensive review of literature that documents the impact of microfinance on microenterprises. A case study approach is adopted and mixed method research paradigm (qualitative and quantitative) is used to gather information. Structured questionnaires and interviews were used to solicit information from the randomly selected microfinance institutions and microenterprises in the Ga-Rankuwa township.

The Impacts of Improvements in the Delivery of Credit from Formal and Semi-Formal Financial Institutions: Evidence from Ghana

Abstract This study examines the impacts of improvements in delivery of credit from formal and semi-formal financial institutions to households in Ghana. The main interest of the study is to exploit plausibly variations in access to credit from these institutions, since before the passage of the Borrowers and Lenders Act, 2008 (Act 773) and the Non-Bank Financial Institutions Act, 2008 (Act 774) in 2008, households in the country could hardly borrow from the formal financial institutions. Particular attention is paid to a number of socioeconomic outcomes, including agriculture, non-farm businesses, and expenditure. This paper documents evidence of a decline in the share of households who have some informal borrowing, reduction in agricultural activities, and increases in non-farm business activities as well as increases in the number of non-farm business employees. While the reforms altered the borrowing patterns of households, it did not necessarily induce demand for credit. This paper also finds improvements in consumption, profits (both farm and non-farm activities) and loan repayments.