Formal Financial Institutions Research Articles

Exploring determinants of Indonesia's financial inclusion level: Based on 2017 Global Findex data

This research aims to analyze the influence of income level, education level, gender, and age level on the three main indicators of financial inclusion, namely the probability of having an account at a formal financial institution, the probability of saving at a formal financial institution, and the probability of borrowing from a formal financial institution in Indonesia on 2017. Data was obtained from Global Findex 2017 using a purposive sampling method. This research uses a logistic regression analysis method with an assisted logit estimation model using Stata 16 software. The research results show that when estimating the probability of account ownership levels at formal financial institutions, only the variable gender shows insignificant results. In contrast, the other variables show significant negative values. In the model for estimating the probability of saving at formal financial institutions, two variables are not significant, namely age and gender, while other variables show significant negative results. Finally, on the probability of borrowing from formal financial institutions, only the basic education level variable shows significant negative results, while the other variables show insignificant results. The implications of this research provide insight into income, education, gender, and age and their impact on financial inclusion.

The Relationship between the Sharecropping System, Informal Credit, and Productivity: The Empirical Evidence from the Madurese Traditional Solar Salt Business

The ease in obtaining a loan is often regarded as a key advantage of the sharecropping system in the traditional solar salt business of Pamekasan Regency. The challenges faced by tenant farmers in accessing formal financial institutions have led to the continued prevalence of the sharecropping system in rural areas. This research aims to find the relationship between the sharecropping system, informal credit, and salt land productivity. The first analysis employs a multiple linier regression model on 93 tenant farmers in Pamekasan Regency to analyze the factors that influenced the amount of informal credit. Next, a quantitative descriptive analysis was carried out regarding the relationship between the sharecropping system, the amount of informal credit, and the productivity of solar salt fields area. Findings indicate that the significant factors affecting the credit amounts requested by tenant farmers include the cost of funds, loan duration, profits garnered by tenant farmers, the availability of collaterals, and the presence of other credit sources. The second conclusion of this research findings is that the extent of solar salt land area has a positive correlation with the informal credit amount, as does the productivity of the land. It should be an expected necessity for the government to play a larger role in supplying formal credit to small-scale farmers. This includes measures like credit rationing to diminish the influence of landowners.

A Study on the Status of Present Financial Inclusion Policy in the Districts of the State of West Bengal, India

Introduction: The convergence of financially excluded population towards mainstream formal financial institutions through proper accessibility, affordability and usage of services is crucial, to eradicate the dependence on informal money lenders, and to help the vulnerable and poor people to come out of the vicious debt cycle. As India aims to achieve inclusive growth, it has worked upon removing barriers from the path of gaining complete ‘Financial Inclusion (FI)’ through the policy called, Pradhan Mantri Jan Dhan Yojana (PMJDY). This has helped in translating Jan Dhan (wealth of people) to Jan Suraksha (security of people) through insurance and pension schemes, with the objective of building a global social security mechanism for every citizen. Objective: To analyse the status of the FI scheme (PMJDY) in the 23 districts of the state of West Bengal. Research Methodology: This research work will evaluate the effects of the current FI schemes, on the lives of the citizens of the state of West Bengal, which has 23 districts in total. To investigate about the inclusiveness in the financial system of those 23 districts, District FI Index (FII) has been developed, by considering some indicators for sub-indices as well as for composite index, that are clubbed under three dimensions, namely, accessibility, availability and usage of bank offerings. Earlier literature focused on savings and deposit accounts as a variable to compute FI whereas this study bridges the gap and considers only PMJDY scheme-based accounts to evaluate the present status of the scheme in the state. Findings and Conclusion: It is observed that Kolkata has secured the highest place in FII whereas other districts have shown relatively low FI. The state still has a long distance to travel in terms of achieving a complete FI but it has the capability of travelling at a faster rate due to well-developed banking infrastructure. Thus, to make the FI scheme effective, a developed and accessible banking structure is a pre-requisite. The success of this scheme in bringing the deprived and vulnerable section into the fold will not only increase savings and investment but also contribute to strengthening the human capital of the country.

Determinants of Access to Financial Services among Adults in Tanzania: The Evidence from FinScope Tanzania Survey (2017)

There is low financial inclusion across developing countries, especially those in Sub-Saharan Africa (SSA) including Tanzania. Almost three quarter of the SSA citizens don’t hold any form of account with a formal financial institution. East African countries have poor access to financial services especially the highly populated rural areas. The study examined the determinants of access to financial inclusion among adults in Tanzania. The study used a longitudinal research design to access data collected from 9459 respondents who were selected from the FinScope Tanzania 2017 which were weighted by NBS. Data were analyzed using both descriptive and Binary Logistic Model as inferential statistics with aid of STATA version 16. The study was able to find out that individual savings as a key determinant to financial inclusion was relatively low this being due to income gap, education and access to technology. Most of the respondents were willing to save but many-faced constraints to save. finally, the determinants of access to financial services in Tanzania among adults was identified to be age, education level and income. The study concluded that financial inclusion (access to financial services) among adults in Tanzania was mainly determined by age, education and income. Therefore, the effort should be made by the government to stimulate technological adoption so as to enhance variety of service delivery mechanism and provide financial knowledge to the society to inform people to make proper decisions regarding their financial well-being.

Exploring Financial Inclusion among Women Entrepreneurs: A Survey in Hazaribagh District, Jharkhand

Financial inclusion is a critical aspect of economic empowerment, particularly for marginalized segments such as women entrepreneurs. This research investigates the landscape of financial inclusion among women entrepreneurs in Hazaribagh District, Jharkhand, aiming to identify challenges and opportunities for enhancing their financial participation. Through a comprehensive survey-based approach, this study explores various dimensions of financial inclusion, including access to financial services, utilization patterns, and perceptions among women entrepreneurs in the region. In Hazaribagh District, Jharkhand, where entrenched gender norms often limit women's economic opportunities, understanding the status of financial inclusion among women entrepreneurs becomes imperative. Previous studies suggest significant disparities in access to finance, hindering the growth of women-led businesses. This study seeks to address this gap by conducting a survey to assess the extent of financial inclusion among women entrepreneurs in Hazaribagh District. A structured questionnaire was designed to collect data from a sample of women entrepreneurs operating across various sectors in Hazaribagh District. The questionnaire encompassed sections on demographic details, access to financial services, borrowing and saving behaviors, financial literacy, and perceptions of financial institutions. A purposive sampling technique was employed to select respondents, ensuring representation from diverse socio-economic backgrounds. Data collection occurred over a specific timeframe, and responses underwent analysis using descriptive statistics and thematic analysis. Analysis of the survey data revealed significant insights into the status of financial inclusion among women entrepreneurs in Hazaribagh District. Specifically, 72% of respondents reported limited access to formal financial services, citing factors such as distance to banking institutions and lack of awareness as primary barriers. Moreover, 58% of women entrepreneurs relied on informal sources of credit, indicating a substantial gap in formal financial engagement. Despite these challenges, 85% of respondents expressed a willingness to engage with formal financial institutions if provided with suitable products and services tailored to their needs. The discussion underscores the importance of targeted interventions to enhance financial inclusion among women entrepreneurs in Hazaribagh District. Strategies such as mobile banking initiatives, financial literacy workshops, and microfinance programs emerge as potential avenues for addressing existing gaps and empowering women economically. Furthermore, collaborative efforts involving government agencies, financial institutions, and non-profit organizations are essential for creating an enabling environment conducive to women's entrepreneurship development. This research delivers valuable insights into the state of financial inclusion among women entrepreneurs in Hazaribagh District, Jharkhand. By pinpointing barriers and opportunities, it provides a foundation for evidence-based policy interventions aimed at advancing women's economic empowerment. The findings underscore the significance of holistic approaches that tackle not only access to finance but also socio-cultural factors shaping women's entrepreneurial endeavors. Moving forward, sustained efforts are warranted to foster an inclusive financial ecosystem that empowers women entrepreneurs to thrive and contribute to the socio-economic fabric of the region. In conclusion, this study underscores the urgency of addressing the financial inclusion gap among women entrepreneurs in Hazaribagh District and offers actionable recommendations for policymakers, practitioners, and stakeholders committed to promoting gender equality and inclusive economic growth.

Financial inclusion and nutrition among rural households in Rwanda

Abstract Using Rwandan Integrated Household Living Conditions surveys (2013/2014 and 2016/17), we investigate whether financial inclusion leads to improved nutrition in rural Rwanda. Our empirical evidence shows a robust positive impact of financial inclusion by formal financial institutions, although informal institutions like tontines were ineffective in improving food expenditure or nutrition. Furthermore, the heterogeneous marginal effects of financial inclusion reduce the gender gap between the food expenditure and nutrition of female- and male-headed households. The results, hence, suggest that the country should promote formal financial inclusion to provide wide-ranging welfare effects by improving food security, nutrition and food expenditure in its rural communities.

Self-organization, networks and sustainable innovations in microfinance institutions: Does organizational resilience matter?

PurposeThe purpose of this study is to explore the interplay among self-organization, networks and sustainable innovations within microfinance institutions (MFIs) and to examine the extent to which organizational resilience plays a significant role in shaping these dynamics as a mediator.Design/methodology/approachThis paper adopted a cross-sectional research design combined with analytical and descriptive approach to collect the data. Smart partial least squares structural equation modeling (PLS-SEM) was used to construct the measurement model and structural equation model to test the mediating effect under this study.FindingsThe results revealed that organizational resilience is a significant mediator in the relationship between self-organization, networks and sustainable innovations among microfinance institutions in Uganda.Research limitations/implicationsThe data for this study were collected only from microfinance institutions in Uganda. Future studies may collect data from other formal financial institutions like commercial banks and credit institutions to test the mediating effect of organizational resilience. More still, the study adopted only a single approach of using a questionnaire. However, future research through interviews may be desirable. Likewise this study was cross-sectional in nature. Therefore, a longitudinal study may be useful in future while investigating the mediating role of organizational resilience traversing over a long time frame.Practical implicationsA possible implication is that microfinance institutions which desire to have sustainable innovative solutions for their business operations in disruptive circumstances may need to scrutinize their capacity to be resilient and self-organize.Social implicationsMicrofinance institutions play a great role to the underserved clients. Thus, for each to re-organize to be able to provide services that meet users’ needs, without physical products so as to ensure long-term financial and social welfare combined with the ability to bounce back and adapt in times of economic downturn to avoid mission adrift.Originality/valueWhile most studies have been carried out on organizational resilience, this paper takes center stage and is the first to test the mediating role of organizational resilience in the relationship between self-organization, networks and sustainable innovations, especially in microfinance institutions in Uganda. This paper generates strong evidence and contributes to the powerful influence of organizational resilience in enhancing the level of sustainable innovations based on self-organization and networks.

An Investigation of Financial Inclusion in Ranchi: Challenges and Opportunities in Ranchi City

This study provides an inclusive examination of the intricacies of financial inclusion in Ranchi, India, shedding light on the challenges and opportunities within the local financial landscape. Through a comprehensive survey involving 141 participants, the research uncovers significant obstacles, including but not limited to, limited access to formal financial institutions and cultural barriers hindering the adoption of modern financial services. These challenges are juxtaposed with encouraging prospects, such as the increasing acceptance and utilization of digital payment solutions, as well as the emergence of collaborative initiatives between financial entities and non-governmental organizations. The findings underscore the critical need for tailored policy interventions focusing on multiple key areas. Firstly, there is a pressing need for enhancing financial literacy among the local population to promote a better understanding of financial products and services. Moreover, the study emphasizes the significance of forging strategic partnerships between various stakeholders, including governmental bodies, financial institutions, and non-governmental organizations, to promote a more inclusive and sustainable financial ecosystem in Ranchi. By addressing the identified challenges and capitalizing on the opportunities within the local financial landscape, the study advocates for the creation of a more accessible, equitable, and sustainable financial system that can support the region's overall development and growth.

Determinants of Financial Inclusion among Women Petty Trader's in Dodoma City

This paper assesses the determinants of financial inclusion among women petty traders in Dodoma city. Specifically, the paper examines women petty traders’ status of using formal accounts, formal savings, formal credit, and mobile money accounts and socioeconomic determinants of financial inclusion. The paper employed a cross-sectional research design whereby structured and semi-structured interviews and documentary review methods were used for data collection. Non-probability sampling techniques were employed to select a sample of 200 women petty traders. Data analysis employed in this study included both inferential and descriptive analysis. The result of the study indicates that the majority of women petty traders use mobile money accounts, and use informal savings (save money at home, through VICCOBA/ person outside the home), also they lack enough money for opening/maintaining a formal account. The binary probit model result indicates that age, years of schooling, household size, marital status, lack of required documents, costs of financial service, and income are significant determinants of financial inclusion. Therefore, financial institutions should offer basic or low-fee accounts with a reduced/simplified documentation requirement. Government payment should be conducted through banks to promote savings in formal financial institutions and promote financial literacy, and data on financial inclusion among women petty traders should be collected and analyzed to promote the formulation of evidence-based policy

PENGARUH KUALITAS LAYANAN PENGADAIAN SYARIAH TERHADAP LOYALITAS NASABAH DI KOTA MAKASSAR

Pegadaian Syariah is a formal financial institution in charge of distributing financing in the form of providing loan money to people in need, based on sharia pawning law, is something that needs to get a positive response. In sharia pawning, the most important thing is to keep away from the practices of usury, speculation and Gharar, which result in injustice and injustice to the community and customers. The purpose of this study is a type of quantitative research with the aim of knowing the effect of the quality of sharia pawnshop services on customer loyalty in the city of Makassar. This sample was taken from the customers of Pawnshop Syariah Central Makassar as many as 69 respondents. The type of data used in this study is quantitative data obtained from questionnaires distributed and associated with the problem under study. The research instrument used in this study used the Likert scale method. Based on the results of data research using statistical calculations through the application of the Statistical Package for the Social Science (SPSS) version 26. Based on the partial calculation results, the service quality variable is not significant to the customer loyalty variable, which is indicated by the value of 0.885 which is greater than 0.05 with the T test value showing 0.146. This means that the service quality variable has a positive but not significant effect on customer loyalty at Pegadaian Syariah Makassar City. The service at the Makassar Central Sharia Pawnshop is quite satisfactory even though it does not really affect customer loyalty, but is influenced by other variables.

Agricultural Land Pawn as a Social Institution in Wono Agung Village, Tulang Bawang Regency

This research focuses on agricultural land pawning, distinguishing between non-agricultural and agricultural land pawning agreements. Regulations governing agricultural land pawning, such as Government Regulation in Lieu of Law No. 56/1960, aim to protect the interests of farmers, Social institutions can act as institutions that facilitate the process of providing loans with land collateral. The increase in agricultural land pawning has created several problems. There is a disproportion between the pawn holder and the landowner. The legal weakness in the pawn agreement is that it is often done orally without a written agreement. The agricultural pawn practice acts as a social institution, providing a source of informal credit for farmers who find it difficult to access formal financial institutions.

Households’ entry into non-farm entrepreneurship and the market exit of enterprises in rural Ethiopia

Purpose This paper examines household and community characteristics that influence the entry of rural households into non-farm entrepreneurship and investigates the various factors that influence the market exit of non-farm enterprises (NFEs).Design/methodology/approach The authors use data from three rounds (2011/12, 2013/14 and 2015/16) of the World Bank’s Living Standards Measurement Study – Integrated Surveys on Agriculture (LSMS-ISA). The authors employ panel logit and multilevel logit models to examine the probability of opening one or more enterprises and the enterprise exit rates.Findings Results indicate that the likelihood of starting a NFE is positively associated with primary education attainment, access to credit, experiencing idiosyncratic shocks and availability of formal financial institutions. Age, higher education attainment and rising farm input prices constrain entry into non-farm entrepreneurship. The enterprise exit rate is negatively associated with small-town residence, wealth, access to tar/gravel roads and cellphone communication.Practical implications Policymakers and administrators should strive to address the challenges that communities face in transportation, communication and financial services. Policies aimed at stabilizing prices and increasing access to mobile communication, primary education and road infrastructure could help expand the rural non-farm sector.Originality/value Previous studies primarily examined the determinants of participation in NFEs at a given time using cross-sectional data. The current study uses panel data to study the dynamics of NFE ownership by investigating households’ decisions to enter into or exit from the sector.Peer reviewThe peer review history for this article is available at https://publons.com/publon/10.1108/IJSE-09-2022-0611

Penguatan Soft Skill: Kapabilitas e-Commerce dan Laporan Keuangan Formal Bagi Pelaku Usaha di Kecamatan Pegandon

Digital technology enables the growing development of online shopping. This also makes it possible for each seller to market their products or services with a wider range and costs that are not as expensive as conventional ones. Pegandon District has many business actors or MSMEs. The GRDP growth rate in Pegandon District has not recovered after the COVID-19 pandemic. One way to increase the GRDP growth rate is to increase the capability of business actors in selling or distributing their products. One of the product sales distribution channels is e-commerce. This training activity is related to marketing in utilizing e-commerce. Therefore, training on the use of e-commerce is not only to increase sales, business actors are also able to expand their product introduction. In addition, this service activity also provides training on preparing simple financial reporting. It is hoped that through the financial reporting that is owned, business actors can access capital from formal financial institutions

“You cannot rely on bank loans to expand your business”: aversion to formal credit among female micro-entrepreneurs in Ghana

PurposeThe marginalisation of female entrepreneurs in accessing credit is well documented. Yet, how female entrepreneurs navigate through the marginalisation to gain funding is under-explored.Design/methodology/approachThe authors address this gap using qualitative data from 30 female entrepreneurs in three neighbourhoods with varying socio-economic characteristics in Ghana's capital, Accra.FindingsThe authors find a marked aversion to bank loans among respondents. Consequently, they nurtured trust in their social circles in order to facilitate access to informal credit from internal (e.g. family and friends) and external (e.g. trade credit, associations and religious organisations) sources. This aversion to loans from formal financial institutions (FFIs) had a socio-cultural aspect, including cumbersome application procedures, a deep-rooted fear of the social consequences of defaulting and religious prohibition against interest payment for Islamic traders.Social implicationsThis paper shows that providing formal access to credit is not enough to support women's entrepreneurship if the socio-cultural factors inhibiting women's access to credit from FFIs are not addressed.Originality/valueThe findings suggest that trust is an important factor that bridges the gap in female entrepreneurs' access to funding given their heavy reliance on informal sources of funding.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-02-2023-0090

Gender Inequality and Financial Inclusion in South Africa: Lessons from India

This article examines the intersection of gender inequality and financial inclusion in South Africa, focusing on drawing lessons from India’s experience. Despite progress in financial inclusion initiatives in South Africa, women face systemic barriers to accessing financial services, including discriminatory policies and cultural attitudes. Through a comparative analysis of India’s efforts to promote financial inclusion and gender equality, this article identifies key strategies South Africa can adopt to address gender-based disparities in financial access. These strategies include promoting financial literacy among women, expanding access to formal financial institutions, and implementing policies that address the unique challenges women entrepreneurs face. By applying lessons from India, South Africa can take meaningful steps towards building a more inclusive financial system that empowers women and promotes gender equality.

An Analysis of the Impact of Financial Inclusion on Poverty and Development: Case of SACU Countries

Financial inclusion has been on the agenda as a vehicle of economic development in modern times. Studies base the contribution of financial inclusion on poverty and development on the theoretical and empirical evidence intensively expressed in literature. In some cases, the influence of financial inclusion on development has inconclusive effects on economic development and therefore, more and more research is underway to achieve an informed decision. This study attempted to relate financial inclusion to development and poverty in the SACU region. Financial inclusion is very vital for development and poverty reduction. The most financially excluded populations, the vulnerable, are found in developing countries and mainly women. The member states of the SACU region are also developing nations. The results of this study have indicated the importance of women’s education on financial literacy to enhance financial inclusion. There is also a need in the region to create employment opportunities for women so that they will be able to get access to formal financial institutions, for savings, bank accounts, withdrawals and salaries, which will in turn have a significant impact on financial inclusion. Poverty eradication or reduction is very critical in SACU region to enhance financial inclusion. The governments of the SACU member states must enact policies that are targeted at poverty eradication, which is in line with sustainable development goals, not just enacting, but in conjunction with implementation and close monitoring to make the policies effective.

Exploring the potential of village community banking as a community-based financing system for house improvements and malaria vector control in rural Tanzania.

House improvement is associated with remarkable reductions in indoor mosquito bites and disease incidences, even in typical rural houses. However, its exploitation remains extremely poor in Tanzania and other endemic countries due to limited financial resources. Nevertheless, village community banks (VICOBA), practiced in Tanzania for nearly two decades, have proven to provide financial services to rural communities that would otherwise not be able to get them from formal financial institutions. This study explored the need, opinion, and willingness of VICOBA members to use VICOBA platforms as a source of finance for improving local houses and eventually controlling mosquito-borne diseases. A mixed-methods approach was used in this study, whereby a survey was administered to 150 participants and twelve focus group discussions were done in three villages in Ulanga district, rural Tanzania. The FGDs comprised eight participants each, with equal representation of males and females. The FGD guide was used to probe the opinions of study participants on malaria transmission, housing condition improvements, and financial resources. About 99% of all participants indicated the urgent need to improve their houses to prevent mosquito bites and were willing to utilize VICOBA for improving their houses. In the focus group discussion, the majority of people who participated were also in need of improving their houses. All participants confirmed that they were at the highest risk of getting mosquito-borne diseases, and they were willing to use money that was either saved or borrowed from their VICOBA for housing improvements and vector control. A self-sustaining financial system destined for house improvement and related interventions against malaria and other mosquito-borne diseases is crucial. The community members were willing to use VICOBA as a source of finance for house improvement and disease control; however, there was limited knowledge and sensitization on how they could utilize VICOBA for disease control.

Analysis of MSME Capital Using Sharia Fintech Peer to Peer Lending

As one of the pillars of the economy in Indonesia, it is proven that MSMEs are able to survive the Covid-19 pandemic with various innovations they have implemented, but there are still several obstacles in the development of MSMEs themselves. MSMEs, especially for the micro business scale in Indonesia, are still classified into segments that have limited access to formal financial institutions (unbankable population). The results of the PWC survey in 2019 The biggest problem of MSMEs is the problem of capital, and in an effort to obtain additional capital, around 74% of the micro segment cannot access financing from the formal financial sector. Increasing access to finance itself is one of the strategies to achieve Sustainable Development Goals (SDGs). Based on previous research, Islamic fintech has a role in driving SDGs targets, especially the targets to (1) eradicate poverty and (2) hunger, and (3) reduce inequality in wealth distribution. In this study we conducted indepth interviews with several MSME players and Islamic fintech companies. The lack of literacy related to fintech with the sharia peer to peer lending scheme makes MSMEs afraid to do business financing with this scheme, even though this scheme is very suitable for the unbankable population because the financing requirements are easy and fast in the disbursement process.

The Effect of Cashflow Visibility on the Willingness of Financial Institutions Finance SMEs in Cameroon

The importance of small and medium-sized enterprises (SMEs) to the Cameroonian economy as well as other economies around the globe needs no further proof. Their contribution to GDP, employment, economic stability, and wealth distribution is considerable. However, their limited access to formal financing has been reported to constitute a significant limitation to their survival and growth. Given the documented reduced access of SMEs to financing from formal financial institutions due to information asymmetry, this study seeks to investigate if the cashflow visibility of SMEs is statistically meaningful to the willingness of banks and microfinance to provide loans to SMEs in Cameroon. Primary data was collected from 232 bank and microfinance employees through a pretested questionnaire. The results from the ANOVA analysis revealed a statistically significant difference in the willingness of financial institutions to provide loans to SMEs whose cash flows are visible to financial institutions compared to those SMEs whose cash flow is not visible (or opaque) to the financial institution. It is thus recommended that SMEs in Cameroon ensure considerable cashflow visibility to financial institutions to enhance their chances of obtaining formal financing. In addition, measures could be taken for e-cash providers or mobile money services provided to share information with lending institutions to enhance the cash flow visibility of SMEs.

Regulatory issues inhibiting the financial inclusion: a case study among Islamic banks and MSMEs in Indonesia

Purpose The primary objective of this study aims to intensively explore the environment of Indonesian regulations and laws related to the Islamic banking system and micro-, small- and medium-sized enterprises (MSME) and unveil the restrictive laws and regulatory flaws that potentially hinder the Islamic banking institution and MSME industry in achieving financial inclusion and promoting sustainable growth. Design/methodology/approach This paper implements a qualitative method by implementing a multi-case study research strategy, both from the Islamic banking institutions and the MSME industries. The data were gathered primarily through an interview approach by adopting purposive uncontrolled quota sampling. Findings The findings of this paper reveal two essential issues: First, the regulatory imbalances and restrictions could demotivate and hinder the efforts of Islamic banks in providing access to finance for the MSME segment, hence, encumbering the achievement of the financial inclusion agenda from the Islamic banking industry. Second, the flaws in MSME registration and taxation might discourage the formal MSMEs from extending their business license and prevent the informal MSME units from registering their business. This issue would potentially lower their chance of accessing external financing from the formal financial institutions and participating in supportive government programmes due to the absence of proper legality. Research limitations/implications Since this paper only observed six Islamic banks and 22 MSME units in urban and rural locations in Indonesia using a case study approach, the empirical findings and case discussions were limited to those respective Islamic banks and MSME participants. Practical implications By referring to the recommendations as presented in this paper, two critical policy implications could be expected from adopting the proposed recommendations, among others: By addressing the issues of the regulatory imbalance associated with the Islamic banking industry and introduce the deregulatory policies on profit and loss sharing (PLS) scheme implementation, this approach will motivate the Islamic banking industry in serving the MSME sector better and provide greater access to financial services, particularly in using the PLS financing schemes. By resolving the problems on MSME registration and taxation, this strategy will enhance the sustainability of the formal MSMEs’ operation and encourage the informal ones to register, hence, improving their inclusion into the formal financing services and government assistance programmes. Originality/value The present study attempts to address the literature shortcomings and helps to fill the gaps – both theoretical and empirical – by incorporating the multi-case study among Indonesian Islamic banks and MSMEs to extensively explore the Indonesia regulatory environment pertaining to the Islamic banking system (supply-side) and MSMEs (demand-side), and thoroughly investigates and reveals the restrictive laws and regulatory flaws that could potentially hinder the Islamic banking institutions and MSME industries in attaining financial inclusion and contributing to sustainable development.