The Impact of Microfinance on Micro and Small Enterprise's Performance and the Improvement of Their Business Opportunity

This paper looks at the contribution of micro and small enterprises (MSEs) to the development of the Indonesian economy and examines the role of microfinance in promoting the development of MSEs. The paper states that:

• Despite the turbulence in the Indonesian economy, MSE ability to absorb the workforce has shown an upward trend and the nominal value of the MSE sector to the Gross Domestic Product (GDP) has increased from 39.8% to 59.4%;
• MSEs have a huge potential for the country if they are run optimally;
• Although there is an increase in the supply of credit to MSEs from banks, geographical limitations constrain banks from offering credit to MSEs;
• Rural financial institutions, such as Bank Rakyat, Indonesia (BRI) and rural credit banks (BPRs) can play the role of the banking sector and extend credit to MSEs.

The paper:

• Discusses the importance of rural financial institutions such as BRI and BPRs;
• Describes the statistical variation that the study explores;
• Employs an empirical examination of the relationship between the microfinance scheme and MSE performance.

The study concludes that:

• Microfinance has a positive impact on the MSE performance;
• Regional characteristics of MFIs play an important role in determining its business scale;
• It is important to allocate loans to productive activities, such as investments in order to improve business opportunities.