Examining the role of microfinance: a creating shared value perspective

• DOI: https://doi.org/10.1108/IJOES-09-2021-0168
• Published date: 08 July 2022
• Date: 08 July 2022
• Pages: 379-401
• Subject Matter: Economics,Social economics
• Author: Rofikoh Rokhim,Arief Wibisono Lubis,Ida Ayu Agung Faradynawati,Winalda Ajaniara Perdana,Andrew Deni Yonathan

Examining the role of

microfinance: a creating shared

value perspective

Rofikoh Rokhim and Arief Wibisono Lubis

Department of Management, Faculty of Economics and Business,

Universitas Indonesia, Depok, Indonesia

Ida Ayu Agung Faradynawati

Department of Real Estate and Construction Management,

KTH Royal Institute of Technology, Stockholm, Sweden, and

Winalda Ajaniara Perdana and Andrew Deni Yonathan

Department of Management, Faculty of Economics and Business,

Universitas Indonesia, Depok, Indonesia

Abstract

Purpose –The purpose of this study is to simultaneously examine the role of microfinance from the

business and social lenses by using the creatingshared value (CSV) framework by Porter and Kramer (2011)

in the context of Indonesia.

Design/methodology/approach –A survey among more than 170,000 borrowers of two specificcredit

schemes by PT Bank Rakyat Indonesia Tbk., the largestmicrofinance provider in Indonesia, was conducted

to understandthe perceptions of borrowers on the benefits of microcredit under the CSV framework.

Findings –The result confirms that, overall, the debtors acknowledged the importance of the loans in

various aspectsof CSV. The highest levelsof importancewere recorded in the case of stimulating the increase

of business revenue growth, businessproductivity and fulfilling the needs of consumers. Disaggregatingthe

results based on respondents’demographic characteristics, it is shown that the findings in both credit

schemes havea relatively similar pattern in terms of origin,business sectors and the borrowing purposefrom.

Originality/value –There have been limited studiesthat examine the impact of microfinance from both

the business and social perspectives. Moststudies only use one of these. Implementing the CSV framework

allows theauthors to fill in the gap and understand how microfinance provides business and social benefits.

Keywords Microfinance, Indonesia, Credit, Micro, small and medium enterprises (MSMEs),

Creating shared value (CSV)

Paper type Research paper

Introduction

Micro, small and medium enterprises (MSMEs) dominate the business sectors in terms of

numbers of establishments and workforce contribution in many countries. In Indonesia,

MSMEs constitute more than 99% of total businesses operating in the country, with a

97.02% share of total national employment (Ministry of Cooperatives and SMEs of

The authors thank PT. Bank Rakyat Indonesia, Tbk. for the assistance in data collection. This

research was also made possible by the support of PUTI Grant by Universitas Indonesia No. NKB-

533/UN2.RST/HKP.05.00/2022.

Role of

microfinance

379

Received6 September 2021

Revised26 February 2022

28May 2022

Accepted14 June 2022

InternationalJournal of Ethics and

Systems

Vol.39 No. 2, 2023

pp. 379-401

© Emerald Publishing Limited

2514-9369

DOI 10.1108/IJOES-09-2021-0168

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2514-9369.htm

Indonesia, 2018). However, their contributions towards gross domestic products (GDP) and

national exports are disproportionately low, only around 60% and 16.40%, respectively

(ASEAN Secretariat, 2015). Various factors have been acknowledged as the sources of the

limited MSMEs’potentialdevelopment, and lack of finance is one aspect that receives much

attention. International Finance Corporation (IFC) (2017) estimated MSMEs’financing gap

as more than US$165bn, or 19% of the GDP. Of different categories of MSMEs,

microenterprises had the most significant problem regarding access to formal financing

because of high asymmetric information. The absence of proper bookkeeping leads to

difficulties for financial institutionsto assess these MSMEs’creditworthiness. Besides, they

often do not have sufficient assets to serve as collaterals, both in terms of quality and

quantity (Johnston and Morduch, 2008).Thus, it is not surprising that MSMEs are often the

target for financial inclusionefforts, which involve bringing a wider population to be served

by formal financial institutions(Atkinson and Messy, 2013).

Microfinance emerges as an alternative solution to overcome the financing problem

among microenterprises. Grameen Bank, developed by Nobel Prize winner Muhammad

Yunus, is probably one of the most well-knownmicrofinance institutions (MFI) in the world

to have introduced joint liability group lending. There are many microfinance providers in

Indonesia, ranging from banks to cooperatives. Given that Indonesia is categorised as a

bank-based country (the majority of total assets in the financial sector are dominated by

banks), banks still maintain the largest proportion. Among banks, PT Bank Rakyat

Indonesia, Tbk. (BRI)is the biggest microfinance provider in Indonesia and it seemsalso one

of the biggest in the world –in terms of the number of microcreditcustomers –and has been

the subject of several academic studies (Patten and Johnston, 2001;Rosengard and

Prasetyantoko, 2011). It is the biggest commercial bank in Indonesia based on total assets,

and it has built its strength in serving the micro and small businesses market. As per the

end of 2020, its total assetsreached more than IDR 1,500tn (approximately US$105bn,given

IDR 14,200/US$), with a loan portfolio of IDR 938tn (US$66bn).Around 80% of its loans are

channelled to MSMEs.

This research aims to evaluate the roles of two specific credit schemes by BRI, i.e. KUR

(people’s entrepreneurship credit/Kredit Usaha Rakyat) and KUPEDES (general villagers’

credit/Kredit Umum Pedesaan), on businesses using the lens of creating shared value or

CSV. It is a concept developedby Kramer and Porter (2011) that offers an alternative way of

assessing impacts in both business and social aspects simultaneously. The KUR is one of

the government’s programmes in increasing access to financing for MSMEs, which are

channelled through financial institutions with a guarantee pattern. This credit programme

targets individual MSME actors, business entities and/or businesses that do not have

additional or feasible collateral and, thus, are not yet bankable. After getting KUR,

the borrower will become bankableand could access commercial credit, namely KUPEDES.

One main contribution of this research is using this concept in the context of microfinance

provision to the literaturebecause, to the best of author’s knowledge, there have been limited

efforts in evaluatingmicrocredit using the CSV framework.

With a sample covering 175,285 BRI borrowers,the result shows that, overall, KUR and

KUPEDES borrowers acknowledged the importance of the loans in variousaspects of CSV.

For both KUPEDES and KUR perceptions, respectively, the highest level was recorded in

the case of stimulating the increase of business revenue growth(4.39 versus 4.56), business

productivity (4.29 versus 4.48) and fulfilling the needs of consumers (4.20 versus 4.41).

Those numbers illustrate how substantialKUPEDES and KUR are in enhancing borrowers’

business quality.

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