Assessing the impact of government credit guarantee scheme (KUR) for micro,small and medium enterprises on poverty reduction in Indonesia

Abstract

The main objective of this study is to measure the impact of the Government Credit Guarantee scheme (Kredit Usaha Rakyat/KUR) on poverty reduction as characterized by the household welfare improvement. A total of 739 respondents were chosen based on a purposive random sampling method. This study employed a cross-sectional design to examine whether participation in KUR programs improves household welfare in the Central Java Province (two cities and five districts). To collect the data, this study developed two instruments- the first instrument was a questionnaire adapted from several previous studies and the second instrument was an in-depth interview to collect data related to the suggested solution. Accordingly, the logistic regression model is implemented to analyze the impact of the KUR program on household welfare improvement. This study provides the evidence of the impact of access to KUR on household welfare improvement. There are four dimensions to measure the welfare improving goals of a household, namely, (i) extreme poverty alleviation, (ii) housing improvement, (iii) children’s education and healthcare, and (iv) household information and communication technology (ICT). Access to KUR has a positive effect on all those three dependent variables of extreme poverty eradication, namely monthly income, monthly food expenditure, and monthly non-food expenditure. In housing improvement, access to KUR has a positive impact on four out of seven variables. These four variables include living space in square meter per adult, improvement on access to clean water and drinking water, better electricity, and improvement on facilities for bathing, washing and toilet. On the other hand, access to KUR has no significant effect on homeland status; roof, floor and wall; and waste water disposal system. In children’s education and healthcare, access to KUR has a positive impact on health care expenditure and medical treatment for children. In household information and communication technology (household ICT), access to KUR has a positive impact on the ownership of personal computer, ownership of cellular phone and improvement in internet access. Finally, this study provides several suggestions from experts for overcoming the challenges of the accessibility of MSMEs to KUR for welfare improvement. These suggestions include: 1) training and technical guidance for MSMEs; 2) assistance to MSMEs that have run a business; 3) empowerment of modern financial management and digital marketing. Bank officers need to conduct a field survey to find out what problems are experienced by prospective debtors. In addition, the government must also disseminate KUR programs regularly to the public.