The determinants of successfull microenterprises : a case study of BRI clients in Medan City

Abstract

This study focuses on the determinants of the success of microenterprise owners in receiving loans from one of the successful microfinance institutions, namely, BRI Unit in Medan City, North Sumatra, Indonesia. This study applies the methodology of the before and after approach for measuring the success. It utilizes some financial indicators to measure the success of the microenterprises, namely income, fixed assets, and household expenditure. The findings show that financing in terms of the amount of loan accessed has a positive relationship with success indicators in terms of changes in income and fixed assets. However, it does not have a positive relationship with changes in household expenditure. In the meantime, firm characteristics in terms of dummy variable for type of business of food and household facilities and necessities have a positive relationship with changes in income. In terms of KUPEDES loan, financing indicates that it has a positive relationship with changes in income, changes in fixed assets, and changes in household expenditure. The dummy variables for food; and household facilities and necessities indicate that they have a positive relationship with changes in income. In terms of KUR product, the firm characteristics in terms of dummy variables of garment, and technician and repair of vehicles and watches show a positive relationship with changes in fixed assets. Further, the household characteristic in terms of household income indicates a positive relationship with changes in household expenditure. In conclusion, financing, firm characteristics, and household characteristics are the factors that determine the success of microenterprises in terms of income, fixed assets, and household expenditure. It is expected that policy makers of microfinance institutions (MFIs), including the BRI Unit and Indonesian government could solve the common problems faced by MSMEs, such as financing, raw materials, marketing, advanced technology, and others, as MSMEs play a crucial role in increasing economic growth in terms of reducing poverty and unemployment; and increasing GDP. In this respect, the policy makers of MFIs including the BRI Unit are also expected to provide the facilities besides credit services, such as training, health programmes, education, family planning, and other programmes to make greater effectiveness of the microfinance on the performance of microenterprises.