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Paper Title: Examining the Role of Microfinance: A Creating Shared Value Perspective

Author:        Rofikoh Rokhim, Arief Wibisono Lubis, Ida Ayu Agung Faradynawati, Winalda Ajaniara Perdana and Andrew Deni Yonathan

Publisher:    International Journal of Ethics and Systems, Vol 39 No. 2, 379 – 401.

This study examines the role of microfinance from the business and social lenses by using the creating shared value (CSV) framework in the context of Indonesia.

There have been limited studies that examine the impact of microfinance from both the business and social perspectives. Most studies only use one of these. Implementing the CSV framework allows the authors to fill the gap and understand how microfinance provides business and social benefits.

Authors use a comprehensive sample size comprising of more than 170,000 borrowers of two specific credit schemes by PT Bank Rakyat Indonesia Tbk., the largest microfinance provider in Indonesia. There are two credit schemes that become the focus of this study, i.e. people’s entrepreneurship credit (KUR) and village credit (KUPEDES).

The survey seeks to understand the perceptions of borrowers on the benefits of microcredit under the CSV framework. The results confirm that, overall, the debtors acknowledged the importance of the loans in various aspects of CSV. The highest levels of importance were recorded in the case of stimulating the increase of business revenue growth, business productivity and fulfilling the needs of consumers.

Authors also discuss the challenges being faced in the microfinance section, i.e. lack of scale advantage, sustainability of funds, limited concept of microcredit in microfinance and mission drift. Mission drift happened by exclusion of most relevant target market, i.e. poor.

If microfinance institutions seek profits, then they may be more inclined to provide loans to the non-poor rather than the poor. Sometimes, funded microfinance institutions want to show greater outreach. In that case, impact takes the back seat and small loans are provided with frequent repayment so that more and more loans can be shown.

Smaller loans which are to be repaid very frequently raises the annual percentage points as well as take away the room and liberty to use the funds productively.

Study has taken a large enough sample, but, few shortcomings could be improved in future studies. For instance, convenience sampling is used. It could have been better to use probability sampling designs. Furthermore, online data collection medium was relied upon.

Given the literacy, technological readiness and connectivity issues among the poor, field data collection in person could have been a better approach. In online mediums of data collection using convenience sampling, researchers lose the control over sample selection. People decide to opt in and out by themselves.

Furthermore, the researchers after collecting extensive data did not use inferential tools of research. Structural equation modelling, partial least squares, propensity score matching and other tools could have been employed to analyze the data.

Currently, only the average scores on Likert scale are reported. Cross tabulation and non-parametric tests of association could also have been employed to generate interesting patterns.

The average values in the region of 4 to 4.5 reflect that there is not much variation in responses. Hence, more in-depth and probing questions could have been posed to generate variation in results.

Overall, it is a good contribution in documenting the impact of Islamic microfinance institutions. There is need for more such researches in this area to document the performance and impact of microfinance institutions. Such institutions pursue dual bottom lines. Hence, mission drift needs to be avoided by bringing focus to social evaluation of operations rather than just looking at the financial indicators. Evaluation from the borrowers, who are the most important stakeholders is of vital importance. This research has contributed to drive attention towards filling the research gap in this domain.


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