Can Public Credit Schemes Improve Access to Finance for Small Businesses?
Indonesia's Kredit Usaha Rakyat (KUR) program, one of the world's largest public business support initiatives, aims to enhance financial inclusion by providing subsidized credit and partial credit guarantees to micro and small enterprises.
A recent study analyzing administrative data from over 8.4 million borrowers found that while the program successfully enables firms to access formal credit for the first time, it does not effectively serve as a bridge to unsubsidized commercial credit in the long term. The research highlights challenges in reaching borrowers without collateral, even within programs specifically designed to target them using instruments like partial credit guarantees.
These findings suggest that while subsidized credit programs can initiate financial inclusion, they may fall short in alleviating persistent credit constraints, underscoring the need for optimized design to enhance both inclusiveness and additionality.