The Access of Microenterprises to Commercial Microcredit in Aceh Besar: Closing the Gap Juanda1, Stefan Schwarze2, Stephan von Cramon-Taubadel3 1. Georg-August-Universität Göttingen, Tropical and International Agriculture, Germany; 2. Georg-August-Universität Göttingen, Department of Agricultural Economics and Rural Development, Germany; 3. Georg-August-Universität Göttingen, Department of Agricultural Economics and Rural Development, Germany Introduction . Reducing poverty has become an essential part of the Millennium Development Goals (MDG) and need to achieve. Microenterprises (MEs) have played an important role in rural developmental activities and were long recognized as vital in poverty alleviation in Indonesia. The developing world has in fact led the way in promoting the importance of rural finance. Access to commercial services is restricted in rural areas and the services can not meet the demand for financial services by rural households. Many microenterprises belong to poor and they are unable to provide collateral. Objectives Credit Limit There were two objectives formulated in this research: . In Indonesia, the official definition of microcredit covers all loans under IDR 50 million 1. To provide a review for the gap between the number of microenterprises (approximately US$5,500). being assisted and the overall number who might need assistance. Only seven percent of microenterprises have credit limit above IDR 50 million (Figure 4). 2. To determine effect of determinant factors which were found in research Figure 4. Credit limit of MEs area to ownership of standard collateral for access to microcredit. 1% Material and Methods 7% IDR, 1 US$ ≈ IDR9000 Figure 1. Map of Aceh Besar District 10% 0 40% • The Research was >0-10 million conducted in Aceh >10-20 million Besar Dist., Nanggroe Aceh Darussalam 42% >20-50 million Prov., Indonesia. >50 million • Total 100 MEs were Source : Own data randomly selected to be interviewed. Ability to Provide Collateral Table 2. Probit Regression for ability to provide collateral Probit regression, reporting marginal effects Number of obs = 100 LR chi2(13) = 38.92 Results and Discussion Prob > chi2 = 0.0002 The Microenterprises Log likelihood = -47.841679 Pseudo R2 = 0.2891 . Sectors of businesses involved in research area are shown in Figure 2. Ability to provide collateral* dF/dx Std. Err. P>|z| Figure 2. Sectors of business Age (years old) 0.18% 0.0068 0.794 Gender(female=0, male=1)* 14.57% 0.2070 0.499 Food Prod. Years of education (years) -1.19% 0.0175 0.495 Marital status (non-married=0, married=1)* 27.20% 0.1348 0.046 Embroidery 7% Time spent to reach the banks (minutes) -2.68% 0.0078 0.001 22% 10% Sewing Length of business (years) -0.99% 0.0081 0.226 Number of employee 18.20% 0.0780 0.021 12% Trading Running food production business (no=0, yes=1)* 6.17% 0.2855 0.833 19% Running embroidery business (no=0, yes=1)* 8.52% 0.3299 0.804 13% Blacksmith Running trading/retailing business (no=0, yes=1)* -11.48% 0.2680 0.662 Running sewing business (no=0, yes=1)* 32.93% 0.1755 0.180 17% Handicraft Running blacksmith business (no=0, yes=1)* -8.86% 0.3095 0.770 Others Running handicraft business (no=0, yes=1)* 41.70% 0.0891 0.061 Obs. P 0.6 Source : Own data Pred. P 0.6434913 (at x-bar) Credit Access and Participation (*) dF/dx is for discrete change of dummy variable from 0 to 1 z and P>|z| correspond to the test of the underlying coefficient being 0 . Out of 100 MEs, 60 had ability to provide collateral for access to credit, Source: Own data while others 40 MEs did not. Out of 100 MEs, 88 MEs were non-credit constrained MEs and 12 MEs were . Being married increases the probability of being able to provide collateral significantly by credit-constrained MEs. 27.20 percentage points. The time spent to reach a bank has a negative impact on probability of being able to Figure 3. Gap Between Microenterprises provide collateral by 2.68 percentage points. Number of employees has a significant positive impact on probability of being able to provide collateral by 18.20 percentage points. Running a handicraft business increases the probability of the ability to provide collateral by 41.70 percentage points. Conclusion . About 60% of MEs had ability to provide collateral for access to credit, while others 40% did not. Based on their access and participation: 88% of MEs were non-credit constrained MEs and 12% of MEs were credit-constrained MEs. Majority of microenterprises (7%) had credit limit below 50 million, the maximum credit that is defined as microcredit in Indonesia. Marital status of micro-entrepreneurs, number of employee, and running handicraft business increase the ability to provide collateral for access significantly, while time spent to reach the bank decrease the ability to provide collateral for access significantly. Source : Own data Acknowledgement . Thank you for Triangle Partnerships, GAUG-IPB-Unsyiah for the support of my study . Thank you for DAAD for the support in financing this research Tropentag 2008 International Research on Food Security, Natural Resource Management and Rural Development Competition for Resources in a Changing World: New Drive for Rural Development Book of Abstracts Editor: Eric Tielkes Scientific committee: Folkard Asch, Georg Cadisch, Ludwig Kammesheidt Reviewers of abstracts: Mathias Becker, Gertrud Buchenrieder, Martin Dieterich, Gerd Förch, Eckard George, Ken Giller, Gabriele Hörstgen-Schwark, Rainer Jörgensen, Bastian Kaiser, Dieter Kirschke, Michael Köhl, Ronald Kühne, Wolfgang Lücke, Björn Niere, Kurt-Johannes Peters, Matin Qaim, Stephan Rist, Andreas Susenbeth, Hermann Waibel Editorial assistance: Andreas Deininger, Janina Schütte Cuvillier Verlag Göttingen Impressum Die Deutsche Bibliothek — Cataloguing in Publication-Data (CIP) Competition for Resources in a Changing World: New Drive for Rural Development: International research on food security, natural resource management and rural development; book of abstracts / Tropentag 2008 Stuttgart-Hohenheim. Hrsg.: Eric Tielkes ISBN: 3-86727-372-3 978-3-86727-372-5 © University of Hohenheim, Centre for Agriculture in the Tropics and Subtropics, Germany Online-Versions: Print-version, pdf: http://www.proceedings2008.tropentag.de Web-version, html: http://www.abstracts2008.tropentag.de Typesetting: LATEX 2ε Publisher: Cuvillier Verlag Göttingen Printed by: xy Strasse Göttingen October 2008 The authors of the articles are solely responsible for the content of their contribution. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without prior permission of the copyright owners. Preface In recent years the TROPENTAG has become the most important International Con- ference on development-oriented research in the fields of Food Security, Natural Re- source Management and Rural Development in central Europe. Since 1999 it is convened alternately by a number of German Universities in co-operation with AT- SAF and GTZ/BEAF, all of them are engaged in agriculture and forestry in tropical countries. The TROPENTAG provides an international platform for scientific and personal exchange for students, junior and senior scientists, and development practi- tioners alike. The increasing international interest in the TROPENTAG from a large and still growing audience - some 850 participants from 72 countries have registered so far - demonstrates its importance on the agenda of both, the development oriented scientific community and the implementing development organisations. The TROPENTAG 2008, organised by the Centre for Agriculture in the Tropics and Subtropics of the University of Hohenheim, will be held under the conference theme “Competition for Resources in a Changing World: New Drive for Rural Develop- ment”. After many years of public disregard, agriculture is back in the headlines. The con- ference aims to shed light on the opportunities, threats and challenges triggered by the ongoing boom in agriculture. Growing demand for food for a still rapidly in- creasing population in the South, an alarming decrease in available arable land, and the emergence of bio-energy production as a new powerful and competitive player have contributed to recent price hikes in agricultural commodities. This development increases the value of agricultural enterprises and stimulates investment in this long- time neglected sector. Better-off farmers and international companies will most likely benefit from the recent trends in agriculture, whereas resource-poor rural people, be- ing economically unable to take part in the new drive in rural development, may be left even more vulnerable and dependent. Land degradation, increasing scarcity of water and negative impacts of climate change, which are intensively hitting the tropics and subtropics, may counteract potentially positive developments. The agricultural sec- tor being a significant contributor to greenhouse gas emissions and one of the largest water users, also holds the key to alleviating emerging problems by developing more resource-efficient, productive, climate-friendly and sustainable land use systems. 3 The Tropentag 2008 will discuss the implications of the aforementioned issues on a global, regional, farm and field level, considering resource allocation and use, biodi- versity and income generation. To broaden the accessibility of the results of this venue the abstracts of all contribu- tions are published both as hardcopies and on the Internet under www.tropentag.de. Georg Cadisch,