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Financing needs of micro-enterprises along their evolution

Ruslan Prijadi (Department of Management, Universitas Indonesia, Depok, Indonesia)
Permata Wulandari (Department of Management, Universitas Indonesia, Depok, Indonesia and Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Putri Mega Desiana (Department of Management, Universitas Indonesia, Depok, Indonesia)
Fajar Ayu Pinagara (Department of Management, Universitas Indonesia, Depok, Indonesia)
Maya Novita (Department of Management, Universitas Indonesia, Depok, Indonesia)

International Journal of Ethics and Systems

ISSN: 2514-9369

Article publication date: 8 April 2020

Issue publication date: 22 April 2020

976

Abstract

Purpose

The purpose of this paper aims to investigate micro enterprises financing in Indonesia and examines how this financing differs, depending on the enterprise’s development stage. This research also identifies some structural problems related to micro-financing and provides workable solutions.

Design/methodology/approach

This research uses the entrepreneurial network model of Schutjens and Stam (2003) to examine how Indonesian micro and small enterprises (MSEs) evolve even before they become regular small businesses. Content analysis is used on 10 micro-enterprises from Jakarta, the capital city of Indonesia and its surroundings. Financing issues at each stage of enterprise development are identified and deeply examined.

Findings

This research not only confirms the significant financing problems micro-enterprises face but also clarifies that these problems are unique to each stage of the MSEs’ development. One insight is that most micro-enterprises do not use funding from formal institutions. That is, business owners rely more on funding from non-formal institutions. This is because these enterprises’ managers generally cannot prepare loans application and/or they are lack of knowledge/training on financing matters. They hesitate to borrow from formal financial institutions, as the rates are high but the processing time is longer than those of the loan sharks.

Originality/value

This research contributes to the field of entrepreneurial finance by identifying the structural problems inherent in micro-finance and providing workable solutions for overcoming these problems.

Keywords

Citation

Prijadi, R., Wulandari, P., Desiana, P.M., Pinagara, F.A. and Novita, M. (2020), "Financing needs of micro-enterprises along their evolution", International Journal of Ethics and Systems, Vol. 36 No. 2, pp. 263-284. https://doi.org/10.1108/IJOES-05-2018-0071

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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