Does microcredit empower micro-entrepreneurs? Empirical evidence from Indonesia

Purpose This study provides fresh survey-based evidence from Indonesia on the impact of microcredit on empowerment of micro-entrepreneurs. Methodology Data was collected from a survey of microcredit-funded microenterprises in Surabaya, Indonesia, and its surroundings; 556 microenterprises participated voluntarily in the survey. Weighted least square mean and variance adjusted structural equation modelling (WLSMV-SEM) estimator was used to analyse the data. Findings Results show that microcredit has a positive and significant relationship on control over resources, but business performance does not significantly mediate the microcredit-empowerment relationship. Limitations Some limitations noted in this study are that the sample was obtained from one region of Indonesia, and was unbalanced in gender. The cross-sectional data of this study limits inferences of causality in the analyses, and prohibits the study from assessing longitudinal effects and from examining non-recursive models. Contribution At least in the case of Indonesia, the microcredit programme is working and the actions of policymakers and donors can be justified. However, further, more detailed and cross-country investigations are required to help donors and policymakers take a more informed approach in continuing to invest in microcredit programmes at the cost of other competing alternative strategies