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emphasis to non-agricultural enterprises, such as manufacturer, trader, and service and to credit from formal lenders. Agricultural and non agricultural sectors are
linked as one chain in agribusiness system. The non agricultural firms are important to support the agricultural sector especially in terms of
commercialization process of agricultural sector. According to the background, there are several research questions
addressed in this research: 1. What are the determinants of access to credit of MSMEs in Central Sulawesi,
Indonesia? 2. How does the role of access to credit in the success of MSMEs?
1.3 Objectives of Study
Based on the research questions, the objectives of this research are: 1. To determine the determinant of access to credit of MSMEs in Central
Sulawesi, Indonesia. 2. To analyze the role of credit access in the success of MSMEs in Central
Sulawesi, Indonesia.
1.4 Limitation of Study
This study has some limitations which restrict the analysis, i.e.: 1. Just concerning to the non agricultural firms in research area.
2. Just capturing the condition of sample and research area in 2001, 2004, and 2007.
3. Just analyzing access of formal credit.
1.5 Significance of Study
The significances of this research are: 1. For the researcher and academician, this study will be an additional
reference for others research about access to credit of MSMEs and its implication to their success.
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2. For the government, this study will give information and policy recommendation about how to increase access to credit of MSMEs and
how to enhance their profit.
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II. LITERATURE REVIEW
In this chapter we will review some previous studies about access to credit and its determinant and the role of access to credit in the success of MSMEs. The
review of determinant of access to credit will focus on determinants of access to formal credit of MSMEs in different cases and different countries. The review
will give us a description about variables which often used in the previous research to determine access to credit and its relationship to the success of
MSMEs.
2.1 Determinants of Access to Credit
The previous researches about determinant of access to credit of SMEs around the world have shown various results. Many variables are used to find the
main factors influencing the access to credit. The variables are usually related to socioeconomic condition of the firm, business characteristic and activities, and
human capital. Socioeconomic characteristics that usually affect the access to credit of MSMEs is education of the firm‟s owner Bebczuk, 2004 ; Kedir, 2000;
Pandula, 2011. Pandula 2011 said that education is important in access to formal credit because more educated entrepreneurs have a better capability to
show positive financial information and business plans and to establish relationship with financial institutions. Hence, from the
lender‟s point of view, more educated firm‟s owners are likely to have better managerial skills, so the
lenders will rate them higher in the credit assessment. Another variable is firm‟s location Kedir, 2000; Fatoki and Odeyemi,
2010; Aga and Reily, 2011. This variable reflects population density of the potential borrowers. Banks usually have more information about potential
borrowers in less densely populated area, so firms which are located in densely populated area of potential borrowers are more likely to be credit constrained
Aga and Reily, 2011. Location in terms of infrastructure development also influences access to credit. Fatoki and Odeyemi 2010 find that firms which are
located in urban area are less credit constrained than those which are located in rural area. Age of the owners also affects
firm‟s access to credit. Mwangi 2010
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analyzed that access to credit of MSMEs in Kenya increases as the age of the firm‟s owner increase, but the probability decreases when the age of firm‟s owner
is closely to retirement. Other variable is gender, some research show that female- owned firms are more likely to have access to credit than male-owned firms
Yehuala, 2008; Aga and Reily, 2011. Business related variables that influence access to credit of firms in some
literature are membership to business association Pandula, 2011; Fatoki and Odeyemi, 2010; Aga and Reily, 2011; Yehuala, 2008. This variable is significant
because being a member of business association gives many advantages to MSMEs such as association will facilitates member firms to vocational training or
extension services, which also significantly affect access to credit Pandula, 2011. Association can also provide the members with information related to their
business development including information about credit. Variable of collateral is also found as determinant of access to credit
Yehuala, 2008; Kedir, 2000 because lenders usually need collateral as a requirement in credit assessment. Collateral is important because of some reasons
i.e. 1 it increases the expected return and reduces the variance of return for the lender; 2 it partly shifts the risks of loss of the principle from the lender to the
borrowers; 3 it provides additional incentives for the borrowers to repay the loan; and 4 it has a screening effect on the applicant pool, discriminating against poor
but often credit-worthy loan applicants with little or no suitable collateral Binswanger, Mc Intire, and Udry 1989 in Nuryartono 2005.
Land ownership with a legal land certificate is one of the ideal collaterals which is demanded by a lender because of its immobility and virtual
indestructibility, therefore it ownership rights can be easily transferable. Access to credit and amount of credit are usually correlated with land ownership, especially
in underdeveloped formal financial systems. Therefore, inequalities in land ownership are often the cause and the effect of credit market inequalities Meyer
1990 in Nuryartono 2005. Another variable is value of asset Kedir, 2000; Diagne, 1999. Same as collateral, value of asset are often used as consideration in
credit assessment by lenders.
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Some human capital related variables also usually influence the probability of firms get access to formal credit e.g. managerial competency and
business planning Fatoki and Odeyemi, 2010. These skills are important because banks usually use business plan to evaluate the firms when they decide to give
credit to the firms. Managerial and business planning competencies are the result of education, vocational training, or participation in extension service Fatoki and
Odeyemi, 2010.
2.2 MSMEs and the Role of Access to Credit in Their Success
