The concept of an inclusive financial ecosystem is crucial in enabling microfinance institutions (MFIs) to effectively serve small-scale businesses. This study examines the complexity of Indonesia’s microfinance ecosystem by analyzing MFI performance in relation to collaboration and competition, and assessing the role of support systems in serving micro and small enterprises. Surveys and in-depth interviews were conducted with MFIs in West Java, South Sulawesi, and Maluku. Findings show that performance gaps between rural banks and MFIs are driven by differences in institutional capacity, outreach, and human resource quality. Rural banks (BPR/BPRS) and micro units of PT Pegadaian and PT PNM demonstrate superior performance through low non-performing loan (NPL) or loan default rates and high profitability, indicating ecosystem deficiencies. With limited collaboration among microfinance players, government micro-credit programs have created imbalances in competition between banks and MFIs, reinforcing disparities. The gap is further exacerbated by inadequate governance support systems—such as deposit insurance, apex institutions, and credit bureaus—burdened by high operational costs. This study offers two recommendations: redesigning microcredit programs to enhance collaboration between MFIs and banks for balanced competition, and strengthening the role of local governments and community institutions as support systems for prudent MFI practices.
Ermawati et al. (Thu,) studied this question.