Determinants of discouraged borrowers and gender as contextual factors: evidence from Indonesian MSMEs

This study aims to examine the effect of application costs, trust reciprocity, and self-efficacy on discouraged borrowers and the role of gender as a moderating variable. Our sample was 356 micro, small, and medium enterprise actors in the manufacturing industry in Central Java Province, Indonesia. The data was analyzed using the covariant-based structural equation modeling method. The results demonstrated that application costs, trust reciprocity, and self-efficacy significantly affect discouraged borrowers. However, the contextual role of gender is not fully proven because it can only weaken the self-efficacy effect of discouraged borrowers. This study enriches the literature by proposing discouraged borrowers from a demand factor perspective. In addition, it also offers policy suggestions for the banking industry to collaborate intensively with other stakeholders to increase banking digital literacy and build capacity to foster mutual trust and self-efficacy among micro, small, and medium enterprise actors. The problem of lack of access to bank credit faced by micro, small, and medium enterprises is not only related to the problem of being unable to meet bank credit needs but also due to the willingness of MSMEs themselves to choose not to apply for credit from banks because of the concern that their application will be declined or what is commonly known as discouraged borrowers. This issue must be addressed to help micro, small, and medium enterprise actors mitigate their financing obstacles through better access to bank credit. Therefore, this study aims to analyze the factors that cause micro, small, and medium enterprises to become discouraged borrowers. This study will offer several policy actions to banks and related stakeholders regarding application fees, the development of e-banking features, and banking literacy to encourage micro, small, and medium enterprises to utilize banking financing.