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The Role of People’s Business Credit in Improving Micro and Small Enterprises
(MSEs) Performance in Makassar, Indonesia
Musran Munizu
Department of Management, Economics Faculty, Hasanuddin University
Jln. Perintis Kemerdekaan KM. 10, Tamalanrea, Makassar – Indonesia 90245
e-mail: m3.feunhas@gmail.com
Abstract
The purpose of this paper is to describe the business performance of micro and small
enterprises (MSEs) after receiving funding assistance through People's Business
Credit Programs. To know the difference of business performance of micro and small
enterprises before and after getting funding assistance through People's Business
Credit Program. Purposive sampling method is used in the survey. There are 128
respondents which involved in the study. The data is analyzed by both Descriptive
Statistics and Sign Test Analysis, Thus, data processing is performed by IBM SPSS 21
for Windows. The results show that overall indicators of the business performance of
MSEs has increased after getting capital assistance from People's Business Credit
Program Business performance of MSEs before and after getting loan assistance are
significantly different. Capital aid in terms of aspects of the program as well as the
business aspect have been effective.
Keywords: capital assistance, People's Business Credit Programs, business
performance, micro and small enterprises (MSEs)
1. Introduction
Micro and Small Enterprises (MSEs) have an important and strategic role in the
national economy. Based on data from the Ministry of Cooperatives and Small and
Medium Enterprises, the number of MSEs recorded 42.39 million units or 99.7% of
all business units. Investment in MSEs sector can create more jobs than the same
investment in both medium and large enterprises. Then, employment on Micro and
Small Enterprises has the greatest proportion of comparison with Medium and Large
Enterprises which amounted to 91.4% of the total enterprises (SMEs Statistics, 2009).
Tambunan (2005) confirms that micro and small enterprises play an important
role in the Indonesian economy. Contribution from the business to gross domestic
product (GDP) showed an increase every year. Besides its potential as a driver of
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export growth, particularly in the manufacturing industry. In addition, The World
Bank (2005) reports that MSEs are flexible and can more easily adapt to the ebb and
flow of market demands. They also generate jobs more rapidly than any other
businesses, are highly diversified and contribute to exports and trade. They are
therefore critical to the development of a competitive economy.
Due to the important role of Micro and Small Enterprises (MSEs), the
government in 2008 to strengthen the business capital of MSEs through People's
Business Credit Programs which is distributed by banking institutions in Indonesia.
Therefore, government expect assistance through the program can improve micro and
small business performance in the future. Based on empirical data, one of
fundamental problems that hinder development of small and medium business
performance is lack of access of MSEs to banking institution or financial institution
(Munizu, 2010). People's Business Credit is a credit or financing of working capital
or investment in the business to SMEs productive and feasible but not yet bankable
which is partially guaranteed by the guarantee company (SMEs Statistic, 2009).
According to McCommick et al. (1997), there are three conditions for the
development of micro and small enterprises i.e.: (1) the conditions relate to the
employer such as, the skills and attitudes; (2) the conditions relate to the company
namely, capital structure and corporate culture; and (3) the conditions relate to the
environment, namely strategy choice. Then, Craig and King (1988) state that the
characteristics of the business owner are fundamental factors that determine micro
and small business performance. Furthermore, the characteristics of environment can
affect both the market share and the growth of business performance.
Miller and Toulouse (1986) stated that the most important factor in determining
the growth of SMEs are sector, location, and regional. These factors relate to different
sectors, location, and regional have different growth. Tambunan (2005) reveals that
aspects of the strengths and weaknesses of Micro and Small Enterprises (MSEs) as
follows:
1. The human factor which is consisted of strong motivation, labor supply, work
ethic, work productivity, and quality of labour.
2. Economic factors which is included raw materials, access to financial
resources, economic value, and market segmentation.
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Research on the performance of micro and small enterprises have been carried
out in previous studies. Susilo et al. (2008) reviewed the problem of small industry
performance in Bantul, Yogyakarta. The survey was conducted on 100 entrepreneurs.
Results of the study explained that the main problem faced by entrepreneurs is the
inability to meet financial obligations and capital limitations. Another problem is the
decline in the production and marketing of products. Then, Masakure et al. (2009) to
test the financial performance of microenterprises in Ghana by applying the resourcebased theory of the firm. Specifically, it is tested that if firm specific resources
dominate sector and market-wide effects in explaining microenterprise performance,
as suggested by the resource-based theory. The result shows some findings i.e.: the
enterprises operating more months of the year attain greater profits, even after
controlling for selectivity by enterprise that chooses to operate only when sales are
good. The performance of enterprises that use household labour and apprentices is no
different to enterprises that do not use such labour, suggesting little or no return in
terms of profitability. Finally, there are no significant returns to capital assets among
the firms.
Setiawan and Rejekiningsih (2009) found that capital loan assistance for SMEs
can increase the amount of labor, capital, sales turnover and profits. Of the four these
variables, the increase in employment has the greatest difference between before and
after receiving capital assistance. Futhermore, Munizu (2010) examines the factors
that affect the performance of SMEs. Research results show three important findings
namely: (1) External factors which consist of governmental policy, social economics
and culture, and related institute role aspect have significantly and positive effect to
internal factors of small and micro business. (2) External factors which consist of
governmental policy, social economics and culture, and related institute role aspect
have significantly and positive effect to small and micro business performance. (3)
Internal factors which consists of human resource, financial, technique production
and operation, and market or marketing aspect have significantly and positive effect
to small and micro business performance.
Unlike some previous studies, which has focused on primarily on the internal
and external factors that may be determine business performance of micro and small
enterprises. This study is based on the literature review we have done, especially
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related to the growth rate of businsess performace of micro and small enterprises
before and after receive the capital aid from government.
Therefore, the purpose of this paper is to describe the performance of micro and
small enterprises after receiving funding assistance through People's Business Credit
Programs. To know the difference of business performance of micro and small
enterprises before and after getting funding assistance through People's Business
Credit Program.
2. Conceptual Framework and Hypotheses
There were many definitions about micro and small enterprises. According to
Central Bureau of Statistics (2008) micro enterprises are businesses with workforce 1
to 4 people while small enterprises are defined as businesses that have a workforce of
5 to 19 people. Then, The World Bank defines small business or small enterprises,
with the following criteria i.e.: number of employees less than 30 people; yearly
income does not exceed $ 3 million; and total assets do not exceed $ 3 million (The
World Bank, 2005).
Micro Business is a productive enterprise which owned by individuals
and/or the individual entities that meet the criteria such as its maximum asset 50
million, and sales total is maximum 300 million annually. In addition, small business
is a productive economic activities which is done by an individual or entity business
that is not a subsidiary or not subsidiary companies owned, controlled, or be
part either directly or indirectly from the medium or large businesses that meet the
criteria like its asset more than 50 to 500 million, and sales total more than 300
million to 2.5 bilion annually (UU No. 20/2008).
In general, the performance of the company is a measure of the success and
growth of a company. There are severals criteria in assessing a business's
performance is presented in the literature. Such criteria include both financial and non
financial performance. Different criteria in measuring the business performance of
SMEs depends on the purpose of each studies.
Hadjimonalis and Dickson (2000) using sales growth rate, employment growth,
Return on assets (ROA), market share, dan size as indicator in measuring business
performance. The researchers recommend that sales growth, employment growth,
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revenue growth and market share growth as important measurement of SMEs
performance (Kim and Choi, 1994; Miles et al., 2000).
Based on review of literature, the conceptual framework of the study may be
presented in the following figure.
Micro and Small
Enterprises (MSEs)
People’s Business Credit
Program for MSEs
Business Performance
of MSEs:
1. Sales volume
2. Asset Total
3. Workforce total
4. Customer volume
5. Marketing area
6. Method of work
- Descriptive Statistic
- Sign Test Analysis
Results and Program
Recommendation
Figure 1. Conceptual Framework
In accordance with the the literature review and conceptual framework,
hypotheses of this research can be formulate as follows: “there is a significant
difference of performance of micro and small enterprises before and after get funding
assistance through People's Business Credit Program.
3. Research Method
This study use quantitative approach. The unit of analysis is micro and small
enterprises (MSEs). Respondents are owners or managers. The data of the micro and
small enterprises is obtained from the Statistical Bureau Center of Makassar and
Department of Cooperatives and Small Medium Enterprises of Makassar. Population
of the study have criteria i.e.: (1) the owners of micro and small enterprises, and (2)
they have to be debiturs of People's Business Credit at National Bank of Indonesia
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(BNI) and People Bank of Indonesia (BRI) for three years. Purposive sampling
method is used in the survey. There are 128 respondents which involved in the study.
Variable of business performance is devided by two aspects namely procedure
aspect, and business aspect. Procedure aspect is relate to mechanism of program
while business aspect describes the changing on business performance of micro and
small enterprises after get funding assistance through People's Business Credit
Program. The indicator is used for measuring business performance variables are
sales volume, total asset, total of workforce, customer volume, marketing area, and
technology or method. According to the research objectives, the data is analyzed by
both Descriptive Statistics and Sign Test Analysis (Hair et al., 1998; Sekaran, 2003;
Sugiyono, 2008). Furthermore, data processing is performed by IBM SPSS 21 for
Windows.
4. Results and Discussion
Respondents of this study have quite different characteristics. Diversity could
be seen from the personal data of respondents which is consists of age, sex, ethnic,
and business experience. Completely description can be seen in the following table.
Table 1. Repondent Profile
No.
1.
2.
3.
4.
Description
Age :
under 21 years
21 to 30 years
31 to 40 years
41 to 50 years
more than 50 years
Total
Sex :
Male
Female
Total
Ethnic:
Bugis
Makassar
Java
Total
Business Experience:
1 to 2 years
3 to 4 years
5 to 6 years
Frequency
Percentage (%)
0
24
60
28
16
128
0.00
18.75
46.88
21.88
12.50
100.00
76
52
128
59.38
40.63
100.00
112
12
4
128
87.50
9.39
3.13
100.00
24
40
12
18.75
31.25
9.38
6
7
more than 6 years
Total
52
128
40.63
100.00
Source: Data processed, 2013
The table shows that most of respondents in productive age category namely,
31 to 40 years old (46.8%). Male respondent greater than female (59.3%). Bugese
ethnic is dominant respondents (87.5%) while the respondents from Makassar and
Java tribe only 12.5%. Generally, respondents have a long time experience of doing
business with a range of over 6 years (40.63%) and 3 to 4 years (31.25%), while the
rest are respondents who has been in the business for 1 to 2 years (18.75%) and 5 to 6
years (9.38%)
Further more, status of the loan includes the total of credit, banks institution,
and comformity of the program. Completely, description about the status of loan is
given on the following table.
Table 2. Status of The Loan
No.
1.
2.
3.
Description
Credit Total (million) :
5 to 10
11 to 20
21 to 30
more than 30
Total
Bank Institution:
People Bank of Indonesia (BRI)
National Bank of Indonesia (BNI)
Total
Conformity of the program:
appropriate
not appropriate
Total
Frequency
Percentage (%)
68
40
8
12
128
53.13
31.25
6.25
9.38
100.00
88
40
128
68.75
31.25
100.00
68
60
128
53.13
46.87
100.00
Source: Data processed, 2013
The table shows that the dominant respondents received loans from 5 to 10
million (53.13%) and 11 to 20 million (31.25%). Number of the respondents who
received coaching from Bank of BRI is greater than Bank of BNI (68.75%). Most of
the respondents obtain direct loans from the bank, in this case the Bank of BRI and
Bank of BNI, while the remaining gain funds through intermediaries such as
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cooperatives. In general, People's Business Credit Program is appropriate with
enterpreneur’s need in improving their business performance.
Aspects of the program related to the degree of conformity of the program,
while the business aspect describes the changes in business conditions is experienced
by entrepreneurs before receiving the loan and after receiving such capital assistance
from People's Business Credit Program. Briefly description of respondent perception
about business performance after getting the loan assistance can be seen in the
following table.
Table 3. Description of Respondent Perception about Business Performance
Variable/Indicators
1. Sales volume
2. Asset Total
3. Workforce total
4. Customer volume
5. Marketing area
6. Method of work
Score
Total
614
607
474
573
467
533
Ideal
Value
640
640
640
640
640
640
Ratio of Ideal
Value
0.960
0.948
0.740
0.896
0.729
0.833
Value
Convertion
5
5
4
5
4
5
Explanation
Increase
Increase
Increase
Increase
Increase
Better
Source: Data processed, 2013
Based on table, it appears that after the respondents get loan assistance the
overall indicators of business aspect has increased. Where the average increase
occurred in the number of sales, value of assets, workforce total, number of
customers, and technology or methods of work with a total value score of 74 to 96%
from the ideal value. These results indicate that capital assistance program for micro
and small businesses can push on increasing business performance. In other words
that the program both aspect of program, as well as the business aspects has running
on an effective way. These findings are in line with Setiawan and Rejekiningsih
(2009) that capital loan assistance for SMEs can increase the amount of labor, capital,
sales turnover and profits.
Analysis of Sign Test was used to determine differences in business
performance of Micro and Small Enterprises (MSEs) in Makassar before and after
they were getting loan assistance from banks institutional. The complete results are
presented in the following table.
Table 4. The Result of Sign Test Analysis
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No.
1.
2.
3.
4.
5.
Description
Negative Differences
Positive Defferences
Ties
Total
Sig. (2-Tailed) = 0.001
α = 0.05
N
0
128
0
128
Remarks
Significant
Source: Data processed, 2013
The table shows that, (1) negative differences = 0; meaning, there is no negative
score before and after getting loan assistance; and (2) the value of Sig. (2-tailed) =
0.001 < 0.05 indicates that business performance of micro and small enterprises
(MSEs) before and after getting capital assistance is different significantly. In other
words, capital assistance programs is provided by the government through the BRI
and BNI Bank can improve micro and small business performance in Makassar.
The results of this study indicate that development or assistance program is
designed by government through People's Business Credit Program in terms both
program aspects and business aspects could be said effective. These findings show
both statistically and empirically the program can improve business performance of
micro and small enterprises in Makassar. Therefore, the People's Business Credit
Program must be implemented properly to improve the performance of MSEs in the
future. Evaluation of the implementation should be done continuously and
consistently for the improvement overall program. Positive commitment by
government and MSEs enterpreneurs is the key factor for best implementation of this
program.
The findings of this study support the studies conducted by several previous
studies that found that the performance of micro and small enterprises can be better
after obtain capital aid (Susilo et al., 2008, Masakure et al., 2009, Setiawan and
Rejekiningsih, 2009; and Munizu, 2010).
5. Conclusions and Suggestions
The aim of this study is to describe the performance of micro and small
enterprises after receiving funding assistance through People's Business Credit
Programs. To know the difference of business performance of micro and small
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enterprises before and after getting funding assistance through People's Business
Credit Program. The results indicate that after getting capital assistance from People's
Business Credit Program, the overall indicators of the business performance aspect
has increased. Where the average increase occurred in the number of sales, value of
assets, number of customers, the area of marketing, and technology / methods of
work.
Business performance of MSEs before and after getting loan assistance are
significantly different. In other words that the capital assistance program is provided
by the government could improve the business performance of Micro and Small
Enterprises in Makassar. Capital aid in terms of aspects of the program as well as the
business aspect have been effective. Because both statistically and empirically the
program could improve the business performance of Micro and Small Enterprises in
Makassar. The People's Business Credit Program must be implemented properly.
Evaluation of the implementation should be done continuously and consistently for
the improvement overall program.
6. Acknowledgements
Grateful thanks are extended to Didik Kadry for research assistance with the
interviews for this study, to Dr. Armayah and Dr. Sumardi at Department
Management, Faculty of Economics, Hasanuddin University for their support in this
study, to the LP2M Unhas for the funding of this research project, and to the
comments received on an earlier draft of this research from two anonymous
reviewers.
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