Access to Credit in Indonesia: Does Investing in Social Capital Matter?
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Date
2022-06-08
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Abstract
This thesis reexamines the relationship between social capital and individuals’ access to credit in the context of Indonesia. We use the data from the fifth wave of Indonesian Family Life Survey (IFLS5) and focus on the ‘flow’ aspect of social capital, i.e. participation in various activities that can be regarded as addition to the general ‘stock’ of social capital. Our results indicate that there are two different characteristics underlying participation in social activities, namely ‘voluntary-type’ and ‘economic-embedded’ activities. Using an extended probit model with correction for selection bias and endogenous regressor, we find that investment in the second type of social activities can improve individuals’ chance to gain better access to credit. In addition to that, creditworthiness remains an inseparable issue when discussing credit market outcomes. Combined together, this condition enhances the necessity of investing in social capital. Participation in this type of activities provides the medium for individuals to increase transparency with respect to their creditworthiness. At the same time, this participation also provides individuals with the extra income that can add to his/her creditworthiness.
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Social Capital, Credit Access, Extended Probit