THE EFFECT OF MSME CREDIT ON BUSINESS SUSTAINABILITY: THE MEDIATING ROLE OF FINANCIAL INCLUSION IN RURAL BANKING (A STUDY AT BKK WONOSOBO)

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a strategic role in contributing to economic growth, job creation, and poverty alleviation. Nevertheless, the sustainability of MSMEs continues to face various challenges, particularly limited access to financing and formal financial services. Rural Banks (BPRs), including BKK Wonosobo, play an important role in improving MSMEs’ access to financing through credit distribution, which is expected to support business sustainability. However, the effectiveness of credit in enhancing business sustainability is presumed to depend not only on the amount of financing provided but also on the level of financial inclusion among MSME entrepreneurs.

This study aims to analyze the effect of MSME credit on business sustainability by positioning financial inclusion as a mediating variable among MSME customers of BKK Wonosobo. The study employs a quantitative approach using secondary data obtained from sustainability reports and primary data collected through surveys and questionnaires distributed to MSME entrepreneurs receiving credit from BKK Wonosobo. Data were analyzed using Structural Equation Modeling (SEM) to examine both direct and indirect relationships among variables.

The findings indicate that MSME credit has a positive and significant effect on business sustainability. MSME credit also positively affects financial inclusion, while financial inclusion positively influences business sustainability. Furthermore, financial inclusion is proven to mediate the effect of MSME credit on business sustainability, indicating that improved access to, usage of, and utilization of formal financial services strengthens the benefits of credit in supporting the sustainability of MSMEs.

The findings highlight the strategic role of Rural Banks not only as financial intermediary institutions but also as agents of sustainable economic development. This study contributes to the literature on MSME financing and financial inclusion by explaining the mechanism through which MSME credit enhances business sustainability through the mediating role of financial inclusion. Practically, the findings are expected to provide input for BKK Wonosobo and other rural banks in designing more inclusive financing policies to support MSME sustainability and regional economic development.