Does Micro Finance Institution Improve Welfare? A Double Difference Analysis of Indonesian Community-level Data

Using a longitudinal community-level data of Indonesia, we test whether a presence of 5 different microfinance institutions (MFI) within a community has contributed to the improvement in the welfare (as measured by per capita expenditure) of the community's population. Applying the Difference-in-Difference analysis to this data, we find that direct access to MFI through its presence in the community has an impact only in rural areas. We find no evidences that direct access to MFI in urban area improves household welfare. Moreover, among the 5 different MFI in rural areas,we find evidence of an impact only for two micro finance institutions namely Bank Rakyat Indonesia (BRI) and Bank Perkreditan Rakyat (BPR). This finding suggests that BRI, as the largest and most successful state-owned micro finance institution in Indonesia, should maintain its orientation in rural banking services.