A CONCEPTUAL FRAMEWORK: THE IMPACT OF SOCIAL TIES ON SMES’ WILLINGNESS TO APPROACH THE FORMAL BANKING SECTOR IN ACEH, INDONESIA
Publication Date : 31/10/2016
Social ties have an important role in Indonesia. It permeates into many sectors including SMEs (Small-Medium Enterprises) and banks. Such SMEs in the country are known to have problems in accessing finance from the formal banking system. In many cases, an obstacle for SMEs to access bank finance is that they do not meet the formal requirements set out by banks such as collateral or audited accounts. The selection process of banks for many SMEs may constitute a defensive strategy to minimise risk associated with SME borrowers. Such bank requirements and selection processes deter qualified SMEs from applying for bank credit due to high transaction costs and fear of rejection – discouraged borrower. Therefore, the objective of this study is to find out the impact of social ties on SMEs willingness to approach the formal banking sector in facing the banking assessment. However, whether the social ties impact on SMEs willingness have not been explored. This study emphasises on building a robust conceptual framework for SMEs and banks in augmenting credit access. Research methodology of this study applies wide scientific literature study which allows perceiving suitable indicators of social ties for SMEs willingness in Indonesia. This study finds that the social ties, by patron-client, - vertical and horizontal - are considered as a feasible influencing indicator of SMEs willingness in accessing the formal banking credits.
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