Abstract:

This paper address the empirical relevance of banking competition on MSME lending especially on credit supply and interest rate in Indonesia using provinces data.

This paper is based on all commercial banks in Indonesia over the period from 2013 to 2018 and the uses ordinary least squares with standard errors clustered at the provinces data level.

Using structure-conduct-performance hypothesis for banking competition indicator, the result differs between proxied by concentration ratio dan Herfindahl-Hirshman Index (HHI). Further, it was found that banking concentration is not associated with interest rate charged to MSME in Indonesia.  

: This study highlights that beside competition in banking sector there are other indicator for competition. Bank-level data of all provinces in Indonesia used in this study is until 2018, therefore limited the analysis until 2018. Also, this study does not take into account the non-structural approaches that could have been a more robust study.

This paper contributes to the current literature of ongoing banking competition in Indonesia as a developing country towards MSME lending that are limited due to archipelago geography, therefore by using the provinces data will assess a more robust result.