Community-based Institutional Financing Model through Cooperatives for Micro and Small Enterprises
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Abstract
Micro, small, and medium enterprises (MSMEs) have become the main drivers of the society's economy, but limited access to financing is still a main obstacle in the development of this sector. This research aims to assess the effectiveness of cooperatives in providing sustainable and inclusive access to finance for MSMEs. Through a literature study approach by tracing references from relevant scholarly works prior to 2012, this research highlights how cooperatives, with their membership and family principles, can bridge the inequality between the capital needs of MSMEs and the constraints posed by the formal financial system. Cooperatives are able to offer a more humane and localized approach to financing, relying on social closeness, trust among members, and internal supervision mechanisms. The effectiveness of cooperatives is strongly influenced by the quality of governance, managerial capacity, and adequate supporting policies. This research concludes that strengthening cooperatives in terms of institutions, regulations, and synergy with the national financial system is an important step to expand the scope of MSME financing in a justice manner. The results of this research are expected to be an academic and practical reference in the development of cooperatives as community-based financial institutions oriented towards society economic empowerment.
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