ANALYZING INDONESIAN MSMES' ACCESS TO ISLAMIC FINANCIAL SERVICES USING INSTITUTIONAL THEORY

Abstract

Financial inclusion has been recognized as a crucial element of economic stability and growth, poverty alleviation, and promoting access to formal financial services for all segments of society. This paper explores the concept of financial inclusion from an institutional theory perspective, with a focus on the Indonesian context. It defines the term and highlights the significance of financial inclusion in promoting economic development. It also delves into Islamic financial inclusion, which is based on risk-sharing and wealth redistribution through Shariah-compliant microfinance, small and medium enterprises, and micro-takaful. The study emphasizes the importance of institutions in promoting financial inclusion and their role in active markets, governments, communities, and societies in explaining financial exclusion. The paper further suggests that integrating institutional pressure in the institutional environment of the public sector, Islamic financial services providers, and the MSME industry will contribute significantly to Indonesia's sustainable economy.

The paper presents a conceptual framework that interconnects the concept of "Institutional Isomorphism" between the three closely related sectors, the public sector, Islamic financial institutions, and the MSME industry, to promote the financial inclusion of MSMEs in the Indonesian context. The study relied on literature and secondary data and used a qualitative method through library research. This paper thus contributes to the institutional theory perspective by examining the aspect of financial inclusion, which is critical in promoting economic growth and development.