Regulatory issues inhibiting the financial inclusion: a case study among Islamic banks and MSMEs in Indonesia

What is it about?

Despite the critical position of Micro, Small and Medium-sized Enterprise (MSME) for Indonesia’s sustainable economy, many MSME industries are facing issues, challenges and constraints that inhibit their growth and limit their contribution to Indonesia’s development. Access to finance becomes a primary constraint obstructing the growth of this potential sector, and the regulatory environment presents a challenge for the Islamic banks' manoeuvres in serving the needs of MSMEs and limits the MSME sector’s access to formal financial services. The main purpose of this study is to explore the environment of Indonesian regulations and laws related to the Islamic banking system and MSME and reveal the restrictive laws and regulatory flaws that potentially hinder the Islamic banking institution and MSME industry in achieving financial inclusion and promoting sustainable growth.

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