Microfinance and Economic Justice: Empowering Indonesia’s Informal Economy

Abstract

This paper investigates the role of microfinance in promoting economic justice for Indonesia’s informal economy, particularly among marginalized groups such as women, rural farmers, and small-scale entrepreneurs. Microfinance has been hailed as a tool for poverty alleviation and social inclusion, providing financial services to those excluded from traditional banking systems. The study examines the effectiveness of microfinance programs in Indonesia, focusing on initiatives like Kredit Usaha Rakyat (KUR) and the role of community-based financial institutions. Through case studies and interviews with borrowers, the paper assesses the impact of microloans on income generation, business development, and financial independence, particularly for women entrepreneurs in rural areas. Despite the potential of microfinance to empower marginalized communities, the paper also explores challenges such as high interest rates, limited loan sizes, and the risk of over-indebtedness. Additionally, it critiques the sustainability of microfinance institutions (MFIs) and the broader regulatory framework that governs micro-lending in Indonesia. The findings highlight both the successes and limitations of microfinance as a tool for economic justice, with the conclusion offering policy recommendations to improve the accessibility, affordability, and effectiveness of microfinance programs, including increased financial literacy, better monitoring of loan recipients, and enhanced regulatory oversight.