Effectiveness of agribusiness microfinance institutions in enhancing community development: a case study in South Sumatra, Indonesia

Microfinance is recognized in the world because of its effectiveness and considered as successful in providing credit access to the poor for the last three decades. However, despite the great number of microfinance institutions that offer credit, there are only few of them that consistently finance the agricultural sector. Responding to the challenges, agribusiness MFIs were established to support rural agribusiness. The study aimed to determine the effectiveness of agbribusiness MFIs in enhancing community development in East Ogan Komering Ulu, South Sumatra, Indonesia. A total of 180 respondents from six agribusiness MFIs established in 2009 was interviewed to examine the farmers' ability accessing credit and services provided by the agribusiness MFIs, assessed the effectiveness of agribusiness MFIs in responding to farmers' capital needs, and determined the association and the contribution of agribusiness MFIs' effectiveness with community development. This study revealed followings: (1)the beneficiaries perceived that agribusiness MFIs were effective based on CIPP evaluation model and had answered their problems of financial needs in which they used microcredit to improve agribusiness particularly to buy agribusiness input as well as pay labour and other expenses; (2)there is a significant relationship between effectiveness of agribusiness MFIs and agribusiness condition in the six villages meaning agribusiness MFIs had influenced and contributed to agribusiness condition; and (3)agribusiness MFIs' effectiveness was associated with community development where village with higher level of agribusiness MFIs effectiveness shows higher level of agribusiness condition and vice versa. Agribusiness MFIs helped the farmers' capital needs. However, the study showed that agribusiness MFIs had fully achieved their effectiveness. Members should be encouraged to increase their savings to improve agribusiness MFIs' capital and credit disbursed to the farmers should be well monitored to ensure its use and repayment. Regional agricultural officers and extension workers have significant roles in connecting agribusiness MFIs to other bigger financial institutions for partnerships and strengthen funding, provide trainings in order to improve human resource capability and strengthen the organization capacity, and intensive assistance to help agribusiness MFIs to improve performance as well as to identify and solve issues when they arise.