Microcredit and household energy consumption: Exploring the impact of The Kredit Usaha Rakyat (KUR) program in Indonesia

Abstract

Energy constraints significantly impact household welfare and the quality of life. Developing countries, such as Indonesia, continue to face challenges in meeting household energy needs. This study investigates the impact of microcredit access on Indonesian households' energy consumption. Understanding this relationship is essential for insights into how microcredit can affect energy use in the context of developing countries. Using data from 2019 (pre-pandemic) and 2021 (during the pandemic), this study uniquely bridges a gap in the literature by analyzing both pre-pandemic and pandemic periods. This offers novel insights into how microcredit programs respond to dynamic economic conditions. We employ the two-stage least squares (2SLS) method with instrumental variables to address potential causality issues. Our findings reveal a positive relationship between access to microcredit and household energy consumption expenditures. By comparing pre-pandemic and pandemic periods, the study highlights how economic conditions affect the effectiveness of microcredit programs. Moreover, regional analysis reveals variations in the impact of microcredit across Indonesia. This study contributes to understanding how microcredit programs affect household energy consumption, taking into account economic conditions and spatial effects. Our findings offer policy implications for enhancing household energy consumption through microcredit programs. Policymakers should consider regional needs and evolving economic conditions to optimize the effectiveness of microcredit programs.