Improving Digital Literacy and Financial Inclusion of Female Ultra-Micro Entrepreneurs through Microcredit: A Pilot Study

The pilot study aimed to explore the feasibility of digitizing group loans for ultra-micro entrepreneurs. This project was conducted in collaboration with Yayasan Cinta Anak Bangsa (YCAB) Venture, a Microfinance Institution (MFI), and OVO, an E-wallet Provider in Indonesia. The scale of microloans provided to these female microentrepreneurs ranges from IDR 2 - 6 million or approximately equivalent to USD 150-400 per client. YCAB, as an MFI, sought to transition its lending operation from cash-based to digital. The motivations were driven by the goals of reducing fraudulent activities, establishing digital records for clients, decreasing security risks, and enhancing clients' inclusion in the digital marketplace. The project involved conducting extensive survey interviews with YCAB's clients, who were primarily female microentrepreneurs engaged in various businesses. The study revealed that while these microentrepreneurs were generally open to the idea of digital loans, there were challenges related to the cost of transition and variations in digital skill levels among clients.
 

Although in general these microentrepreneurs were generally open to the idea of digital loans, the key findings of the pilot project emphasize two critical challenges. First, the transition to digital loans incurred substantial costs for both the MFI and clients, including administrative expenses, staff training, and transaction fees. The MFI found that the monetary incentives initially offered to encourage and compensate clients to participate in the digital loan program were unsustainable on a larger scale. Second, the variation in digital skill levels among clients highlighted the importance of digital literacy, with a training program signaling its positive influence with more frequent transactions (although findings are still limited). To ensure the sustainability of the digital loan program, client education and skill development are imperative. Furthermore, the study suggests an alternative approach: targeting microentrepreneurs already engaged in digital income sources, such as online merchants and digital platform workers, as a more viable and cost-effective path to expanding digital loans while reducing transition hurdles for traditional microcredit clients. This approach underscores the need for a balanced expectation of benefits between the MFI and clients, emphasizing the importance of digital skillfulness and a thoughtful business strategy for successful digital loan implementation.