Rural Bank and Regional Economic Development: Evidence from Indonesia


  • Jamal Wiwoho Faculty of Law, Universitas Sebelas Maret
  • Nugroho Saputro Faculty of Economics and Business and Center for Fintech and Banking, Universitas Sebelas Maret
  • Putra Pamungkas Faculty of Economics and Business and Center for Fintech and Banking, Universitas Sebelas Maret
  • Irwan Trinugroho Faculty of Economics and Business and Center for Fintech and Banking, Universitas Sebelas Maret
  • Moch. Doddy Ariefianto Accounting Department, BINUS Graduate Program-Master Accounting, Bina Nusantara University
  • Francisca Sestri Goestjahjantie STIE Insan Pembangunan



Rural Bank, Fund Allocation, Economic Growth, Poverty, Indonesia


This paper investigates the relationship between fund reallocation on economic growth and poverty by using 1860 rural banks. Our quarterly data allow us to merge bank-level data and province level-data from 2010-2016. We find that loan-to-deposit ratio as our proxy of intermediation function could boost economic development. Our non-linear regression shows that too much finance reduces regional GDP growth but, in the long term, could help to reduce poverty. Our results provide some important policy implications that rural banks could contribute to economic development in a good way but should be highly supervised in terms of risk and competition.


Banto, J. M., & Monsia, A. F. (2020). Microfinance institutions, banking, growth and transmission channel: A GMM panel data analysis from developing countries. Quarterly Review of Economics and Finance.

Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12(1), 27-49.

Beck, T., Lu, L., & Yang, R. (2015). Finance and Growth for Microenterprises: Evidence from Rural China. World Development, 67, 38-56.

Berger, A. N., Goulding, W., & Rice, T. (2014). Do small businesses still prefer community banks? Journal of Banking and Finance, 44(1), 264-278.

Burgess, R., & Pande, R. (2005). Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment. American Economic Review, 95(3), 780-795.

Chang, P. C., Jia, C., & Wang, Z. (2010). Bank fund reallocation and economic growth: Evidence from China. Journal of Banking and Finance, 34(11), 2753-2766.

Donou-Adonsou, F., & Sylwester, K. (2016). Financial development and poverty reduction in developing countries: New evidence from banks and microfinance institutions. Review of Development Finance, 6(1), 82-90.

Hasan, I., Koetter, M., & Wedow, M. (2009). Regional growth and finance in Europe: Is there a quality effect of bank efficiency? Journal of Banking and Finance, 33(8), 1446-1453.

Hassan, M. K., Sanchez, B., & Yu, J. (2011). Financial development and economic growth : New evidence from panel data. Quarterly Review of Economics and Finance, 51(1), 88-104.

Hook, S., & Singh, N. (2014). Does too much finance harm economic growth ? Journal of Banking Finance, 41, 36-44.

Koetter, M., & Wedow, M. (2010). Finance and growth in a bank-based economy: Is it quantity or quality that matters? Journal of International Money and Finance, 29(8), 1529-1545.

Meslier-Crouzille, C., Nys, E., & Sauviat, A. (2012). Contribution of Rural Banks to Regional Economic Development: Evidence from the Philippines. Regional Studies, 46(6), 775-791.

Park, D., & Shin, K. (2017). Economic Growth, Financial Development, and Income Inequality. Emerging Markets Finance and Trade, 53(12), 2794-2825.

Shaban, M., Duygun, M., Anwar, M., & Akbar, B. (2014). Diversification and banks' willingness to lend to small businesses: Evidence from Islamic and conventional banks in Indonesia. Journal of Economic Behavior and Organization, 103, S39-S55.

Soedarmono, W., Hasan, I., & Arsyad, N. (2017). Non-linearity in the finance-growth nexus : Evidence from Indonesia. International Economics, 150, 19-35.

Trinugroho, I., Risfandy, T., & Ariefianto, M. D. (2018). Competition, diversification, and bank margins: Evidence from Indonesian Islamic rural banks. Borsa Istanbul Review, 18(4), 349-358.




How to Cite

Jamal Wiwoho, Nugroho Saputro, Putra Pamungkas, Irwan Trinugroho, Moch. Doddy Ariefianto, & Francisca Sestri Goestjahjantie. (2021). Rural Bank and Regional Economic Development: Evidence from Indonesia. International Journal of Business and Society, 22(2), 818–827.