Conceptualizing financial capability: evidence from Indonesia

Abstract

Purpose This paper aims to investigate how microfinance institutions’ clients in Indonesia conceptualize financial capability. Previous investigations on the concept were mostly in the lenses of those in the developed economies. Design/methodology/approach A qualitative method was used, in which focus group discussions (FGDs) and interviews were conducted with microfinance institutions’ clients and management in four provinces in Indonesia: DKI Jakarta, DI Yogyakarta, West Nusa Tenggara and South Sulawesi. Findings The results exhibit some similarities with those of previous studies that highlight the importance of financial management and financial planning for strategic purposes. However, financial literacies perceived as less important due to the lack of awareness of the concept and its benefits. Research limitations/implications This research is only focused on certain groups of the population which implies its limited generalizability. One important implication is for policymakers and scholars to re-examine the value of financial literacy within the context of Indonesia. Although the interviews reveal skepticisms on the instrumental value of financial literacy, robust investigations are further needed. Originality/value This study is the first that uses the participatory method to define financial capability as understood by microfinance institutions’ clients in Indonesia.

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