This article examines the relationship between cooperative-based microfinance institutions and village-level economic activity in Indonesia. Specifically, it seeks to assess the differential effectiveness of Village Cooperative Units (KUD) against Savings and Loans Cooperatives (Kospin) in supporting the village-level economy.
The article utilizes village-level data combined with luminosity-based GDP estimates constructed from calibrated nighttime light (NTL) data. It applies quasi-experimental methods to analyze and compare the performance of the KUD and Kospin cooperative models.
The results indicate that villages with Kospin cooperatives are consistently associated with higher levels of local economic activity, while villages with KUDs operating in isolation show no statistically significant differences. However, villages where KUDs coexist with formal banks exhibit more favorable economic outcomes. At the same time, the simultaneous presence of KUDs, Kospin and banks is associated with weaker marginal economic differences, suggesting potential overcrowded.
The findings fundamentally challenge the viability of “one-size-fits-all” policies, implying that the interaction between different financial institutions suggests overcrowding risk, significantly alters economic outcomes.
In light of Indonesia's new “Koperasi Merah Putih” flagship initiative, the results call for a flexible, context-sensitive cooperative ecosystem.
This article provides a novel evaluation of cooperative models using luminosity-based GDP estimates constructed from calibrated NTL data. It offers a policy blueprint for advancing inclusive finance not only in Indonesia but across developing regions in Asia by highlighting the nuances of institutional complementarity.
