The Influence of Financial Inclusion and Financial Literacy on MSME Performance with Debt Financing Strategy as an Intervening Variable in Depok City, West Java

Abstract

This study aims to analyze the influence of financial inclusion and financial literacy on the performance of Micro, Small, and Medium Enterprises (MSMEs) with debt financing strategy as an intervening variable in Depok City, West Java. The research method used is a quantitative approach with path analysis using Structural Equation Modeling based on Partial Least Square (SEM-PLS). The results show that financial inclusion and financial literacy have a positive and significant effect on MSME performance. Wider access to financial services enables MSMEs to obtain capital and expand their businesses, while good financial literacy encourages appropriate financial decision-making. In addition, debt financing strategy is also proven to have a positive and significant effect on MSME performance, because it can increase working capital and operational capacity of the business. Financial inclusion and financial literacy directly have a positive effect on debt financing strategy. MSMEs with good financial access and adequate financial understanding tend to be more effective in using debt as a source of business financing. Another important finding shows that debt financing strategy mediates the effect of financial inclusion and financial literacy on MSME performance. This means that strategic debt use is a crucial pathway to improving business performance through leveraging financial access and understanding. This research provides practical implications: increasing financial inclusion and literacy must be accompanied by a prudent debt management strategy to sustainably improve MSME performance.