Relationship Between Non-Formal Credit and the Welfare of Indonesian Households

This study used Indonesian Family Life Survey (IFLS) data and applied the fixed effect estimation method. This study showed that informal credit had a more negative impact on household welfare compared to the use of formal credit. In addition, the use of semi-formal credit caused a more negative impact on household welfare compared to the use of formal credit. It can be due to higher interest rates in the use of informal credit compared to semi-formal and formal credit. This study also indicated that credit used for productive purposes brought about a more positive impact than credit used for consumptive purposes. The higher the amount of credit used, the more positive the impact on household welfare is compared to the use of fewer loans. This research results can be the basis for the government to concern about the policy of credit interest rates to the public. Keywords: formal credit, semi-formal credit, informal credit, interest rate