The key determinants of digital repayment performance of ultra-micro entrepreneurs in Indonesia microfinance institution

Purpose: This study aims to determine the factors that impact the success of loan repayment in the ultra-micro (UMi) program in Indonesia through the application of ordinal logistic regression. Several microfinance institutions in Indonesia have already adopted digital applications to optimize their daily operational procedures, hence facilitating efficient operations. However, the success and sustainability of microfinance institutions may be proven by their capacity to increase profitability and boost the repayment track record of borrowers. The repayment performance is categorized into five levels: collectability-1 (pass), collectability-2 (special mention), collectability-3 (substandard), collectability-4 (doubtful) and collectability-5 (loss). Design/methodology/approach: A sample size of 600 was used to collect data from a non-banking financial business (NBFC) in Indonesia. The data were collected from historical transactions carried out in different locations around Indonesia 20 provinces in total. Findings: The research illustrates those variables such as income, loan size, repaid scheme, loan tenure and business sector significantly influence the performance of loan repayment. However, this study clarifies that the probability of a borrower not defaulting on their loan is affected by the flexibility of the repayment method for making the payment. Practical implications: The paper suggests that financial institutions in Indonesia should reevaluate their loan policy for small and medium enterprises (SMEs) and develop a more flexible credit system that considers the borrower’s characteristics. Originality/value: This study enhances the current body of research on the digital repayment performance of ultra-micro enterprises in Indonesia. This observation has significance in the context of policy decision-making and policy reversal, as it underscores the need to promote and implement skill development initiatives nationwide to foster the growth of sustainable UMi enterprises. The performed research recognizes the need to take into account the comprehensive assessment of digital repayment performance. Consequently, it offered valuable information on the borrowers, loans and business characteristics of ultra-micro enterprises.