Micro-entrepreneurs� Subjective Wellbeing: Does loan enhance happiness?

Over the last several years, microfinance has increasingly become a common financial policy tool for supporting and enhancing formation and expansion of microenterprises worldwide, particularly in developing and emerging markets. At the same time, over the last decade, intrigued by the enormous resources, including financial, allocated to developing the microfinance industry, empirical research has also exploded assessing the impact of microfinance on various aspects of micro entrepreneurship, including business formation and expansion, empowerment, and poverty alleviation�challenges which, among others, microfinance is believed to help facilitate�the results have been mixed, at best. One area that seems to have received very little, attention is the impact of microfinance on the subjective wellbeing of micro-entrepreneurs. This study endeavours to fill that gap in the literature by investigating the issue for the first time in the case of Indonesia�a developing, populous, G20 economy with a long history of microfinance. To do this, a survey was conducted in 2014 of 556 women and men micro entrepreneurs in the city of Surabaya, Indonesia�s second largest city, covering five microcredit providers. The multiple regression analysis is used to test the relationship. Intriguingly, results show that while Indonesia continues to allocate huge resources into developing its microfinance industry, microfinance, measured by microcredit, has a negative and significant association with subjective wellbeing. Thus, microcredit may be making micro-entrepreneurs less rather than more happy. Results also show that the interaction between microcredit and lending group worsen the entrepreneurs� subjective wellbeing, while business performance (proxy by change in profit), which remains a challenge, might help enhance subjective wellbeing.