Determinants of Credit in Indonesia's Agricultural Sub-Sector: Panel Data Analysis

Pada The Financial Services Authority (2016) states that financial literacy and inclusion are global issues considering their impact on the economy, and the fact that the level of financial literacy and inclusion is still low in the majority of countries in the world. Various state authorities and international institutions such as the World Bank, OECD, and the IMF have made it an issue. The respective authorities and institutions with an interest in policies that support increased literacy and financial inclusion must immediately be taken in order to increase public financial literacy and inclusion since financial literacy has an impact on the economy. An increase in the level of public financial literacy will encourage people to be able to determine and utilize financial service products so that it will encourage community AR TI C LE I N F O AB ST R ACT


Introduction
Pada The Financial Services Authority (2016) states that financial literacy and inclusion are global issues considering their impact on the economy, and the fact that the level of financial literacy and inclusion is still low in the majority of countries in the world. Various state authorities and international institutions such as the World Bank, OECD, and the IMF have made it an issue. The respective authorities and institutions with an interest in policies that support increased literacy and financial inclusion must immediately be taken in order to increase public financial literacy and inclusion since financial literacy has an impact on the economy. An increase in the level of public financial literacy will encourage people to be able to determine and utilize financial service products so that it will encourage community Mercado, 2015). For the case in Indonesia, the study of Ummah et al (2015) shows that financial inclusion has a direct relationship with income distribution in Indonesia. The income distribution in an area affects the level of financial inclusion in that area, but not vice versa.
Nationally, financial literacy and inclusion have become significant issues because they relate to many aspects, one of which is poverty reduction. This is demonstrated by the collaboration between Bank Indonesia and the Secretariat of the Vice President -the National Team for the Acceleration of Poverty Reduction (TNP2K) and the Fiscal Policy Agency -the Ministry of Finance in the form of a National Strategy for Financial Inclusion.
This program was formed to support the government in reducing poverty and developing an inclusive and sustainable economy (Ummah et al., 2015) One group that is pretty much vulnerable to poverty is the farmer household. The data from Central Bureau of Statistics (BPS) show that the percentage of poor people in March 2019 was 9.41 percent or 25.14 million people. 15.15% of the total population lives in rural areas where many farmers inhabit these places. Therefore, it can be said that farmers have a higher poverty rate than other groups. Even though it has decreased compared to the previous period, it is still above the poverty target set in the 2015-2019 RJPMN, at 7.0 -8.0% at the end of 2019.
According to Poliquit (2006) credit has a role in agricultural development, and it is believed that the expansion of the credit program will provide benefits for agricultural production and smallholder income, which then able to reduce poverty levels and also diversifying livelihoods and improving business skills. The role of bank credit is very strategic in the development of the agricultural sector, but unfortunately, the amount of credit in the agricultural sector has been too low to this date (Darmawanto, 2008).
According to Cahyono & Mardianto (2017), one of the problems faced by farmers is their lack of access to formal financial institutions. In fact, farmers need additional capital to increase their production. Sharia banking is a financial institution that is close to the real sector, especially agriculture. However, financing for this sector is still very small. The main reason for this is that the agricultural sector has a very high risk. This is a challenge for the banking and financial sectors, both conventional and sharia, to expand market access. Vol 11. No.1 March 2021 p. 12-23 14 10.12928/optimum.v10i2.15012
Studies that specifically examine credit in the agricultural sector have also been carried out, where the dominant factors are interest rates (Maulana & Iskandar, 2018;Rompas, 2018), income (Aggarwal et al., 2014;Hardana et al., 2019), population (Jannah, 2018), land area (Hardana et al., 2019), and education (Hardana et al., 2019). Interest rate has a negative effect on credit because it must be paid by borrowers. The higher the interest rate, the higher the amount to be paid. The burden on the community in repaying their credit loans is getting heavier, and will reduce the interest of the community to apply for credit which results in a decrease in the credit channeled (Irfan et al., 2014).
National income in the form of Gross Domestic Product has a positive effect on the amount of credit. This is related to the criteria for providing credit, that are the capacity and the conditions of economy. According to Astuty (2015), capacity can be determined through production figures. In addition, the condition of economy observes general economic conditions as well as conditions in the business sector of the party applying for credit. The better the Gross Domestic Product value of the agricultural sector is, the better the production figures of the agricultural sub-sector and the economic condition sector are, which leads to an increase of credit applications. Moreover, with the increase in income, the realization of the provision of credit proposed by the public will increase as a result of banking confidence in the ability to pay debtors (Irfan et al., 2014). As for the number of farmers, it has an influence on the amount of credit. The increase of the population will increase the amount of capital needed so that it will increase credit applications in the agricultural sector. Before performing panel data analysis, the right specification will be selected among a common effect model, a fixed effect model, and a random effect model. After determining the appropriate model specification, then hypothesis testing will be carried out through statistical tests known as partial and simultaneous test, which then explain the coefficient of R 2 determination.  Data source: data processing (*) significant at  1%, (**) significant at  5%

Interest rate
The interest rate has a positive coefficient, meaning that the higher the interest rate will These results indicate that interest rate has a positive coefficient, meaning that high interest rate actually has a tendency to encourage credit applications in the agricultural subsector. According to Rai & Purnawati (2017), this indicates that the interest rate is not really a problem as though the interest rate is rising, applications for credit is still made to meet the needs. According to Hardana et al. (2019) a higher interest rate is considered remuneration and is a natural and not burdensome.

Number of Farmers in the Agriculture Sector
The variable of the number of farmers in the agricultural sub-sector shows a positive influence on credit in the agricultural sub-sector. The increase in the number of farmers will increase the amount of credit in the agricultural sub-sector. The coefficient of the number of farmers is 0.005, indicating that an increase in the number of farmers by 1 million farmers will increase credit by Rp. 5 million rupiah. This value is considered very low which supports the data from the Ministry of Agriculture (2019) that the proportion of credit in the agricultural sector is still low with only 9.7% of the total existing credit. Figure 1 shows the proportion of credit per economic sector, where the agricultural sector occupies the fourth position. These findings can show three things. First, farmers are chalenged by the difficulties in accessing credit from the financial institutions. According to Hardana et al. (2019), the main problem of access to credit that is faced by wrong farmers is complicated administrative procedures. In addition, another factor that causes difficulty in accessing credit is collateral. According to Marta & Satria (2016), sufficient collateral is the basis to determine whether a credit application is accepted or not. Not all farmers are willingly to apply for credit or loan which leads to small numbers of the additional credit occurrence.
Second, farmers have applied for credit but with a relatively small credit score. Third, farmers have applied for loans with a higher value, but the approval of the credit score is small because agriculture has a high risk, so financial institutions are reluctant to provide larger credit.
Source:The Ministry of Agriculture (2019)

Agricultural Sub-Sector Gross Domestic Product
The agricultural sub-sector gross domestic income variable has a positive effect on credit in the agricultural sub-sector. The GDP coefficient is 1.079, meaning that an increase in income from the agricultural sub-sector by Rp. 1 billion will increase the credit of Rp.
1.076 billion. This shows that the increased income in the agricultural sector will give farmers the ability to repay credits. Asante-Addo et al. (2017)  Based on the estimation results above, it is partially identified that the income, in this case the Gross Domestic Product and the number of farmers in the agricultural sub-sector, has an effect on the amount of credit in the agricultural sub-sector. Considering the importance of credit that will be used for capital development of the agricultural sector, some efforts that can be done are to increase the Gross Domestic Product of the agricultural sector and to increase the capacity of farmers. Furthermore, it is necessary to increase farmers' access to financial institutions so that more farmers can access credit. According to Aggarwal et al (2014), to involve individuals in the mainstream financial system, and in order to provide many benefits, farmers need to have financial literacy. To increase financial literacy, it is necessary to provide financial education to farmers. J. M. Hogarth et al (2007) stated that the need for financial education will have an impact on making better decisions that will increase economic resilience and also achieve well-being. The existence of good financial education about financial benefits will increase farmer participation since Asante- For this reason, financial education is important, even Wafula (2017) stated that financial planning and investment activities, financial education should be linked to the curriculum in elementary schools so that individuals will get financial information earlier in life. The same thing was stated by Ashari (2009b), that educating the public to be more familiar with and able to access to financial institutions.

Conclusions And Suggestions
Based on the estimation results, it can be concluded that the amount of credit in the agricultural sector is positively and significantly influenced by the number of farmers and Gross Domestic Product, while interest rates have a positive effect on the credit position of the agricultural sub-sector. To increase farmers' access to financial institutions, it is necessary to increase financial education so that it will increase financial literacy. Good financial literacy will have an impact on better decision making which will increase the economic resilience of farmers.