Role of Microcredit and Technology Adoption in Sustaining Farmers’ Welfare

Poverty in rural areas of Indonesia is still a persistent problem. This paper analyses a virtuous circular causal relation among microcredit, agronomic technology and rural prosperity, and to determine factors affecting farmers to access microcredit and adopt technology in Indonesia. Data for this study were compiled from a survey that interviewed 220 of farm households. Samples of the study were randomly selected from chilli farming community in three regions of Java during 2013-2014. This paper employed a structural equation modelling, which enables to estimate a model of circular causal-interrelations. Microcredit provided positive direct and indirect impacts on rural prosperity. Indirect impact of microcredit was due to mediation of technology adoption. Farmers’ decision to access microcredit and adopt technology was determined by farmers’ characteristics and agribusiness environment via both exogenous and endogenous manners. Microcredit and technology have been able to secure a virtuous circle of enhancing farmers’ wellbeing. The virtuous circle was to augment farmers’ business in terms of larger farming size. Policy makers should introduce more advanced technology and provide credit facility at the same time to ensure sustained economic development in rural areas.