Determinant factors of BUM Desa (village-owned enterprises) performance in Indonesia: a partial least squares structural equation models approach

A significant challenge to sustainable growth in Indonesia is the disparity between urban and rural development. While urban areas continue to expand, rural regions require specific interventions to progress. To harness this potential, the Indonesian government has implemented strategic measures by establishing Village-Owned Enterprises (BUM Desa). This study identifies key factors influencing BUM Desa performance across two districts, Klaten Regency in Central Java Province and Penajam Paser Utara Regency in East Kalimantan Province, with contrasting socio-economic conditions and infrastructural availability. Variables, factors, and indicators that are suspected of influencing BUM Desa performance were created through literature searches and expert opinions through FGDs conducted in both districts. PLS-SEM analysis result shows that BUM Desa in both districts is influenced by the same three variables, namely human resources, BUM Desa governance, and capital. The capital variable has the most influence on BUM Desa performance in Klaten Regency, while in Penajam Paser Utara Regency, the BUM Desa governance variable has the most influence. The findings underscore the imperative for village authorities to exhibit a strong institutional commitment to BUM Desa development through the strategic appointment of competent managerial personnel, the provision of adequate financial resources, and the facilitation of its formal legal establishment.