Pandemic and SMEs Financing: The Role of Macroprudential Policy and Financial Development

This research examines the effects of the COVID-19 epidemic, macroprudential regulations, and financial advancement on the financing of SMEs in Indonesia. It furthermore investigates the prospects for SMEs to elevate their company classifications during and subsequent to the pandemic. The research utilises a panel dataset encompassing 33 provinces from 2014 to 2021 and applies the System GMM technique to evaluate macro-level factors affecting the loan provision for SMEs. This examination is additionally enhanced by a granular study employing Differencein-Differences alongside Propensity Score Matching. Research indicates that the pandemic considerably lowered the financing availability for SMEs, undermining the efficacy of macroprudential measures. Financial advancement facilitated access to credit; however, it unveiled intricacies when paired with lenient regulations. Access to credit did not substantially facilitate the advancement of SMEs during the pandemic, although it emerged as a catalyst for upward mobility in the recovery phase. This research provides significant perspectives for flexible and equitable financial strategies aimed at bolstering the resilience and expansion of SMEs.