Beyond Cash Transfers: Household Blended Finance and Inclusive Regional Transformation

Indonesia, as an archipelago nation provide an ideal example of how inequality between regions matters. Islands that are separated by sea/water create natural barriers that limit interaction between islands, hence leading to unequal levels of development. 

Java Island is the most developed region in the country. It is the place for Indonesia’s capital, Jakarta and the nation’s biggest city. Java Island is also the home of more than half of the 270 million of the Indonesian population but only consist of approximately 13% of the Indonesian land area.  

The unequal development can also be shown from economic and social aspects, where provinces in Java Island consistently earn a higher level than the national average. This created regions that are lagged or depressed. For example, provinces in Papua Island, despite having higher per capita income, have lower average school years of the population aged 15 and above, lower life expectancy at birth, and a higher poverty rate. 

Theory

In this context, depressed regions are defined as geographic areas that have relatively lower conditions, like economic decline, high unemployment, low incomes, and poor living conditions, than others.

Theoretically, mobility towards fast-growing regions should boost economic efficiency. However, citizens might not necessarily be able to move. Hence, since the Great Recession, the term 'left-behind places' has become a popular topic (Pike et al., 2023). 

As stated by Rodríguez-Pose (2018), these territories might be pushing a ‘vengeance’ against the more dynamic places because they feel abandoned by institutions. Recent empirical evidence suggests that this sentiment might be amplified by factors such as the proportion of youth in the population and a potential lack of immigrant integration, as explained in (Maza and Hierro, 2025), historic factors, as outlined by (Hertrich and Brenner, 2025), and an absence of integration with the community, as shown in (Koeppen et al., 2025).

Financial Aspect in Depressed Regions

While people in Java can easily reach banks and financial institutions within minutes, how about people in Papua? While customers in Java can use banking facilities like ATM, debit/credit cards, or mobile payments easily, how about people outside Java?

Papua’s economy is largely supported by the extraction sector. Papua has the Grasberg Mine, the world's largest gold mine and the third-largest copper mine. It holds an estimated 2.8 billion tonnes of reserves. In 2011, Freeport produced 1.444 million ounces of gold. However, government still face difficulties distributing development results due to vast land area, limited accessibility, unequal population distribution, and challenging geographical conditions. 

Considering this issue, to what extent does financial access play a role in helping households to maintain or increase their standard of living, especially in depressed regions like Papua? Our findings, which is taken from the paper below, can be explained as follows.

Leksono, F. T., Soseco, T., Hidayah, I., & Cahayati, N. (2025). Beyond Cash: Household Blended Finance as a Driver of Inclusive Growth in Papua. Journal of Rural and Regional Innovation Studies, 1(1), 16–28. Retrieved from https://journal.unesa.ac.id/index.php/jorris/article/view/45705

Our study analyses the determinants and impacts of household adoption of blended finance in Papua and West Papua, using data from the 2018 National Socio-Economic Survey (SUSENAS) published by the Central Statistics Agency (BPS), with household analysis units in the Papua regions.

The data was then analysed in two stages. First, we used logit and probit models to estimate the determinants of household access to blended finance. Second, we use a linear regression model to measure the impact of blended finance on welfare. We also analysed blended×village interactions to capture heterogeneous effects across rural areas. All models were analysed using robust standard errors with clustering at the household level.

Our finding show household head education has a positive and significant effect on access to blended finance. This implies that higher education and financial literacy increase participation in formal and informal financing channels. Moreover, education cannot only be seen as a tool for social mobilisation but also a catalyst for blended financing based on local realities.

We also found a strong, negative and significant effect of rural status on access to blended finance. This indicates serious limitations in financial infrastructure in rural areas. Therefore, the success of blended finance depends heavily on digital readiness, local institutions, and literacy. This also challenges the common assumption that a digital-inclusive approach alone is sufficient. Instead, this study's results emphasise the importance of local support structures—including cooperatives, BUMDes, and community actors—in realising grassroots blended finance.

Our result show that access to blended finance generally has a positive effect on per capita expenditure, with an increase of approximately IDR 160,545 per capita. However, the most significant result is in the interaction between blended finance and village welfare with the coefficient of Rp406,293. This indicates that blended finance has a significant impact on welfare only within the village context.

This positive effect likely arises because blended finance in villages can overcome limitations in access to formal financial institutions, increase household flexibility in managing consumption and productive investment, and strengthen local purchasing power.

We also compare the effect of blended finance on welfare for urban and rural areas. The effect of blended finance is conditioned by location; a sharper difference emerges. In contrast to the use of blended finance by rural households that can significantly increase per capita expenditure, the effect of blended finance on per capita expenditure in urban areas is relatively neutral. 

This is due to cities generally having broader access to banks, cooperatives, and other financing sources; therefore, the presence of blended finance does not significantly increase household consumption capacity.

Our model confirms that the effect of blended finance on welfare is contextual—not universal. In urban areas, blended finance does not show a significant effect; hence, the blended finance strategies must be designed differently in urban and rural areas. 

Takeaway Note 

Support for the population in depressed regions can be shown by increasing access to financial resources that enable households, especially in rural areas, to increase their financial capacity. Our findings show the need for the government to regulate the blended finance ecosystem to transform from macro-facilitators to community-based micro-enablers. 

This study not only reaffirms the importance of financial access but also opens a new conceptual space in which households, through plural and community financing strategies, can become active subjects in regional development financing reform (TS).

Note:

Some part of this paper was presented at International Scientific and Practical Conference of Legal Support for Economic Security and Modern Industrial Policy at Al-Farabi Kazakh National University. Tuesday, 26 May 2026.