Access to Green Finance for MSMEs in Indonesia: Structural Barriers, Instrument Suitability, and Strengthening Strategies through a Narrative Literature Review

Abstract

Aims: This study aims to analyze access to green finance among micro, small, and medium-sized enterprises (MSMEs) in Indonesia by identifying structural barriers, enabling factors, and the suitability of green financing instruments for MSMEs’ characteristics and stages of green practice adoption. It also develops a conceptual framework to explain the interaction between MSMEs’ internal readiness, financial institutions’ assessment mechanisms, and policy ecosystem support in expanding access to green finance. Method: This study employs a narrative literature review approach. Relevant literature was retrieved through Google Scholar and GARUDA, while publication metadata were cross-checked through Crossref. A critical thematic analysis was conducted on relevant scholarly articles, regulations, and institutional reports to identify recurring barriers, evaluate the suitability of financing instruments, and synthesize strategies for strengthening MSMEs’ access to green finance in Indonesia. Results: The findings indicate that barriers to green finance access emerge from the interaction of three dimensions. First, the internal MSME dimension includes limited financial and environmental literacy, inadequate financial record-keeping, administrative constraints, and limited capacity to bear the upfront costs of green investment. Second, the financial institution dimension involves collateral requirements, risk assessment practices, transaction costs, and the limited availability of financing instruments suited to MSMEs’ scale of operations. Third, the policy ecosystem dimension encompasses the clarity of green business criteria, credit guarantee support, business assistance, and digital infrastructure. The review also finds that evidence concerning digital literacy and fintech utilization primarily explains the adoption of green practices rather than direct access to financing. Therefore, financing access, green practice adoption, and business performance should be treated as distinct outcomes. Novelty: The novelty of this study lies in developing a three-layer conceptual framework that integrates MSMEs’ readiness, financial institutions’ assessment mechanisms, and policy ecosystem support, while distinguishing financing access from green practice adoption and business performance. The framework emphasizes the importance of aligning financing instruments with MSMEs’ characteristics and stages of green adoption. In practical terms, proportionate financing requirements, credit guarantees, financial and environmental assistance, and evaluation indicators covering applications, approvals, rejections, access costs, and environmental benefits should be developed. The proposed framework remains conceptual and therefore requires empirical testing using actual financing data.