The Role of Social Capital on Rural Enterprises Economic Performance: A Case Study in Indonesia Villages

Abstract

Following the nationwide implementation of the Village Funds, the government attempted to accelerate rural economic growth through rural enterprises (Badan Usaha Milik Desa/BUMDes). This study aimed to analyze how social capital affects village-owned enterprise management to accelerate rural economy. This study was conducted in 2018 and applied a qualitative approach and case study design with a content analysis method derived from interviews, observations, and legal documents. The analysis shows that stakeholders’ development visions to initiate the establishment are critical to determining the management and cooperation of rural enterprises, especially regarding the common direction of development. This study’s results show that, presently, rural enterprises have a low impact on rural economic growth. This study also argues for policy implications by highlighting the importance of social capital and village local assets to determine BUMDes development in Indonesia. Specifically, local policies should also aim to enhance community participation and improve BUMDes’ human capital on management and marketing.