Rural Small and Medium Enterprises' Access to Capital, Investment, and Long-Term Financial Health via the Green Economy

Abstract

Background. In rural areas, small and medium-sized enterprises (SMEs) play a vital role in supporting local economic growth and community welfare. However, achieving long-term financial sustainability remains a major challenge. The transition toward a green economy has emerged as a strategic approach to promote sustainable development, yet its mediating role in the relationship between local revenue, local investment, and financial sustainability of rural SMEs remains underexplored.

Purpose. This study aims to examine the role of the green economy as a mediating variable in the relationship between local revenue, local investment, and the financial sustainability of rural SMEs in Indonesia.

Method. The study employed a quantitative research design involving 100 rural SMEs in Indonesia. Data were collected through structured instruments and analyzed using SmartPLS to test direct and indirect relationships among variables.

Results. The findings indicate that local revenue significantly influences both the green economy and financial sustainability. Local investment directly affects financial sustainability but does not significantly influence the development of the green economy. Furthermore, the green economy does not mediate the relationship between local investment and financial sustainability. However, it acts as a significant mediator in the relationship between local revenue and financial sustainability, highlighting its strategic role in optimizing locally generated income to achieve sustainable financial outcomes.

Conclusion. The study concludes that strengthening green economic practices is essential for enhancing the financial sustainability of rural SMEs, particularly through the effective utilization of local revenue. Policymakers and practitioners are encouraged to prioritize environmentally sustainable economic activities. Future research should incorporate broader variables and geographic coverage to provide a more comprehensive.