LPD: A Driver of Culturally-Based Economic Development

Abstract

Conventional development finance models often overlook the cultural and institutional contexts in which economic activities are embedded. This study examines Lembaga Perkreditan Desa (LPD) in Bali, Indonesia, as an indigenous financial institution that operates at the intersection of economic, social, and cultural governance. Unlike formal microfinance institutions, LPDs are embedded within customary village systems and guided by the Tri Hita Karana philosophy, which emphasizes harmony between social, environmental, and spiritual dimensions.

This study addresses a critical gap in development literature by analyzing how culturally embedded financial institutions contribute to local economic development beyond income generation. Using a qualitative research design, data were collected through in-depth interviews, document analysis, and institutional observations across selected customary villages in Bali. The analysis integrates Social Capital Theory, Transaction Cost Economics, the Raiffeisen Cooperative Model, and Amartya Sen’s Capability Approach.The findings demonstrate that LPDs function as hybrid development institutions. Cultural norms and social capital significantly reduce transaction costs, enhance trust, and strengthen accountability mechanisms, enabling inclusive access to finance. Moreover, LPDs expand community capabilities by supporting education, entrepreneurship, social security, and cultural continuity.

This study contributes to development theory by demonstrating that culturally embedded financial institutions can simultaneously achieve economic efficiency, social cohesion, and capability expansion. Although empirically grounded in Bali, the analytical framework developed in this paper is transferable to other indigenous and community-based financial systems across the Global South.