Embed Size (px)
Citation preview
1
Access to Formal Financial Services in Indonesia- Evidence from the World Bank„s Nation-Wide Household Survey &
tMigrant Worker Household in East Java and Nusa Tenggara Survey -
Yoko Doi, Financial Specialist
December 9, 2009 │The Shangri-La Hotel, Jakarta
Agenda.
2
I. Current Bank Engagement on Access to Finance in Other Countries
II. Access to Finance in Indonesia
III. The Indonesian Financial Sector
IV. Nation-wide Household Survey
V. Migrant Worker in East Java and Nusa Tenggara Household Survey
VI. Policy Recommendations
The World Bank‟s Initiatives Worldwide.
3
World Bank has conducted a series of Access to Finance reports in different countries such as Mexico, Columbia,Brazil, Ghana, Namibia, Botswana, Iran, Pakistan, India, Nepal, Timor-Leste
4
• Financial access for the poor is particularly relevant for developing countries
• Banking and financial systems are usually underdeveloped and cater only to large, wealthy firms and individuals but not smaller firms and poorer households
• Increasing access to formal financial services fosters economic growth and can improve income distribution
• The poor benefit greatly from increased access to financial services
• Fostering economic inclusion, and providing financial institutions with new and expanding markets
• Requires actions on both the supply and demand side
• The Government of Indonesia recognize the problem and strongly feels the need to alleviate the constraints in access to finance and improve financial intermediation
• Good data and analysis on what exactly the demand-side view of the constraints is one of the key constraints to concrete policy action in improving access to financial services, in particular at the household level
Motivation for Access to Finance Assessment in Indonesia.
The Indonesian Financial Sector is Heavily Concentrated in
Banking.
5
*** by asset size as of December 2008
References: Bank Indonesia, Bapepam-LK, Association, Ministry of
Cooperatives and Small-to-Medium Enterprise (MCSME), Infobank
Banks79%
Pension Funds
4%
Insurer
6%
Finance Companies
5%
Securities Firm
2%
Mutual Funds
2%
Rural Inst.Pawnshop, VC
2%
1%
Financial Intermediaries.
6
1) Commercial banking sector:• Banks 130• BPR (people‟s credit banks) 1817
2) Non-bank financial institutions:
• Cooperatives 147,000
• Pawnshop (branches) 899
• LDKP (Village Credit Fund Institution)
• NGOs
• Grameen Bank replicas
• Unofficial money lenders
• Small, informal savings and credit societies (arisans)
3) Sharia finance and banking
• Sharia commercial banks 3
• Sharia business unit 26
• Sharia rural banks 114
*** All data is as of 2007
7
1) Bank Indonesia (BI):
Central bank oversees the banking system and monetary policy
2) Ministry of Finance (MoF):
regulates capital markets and most Non-Bank Financial Institutions (NBFIs) through Bapepam-LK
3) Ministry of Cooperatives and Small-to-Medium Enterprise (MCSME):
has jurisdiction over the establishment of cooperatives service outlets (either branches, sub-branches, or cash offices)
Main Regulatory Bodies.
8
Nation-Wide Household Survey.
Methodology and Findings
Methodology.
9
• Nationwide representative household survey to identify constraints / challenges households face in accessing financial services
• Population weighted selection and multi-stage random sampling (province, sub-province (kabupaten/kotamadya), and village (RW)
• Total final sample: 3,360 HH respondents, 1,920 on Java and 1,440 off Java (randomly selected 30 households per village in 112 surveyed village )
• Head of village survey: Randomly selected 112 villages and the Head of Village were surveyed.
Nearly Half of Indonesians Do Not Have Access to Formal
Financial Services.
10
• 31% of Indonesian households are served by the informal & semi-formal sector
• About 17% of household population live without savings or credit
• Poor households are most likely underserved if not using informal financial service provider:
• 40% of those use informal and semi-formal provider and 39% are underserved.
• Only 1/5 of poorer households use formal financial services
49 3 31 17
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(All sample)
Bank Formal Other Informal & Semi-formal Underserved
Using Formal - 52 %
Financially Served - 83 %
Underserved
19 2 40 39
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(Poor Households)
Bank Formal Other Informal & Semi-formal Underserved
Using Formal - 21 %
Financially Served - 61 %
Underserved
*** Considered poor by BPS if monthly expenditure per capita falls below 204,896 rupiah for urban dwellers or below 161,831 for rural villagers
Banks Relatively More Accessible Than Selected Public
Institutions.
11
• Banks are relatively more accessible within 10 minutes travel compare to Puskesmas or Public Hospital
• However, at least one fifth of the respondent needs more than 25 minutes to reach financial institutions; hence outreach improvement is still required
0 20 40 60 80 100
<= 10 min
>10-15 min
>15-25 min
>25 min
Average Time to Reach Select Institution
School
Public Hospital
Puskesmas
Bank (Non-savers)
Bank (savers)
%
Banks Have a Wide Coverage-
But One Third Still Do Not Save.
12
• Findings from the nation-wide village head survey show that 109 out of 112 villages use BRI unit/BRI branches, though it exist in only 23 villages.
• Although banks are widely use for savings purpose, 32% of the population still do not save
Financial Institution Usage In village
BRI 109 23
BPR 53 16
Other comm. Bank 91 16
KUD 24 15
LKD 24 21
LDKP 9 7
Cooperatives 27 22
Revolving fund 47 45
Arisan 91 91
Other com. Welfare scheme 45 39
Pawn shops 65 10
Daily bank 60 19
On credit from a shop 94 29
Other than above 18 7
Only 41% of Indonesians Have Their Own Bank Account.
13
• Only 47% of the respondents use bank savings accounts
• Out of those 47% that have savings account, only 41% of the respondents have their own savings account, 6% is using others‟ account
• Yet, about 32% of the population do not save
• Not having money and job are the two main reasons for not saving
Total
Population
Save
(68.1%)
Don„t Save
(31.9%)
At Formal
(47.6%)
At only informal
(18.2%)
At Bank
(46.7%)
Main reason:
i) No money (79%)
ii) No job (9%)
iii) No benefit (4%)
iv) Don„t understand (3%)
At other formal
(3.1%)
Use own account
(41%)
Use other„saccount (6%)
Owning Bank Accounts Provides Access to Other Forms of
Savings.
14
• Savers who use banks savings accounts also make greater use of other formal and informal providers.
• Among „exclusive use‟ savers, informal vehicles (i.e., community welfare or informal savings clubs) are the most important category.
Nationwide Access to FinanceOverlap Usages of Saving Instruments
No Saving31.9 %
Banks
Informal
16.6%
20%
1.9%
1.2%2.6%
7.5%
18.2%
Formal Non-Bank
Un-educated & Off-Java Residents More Likely
Not to Have Bank Account.
15
• Data confirms assumptions that lower education-level prevents respondents from making use of savings accounts.
• Freelance and unpaid household worker are least likely to have formal savings accounts
• Data confirms the assumed gap between Java and off-Java regions in terms of access. Almost 70% of off-Java rural residents have never had a bank account, compared to 47% for Java.
• There are no significant differences between males and females towards savings patterns.
11.023.3 27.7
43.2
64.4
87.8
9.7
12.321.8
20.5
20.7
11.2
79.264.4
50.436.2
14.9
1.0
0
20
40
60
80
100
Never go to school
Incomplete primary school
Primary School Secondary School
High School University
Bank Account Ownership by Education
Currently Banked Previously Banked Never Banked
%
88.8
57.3
39.1
36.2
18.3
4.9
21.4
18.8
12.8
20.2
6.3
21.3
42.1
51.0
61.5
0 20 40 60 80 100
Government
Private
Self Employed
Unpaid HH Worker
Freelance Worker
Usage of Savings AccountBy Type of Occupation
Currently Banked Previously Banked
%
34.4 18.3 47.3
19.9 10.9 69.2
52.7 18.4 28.9
52.8 13.8 33.4
0 20 40 60 80 100Percentage
Rural
Urban
Java
Off-Java
Java
Off-Java
Urban vs. Rural in Java and Off-Java
Usage of Savings Account
Currently Banked Previously Banked
Never Banked
40.1
18.9
41.0
41.1
16.0
42.9
40.6
17.5
41.9
0
20
40
60
80
100
Percent
Male Female Total
By Gender
Usage of Savings Account
Currently Banked Previously Banked
Never Banked
Only 17% Borrow from Banks, 40% Do Not Borrow at All.
16
• 40% of Indonesians do not borrow at all
• The Informal sector plays a significant role in serving Indonesians on the lending side
• Only 17% borrow from banks
• Creditworthiness is the most significant reason why people do not borrow.
*Semi-formal: MFI & Pawn shop; Informal: Community welfare scheme, On credit from a shop, Employer, Daily bank, Neighbor, family, friends
**Source: BRI Mass Survey (2002)
Total
Population
Borrow
(60%)
Don„t Borrow (40%)
Informal only
(34%)
Banks
(17%)
Semi –Formal*
(9%)
Reasons for not saving**
i) Not Creditworthy (60%)
ii) Don„t want it (20%)
iii) No collateral (4%)
iv) Other 16%
Urban Population More Likely to Have Access to (Formal) Credit.
17
• Two forms of informal loan, borrowing from neighbours and on credit from shops, are most common
• The formal, bank, and the near-formal types of loan, MFI and Pawn Shop, are more used by the urban
• For the urban, there are at least three common source of debt, informal (neighbour and on shop credit), formal (banks), MFI
• For the rural, the informal sector (neighbour and on shop credit) seems to be more apparent than the formal one (banks)
17.3
11.7
5.3 5.5 4.6 5.1
18.6 19.5
12.5
6.44.3
2.84.5 5.6
27.5
21.3
0
5
10
15
20
25
30
Bank MFI Employer Pawn Daily Bank Community Welfare Scheme
Neighbour, Family
On Shop
Currently Loan by Urban-Rural
Urban Rural
%
Pawn Community
Shop Welfare Scheme
Male 17.4 11.0 2.5 6.8 41.9
Female 17.3 9.4 3.4 5.4 44.2
Bank MFI InformalOn Loan
Informal Borrowing Is Significantly More Expensive Than Bank
Loans.
18
13.0
22.6
29.9
34.7
38.2
39.7
428.9
4.7
38.3
11.8
113.0
45.8
45.7
276.2
0 50 100 150 200 250 300 350 400 450
Employer
Bank
Neighbor, Family, & Friends,
On Credit From Shop
Community Welfare Scheme
MFI
Daily Bank
Indicative Interest Charge on Loanby Savings Account Ownership
Without savings account With savings account
% /annum
8.4
17.1
25.6
42.3
42.6
73.5
312.1
0 50 100 150 200 250 300 350
Employer
Neighbor, Family, & Friends,
Bank
MFI
Community Welfare Scheme
On Credit From Shop
Daily Bank
Indicative Interest Charge on Loan
% /annum
• The lowest loan rate is given by the employer
• Data confirms the assumption that daily banks loan is particularly expensive because of the very short-term maturities (1 day)
• More formal institutions charge markedly less interest, if the borrower has a bank account
Voluntary Insurance Coverage Is Low.
19
• Government medical insurance and travel insurance are mostly covered by firms or government institutions (automatic coverage)
• Overall, penetration of voluntary insurance product is considerably low (24%)
• Important insurance products such as life insurance and private medical are used by less than 10%
% Medical Asset Education Life
Medical 3.8 2.2 0.8 2.5
Asset 2.2 4.7 1.2 2.6
Education 0.8 1.2 0.2 1.2
Life 2.5 2.6 1.2 2.7
Total 9.4 10.7 3.5 9.0
Total
Population
Insured
(49%)
Personnallybought
(24%)
Provided
(by employer/ insitution) (25%)
Reasons:
i) No money (53%)
ii) Nothing known about insurance (34%)
iii) No need (20%)
Not insured
(51%)
Significant Market Potentials Ahead: Many Indonesians With
Stable Income But Without Automatic Insurance Coverage.
20
• Self employed are the most likely to buy insurance of all four kinds
• Women have strong preference towards education insurance while men prefer life insurance
• Salaried employees are usually 10 times more likely to buy insurance-of all types-than agricultural workers
• Owners of non-farm enterprises are much more likely to buy insurance than the non-owners.
0 20 40 60 80 100
Life insurance
Asset insurance
Private Health insurance
Education insurance
Insurance Ownershipby Gender
Female
Male
%0 20 40 60 80 100
Life insurance
Private Health insurance
Asset insurance
Education insurance
Insurance Ownershipby Types of Work
Self Employed
Government Employee
Private Employee
Freelance
Other
%
0
10
20
30
Education insurance
Asset insurance Private Health insurance
Life insurance
Insurance OwnershipAgriculture Sector Worker & Salaried Employee
Agriculture Sector Worker Salaried Employee
%
0
5
10
15
Education insurance
Life insurance Private Health insurance
Asset insurance
Insurance Ownershipby Non-farm Enterprise Ownership
Non-Owners Owners
%
Potential Demand for Insurance Products.
21
• On average about 30% of the non-insured household (within each category) know that these type of insurance are available and are accessible to them when they want it.
• On average about 20% of the non-insured households (within each category) are willing to pay the insurance premium
0
10
20
30
40
Asset insurance
Home owner's
insurance
Life insurance
policy
Travel insurance
Private medical
insurance
Education insurance
If available, could you get it if you wanted it?(positive response, by percentage of non-insured households)
0
10
20
30
Asset insurance
Home owner's
insurance
Life insurance
policy
Travel insurance
Private medical
insurance
Education insurance
Would you willing to pay if its available?(positive response, by percentage of non-insured households)
22
Migrant Worker Household Survey*.
Methodology and Findings
* Kindly co-financed by Australia-Nusa Tenggara
Assistance for Regional Autonomy (ANTARA)
Significance of Migrant Worker Households.
23
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Remittance inflow in thousand USD
Number of legally departing migrant workers
• Indonesia ranks third bydollar value of remittancesreceived among regional comparators, behind China and the Philippines.
• Steady growth in remittanceinflow: 6.5 billion USD in 2008
• Steady growth in thenumber of MW (legallydeparting): almost 700,000 MW in 2007
• An estimated total of 4.3 million Indonesians workingabroad in 2006
Methodology.
24
1) Non-nationally representative survey of migrant workers or their households
2) Sample Size / Location:
• 5 clusters in Nusa Tenggara: West Sumba, Timor-Kupang, East Flores (East NT); Sumbawa, East Lombok (West NT). 2 Kabupaten in East Java: Gresik and Malang.
• 50 villages, 40 from Nusa Tenggara and another 10 from East Java
• 2724 HHs, in 502 in East Java, 884 in West Nusa Tenggara (NTB), and 1338 in East Nusa Tenggara (NTT)
3) Survey respondents:
Family members of the migrant workers (59% are also head of household)
4) Survey Period:
July till December 2008
Needs for Financial Services Vary in Different Stages of
Migration
25
• In the pre-departure stage, migrant worker needs credit or savings to finance the up-front cost
• During migration, channel for remitting money is the most importance, aside from saving remittance and insurance coverage
• Entering the post migration, savings and credits are needed to make new establishment to ensure stable financial inflow
Credits
Savings
Insurance
Pre-Departure
Remittance Channel
Savings
Insurance
During Migration
Savings
Credits
Post Migration
About 18% Are Excluded from Access to Savings and Loans.
26
• About 18% of the household respondents are living without savings and credit
• Most bank customers access banking service through other‟s account
30 35 3 13 18
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(Migrant worker household in East Java, NTB, NTT)
Bank (direct) Bank (indirect) Formal other
Informal & Semi-formal Underserved
Using Formal - 68 %
Financially Served - 83 %
Underserved
15 32 5 18 30
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(Poor migrant worker household in East Java, NTB, NTT)
Bank (direct) Bank (indirect) Formal other
Informal & Semi-formal Underserved
Using Formal - 52 %
Financially Served - 70 %
Underserved
*** Considered poor by BPS if monthly expenditure per capita falls below 204,896 rupiah for urban dwellers or below 161,831 for rural villagers
Savings & Sponsor Loans Most Common for Financing
of Up-front Costs.
27
• Personal savings, credit from sponsor, and informal loan are commonly used
• Female workers use savings more often than male, especially if they are repeater
• Female workers are also more common to borrow from sponsor than male, since most of them are legal worker
• Apart from personal savings, illegal male worker borrow from friends or family to cover the cost
0 10 20 30 40
Borrow from bank
Given by parents
Other
Don't know
Sale of assets
Borrow from employer
Borrow from family
Borrow from friends
Borrow from sponsor
Personal savings
Sources of Financing
0 10 20 30 40 50
Borrow from bank
Given by parents
Other
Don't know
Sale of assets
Borrow from employer
Borrow from family
Borrow from friends
Borrow from sponsor
Personal savings
Sources of Financingby Freq. of Going Abroad
Repeater First Time
0 15 30 45 60
Borrow from bank
Given by parents
Other
Don't know
Sale of assets
Borrow from friends
Borrow from family
Borrow from employer
Borrow from sponsor
Personal savings
Sources of Financing by Gender
Female Male
0 15 30 45 60
Borrow from bankGiven by parents
OtherDon't know
Sale of assetsBorrow from employer
Borrow from familyBorrow from friends
Borrow from sponsorPersonal savings
Sources of Financingby Legal Status
Illegal Legal
Strong Preference for Bank Wire Transfers as Remittance
Channels.
28
• Remittance does not come regularly, and mostly on special occasion
• Although migrant worker has the decisive power to chose certain remittance channel, recipient convenience, comes as one of the major consideration and playing down the role of cost aspects
• Most migrant has strong preference to bank wire transfer, while sending informally through relatives or friends come next in line
• In the receiving side, account mediator plays an important role aside from the family member
0 15 30 45 60
Not applied
Carried on return trips
Once in one year
Other
Every 6 months
Every 2 months
Every month
Only once
Once every 3-4 months
Only on special occasions
Freq. of Remittance
0 20 40 60 80
Hiring company (PJTKI)
Others
Sponsor
Family in Indonesia
Employer
The migrant him/herself
Who decides remittance channel?
0 15 30 45 60
other
Flexibility
Reliability
Cost
Sender convenience
Security
Speed
Recipient convenience
Criteria for Choosing Method
of Transfer
0 15 30 45 60 75
Other
Informal money transfer agent
Post office
Bank cheque through air mail
Western Union
Carry own on return trips
Through relatives or friends
Bank wire transfer
Method of Money Transfer
Who received the money?
Family member Account Mediator Other
Among Households Saving Remittances
Banks Are the First Choice.
29
• Remittances are mainly used for daily needs/household consumption
• They serve as a mean to pay back loans
• Most household do not save remittance, since all spent for consumption, but if they do save (25%), bank will be the first choice
• Heads of migrant worker households are the major decision maker of how to use the remittance
Do you save the remittance?
Yes No
0
20
40
60
80
100
Bank At home Other Coop.
Where do you save the remittance?
0 25 50 75 100
Other
Don't want others to borrow
Don't know how to use fin. Inst.
Don't know how to save
All spent on consumption
Why don't you save the remittance?
0 15 30 45 60
Other
Buying motorbike
Business investment
Special occasions
Covering health expense
Buying asset
Payment of school fee
Built/buy/renovate house
Loan Repayment
Daily needs
Main Use of Remittance
0
15
30
45
60
Head of the household
Sender Other family member
Non-family member
Who decides on use of remittance?
30
Despite Higher Income Due to Remittance
27% Do Not Save at All.
• Despite higher income from remittances, 27% of households do not save at all
• Out of those who save, only 26.8% have their own savings account a significantly large number (33.8%) use other‟s account
• Not having money and a job are the two main reasons for not saving
Total
Population
Save
(72.9%)
At only informal
(4.8%)
At
Bank
(60.6%)
Use OwnAccount
(26.8%)
At Formal
(68.1%) Main reason:
•No money(59%)
•No job
• (19%)
•See noadvantage(8%)
•Unfamiliar(6%)
UseOther„saccount
(33.8%)
Don„t save
(27.1%)
At Other Formal
(7.5%)
Only 27% Dispose of an Own Bank Account.
31
• Although most household save in banks, only 27% of dispose of an own savings accounts
• 27% do not have access to savings
• A relatively large portion of households used third party bank accounts (34%)
Overlap Usages of Saving Instruments(Migrant worker households in East Java, NTB, NTT)
No Saving27.1 %
Banks
Informal
48.7%
11.9%
0.9%
2.5%
2.6%
1.6%
4.8%
Formal Non-Bank
Only 41% Have Access to Credit.
32
• About 59% of the household do not have access to credit
• If they borrow, most household only make use of informal credit provider
Semi-formal
Informal
Overlap Usage of Credit Instruments(Migrant worker households in East Java, NTB, NTT)
No Credit58.6%
28.6%
6%
3.5%
0.6%
0.2%0.8%
1.8%
Banks
33
Nation-Wide &
Migrant Worker Household Survey.
Recommendations
Four Key Areas for Improving Access to Finance.
34
1) Broader access to financial services: Policy has to focus on a broader access to financial services beyond not just narrowly access to credit. This also involves savings-accounts, insurance products, remittance channels etc.
2) Broader target group of interventions/strategies: Target interventions to reduce the truly excluded population should focus on to the poor, less educated and living in rural-off Java category
3) Involve private sector: Commercial financial service providers can play an important role because they are new aggressive entrants into the market and likely to explore innovative strategies. Encourage private sector in their initiative to diversify their product range and therefore reaching out to lower income segments.
4) Promote public-private partnerships: Public-Private Partnerships should be promoted as vehicles to design and pilot-test innovative products which are appropriate for lower income households and migrant workers households.
Recommendations for Policy Makers -I-
35
1) Create policy on savings accounts: Since survey results the primary need for savings account as the most important financial service, policy should be directed to enabling more people to open saving accounts. This includes:
• Explore possibility of mandatory “no frills” saving account such as the proposed launch of a new savings product “TabunganKu” (My Savings);
• Introduce an official policy on dormant accounts which might help reduce banks‟ monthly administration costs.
2) Promote branchless banking: Focus on the regulatory framework which enables commercial banks to make use for reducing costs and extending reach. This includes:
• Allow banks to outsource services by using a network of non-bank third parties, while holding the banks responsible for agent activities;
• Simplify Know-Your Customer (KYC) requirements for low-risk, low-value accounts and transactions;
• Consider alternatives to the peer-to-peer transactions enabling remittance license within the current regulatory framework on e-money.
Recommendations for Policy Makers –II-
36
3) Promote Migrant Worker related issues. The aim should be balancing this segments‟ interests with the interest of the employers and recruitment agencies. This includes:
• Consider Re-negotiating Memoranda of Understanding with recipient countries;
• Make wider use of local guarantors or co-signers for pre-departure loans which in pilot projects might be also development partners (NGOs) with particular interest in this field;
• Negotiate minimum documentation requirements for small transfers which will not be a risk to global AML/CFT efforts;
• Review the compulsory bank account for migrant workers: consider allowing wider access to the account and/or replacing the current compulsory system by a voluntary one.
• Review the existing compulsory insurance product and promote simplified application and claim procedures whilst improving financial literacy level during pre-departure period.
Recommendations for Policy Makers –III-
37
4) Promote insurance as a concept for the lower-end of the income spectrum: Since Indonesians have a very low awareness of insurance products and consider them to be expensive, more effort is needed to promote insurance for these income levels. This includes:
• Create awareness among lower income households;
• Promote the currently expanding Micro-insurance as a mean of less expensive and simple insurance products to meet the needs of even lower income households for insurance companies to step in this area should be in place;
• Public-private partnerships have shown success in this field and should be further promoted.
5) Ease regulatory barriers in order for Commercial banks improving access. This includes:
• Consider easing bank reporting by the possibility to combine business plans with the banks‟ annual reports, and elements of the business plans could be required only in fairly general terms;
• Easing regulations concerning relocations of branches and ATMs which look unnecessarily restrictive;
• Consider easing official regulations on branching and bring them in line with BI‟s current relatively liberal approach to implementation.
Recommendations for Policy Makers –IV-
38
6) Ease regulatory barriers in order for BPRs improving access. This includes:
• Give consideration to a lower tier of minimum start-up capital for small BPRs in remote locations;
• NGO and foreign investors could be allowed to take some ownership positions in BPRs;
• Reporting requirements could be re-examined for small BPRs in locations without adequate communication services;
• Consider waiving written disclosure mechanisms in areas of low financial literacy and replaced by oral briefings for new customers, including the local language, where appropriate;
• Simplify KYC mechanisms for small accounts and requirements for taxpayer numbers waived for small loans below a specific treshold;
• Consider bringing currently tight branching requirements in line with BI‟s liberal approach to implementation.
Recommendations for Policy Makers –V-
39
7) Ease regulatory barriers in order for Cooperatives, pawnshops and other microfinance institutions. This includes:
• Consider upgrading of the MCSME‟s regulatory and supervisory capacity. This could include temporary outsourcing of the function to firms specializing in micro-finance.
• Give consideration to officially open up the state-owned monopoly on pawnshops to competition from the private sector.
• Bearing in mind international experience, discuss on the extent to which these institutions need to be brought under a formal regulatory umbrella. Restoring the momentum to the drafting of a new Micro-Finance law would be a productive way forward in this regards.
• Linkage programs between commercial banks and BPR could be expanded to include non-bank MFIs, and potentially define a similar role for NGOs.
Options for the Private Sector -I-
40
1) Diversify the product range: Create affordable and relevant saving product to the targeted client; the truly excluded (poor, less educated, living rural-off Java) and the informal savers. This included:
• Saving products can serve as cross-selling opportunities to get to know the customer and explore creditworthiness/ability to buy insurance cover;
• Concrete Products could be no-frill savings accounts such as passbook-savings, setting incentives for poorer households to save, e.g. through bonus scheme (instead of lottery schemes).
2) Create a demand-oriented marketing strategy: Innovative ways are key to serve clients on the sub-district level. The use of mobile units to collect loan repayments or contractual savings helps to become competitive with regards to the informal sector.
3) Reach out to migrant workers: Create a “one-stop-shop” tailor-made product which not only serves as a remittance channel but which links remittance components with savings-, loan-, and insurance components. Product design needs to take into account accessibility not only by the migrant worker but also by the household.
Options for the Private Sector -II-
41
4) Explore branchless banking: This area holds great potential because of the low unit costs involved and the existing widespread of mobile phones. The private sector should look into options to explore this segment even under the current regulatory framework, e.g. by cooperating with third-party operators.
5) Design and pilot test appropriate products through partnerships with development partners. Successful examples in the insurance market exist where public private partnerships were able to strategically tap into the market of the unbanked lower income segments. Product options to be pilot-tested include products specifically oriented towards lower-income households with relatively stable income, micro-insurance products, appropriate savings products and new innovative marketing strategies.
42
Thank You for Your kind attention.
Please visit our website:
www.worldbank.org/id/fpd/
