APEC 37th Meeting SMEs Working Group

2013

FINANCIAL INCLUSION ANDMSME PROGRAMS

IN INDONESIA

Pungky P. Wibowo

Director Department of MSME and Financial Access Development

Bank Indonesia

Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

1

2

3

2

NUMBER OF FINANCIAL INSTITUTION

Commercial Banks 120

Rural Banks 1.653

Insurance Companies 1397

Pension Funds 269

Multifinance Companies 200

Venture Capital 89

Securities Companies 754

Credit Guarantee Company

6

Pawn Broker 1

FACTS OF INDONESIA 3

High income OECD & non-OECD

92%

Central Asia & Eastern Europe

50%East Asia & Pacific

42%

South Asia

22%

Middle East & North Africa

42%

Sub-Saharan Africa

12%

Latin America & Caribbean

40%

Sourcer: Worldbank, Global Financial Inclusion Index , 2011

Indonesia 19.6%Malaysia 66.7%Philippines 26.5%Thailand 77.7%Vietnam 21.4%India 35.2%China 63.8%Russia 48.2%Brazil 55.9%

INDONESIA

20%

World Bank (2011) : There is only 20% of Indonesian adults have owns account balance in formal financial institution

Indonesia has a huge economic potential and large market for financial services• More than 13,000 islands • Population: + 234 million 1) • GDP Growth 2012: 6.23% yoy 2)

• GDP per capita Dec 2012: USD 3.051 2)

• Banking industry covers ± 75.8% of assets in financial sector

Source: 1) BPS, 2010; 2) BPS, 2012

Source: Bank Indonesia and Bapepam-LK, 2012

75.80%

1.20%10.10%

2.80%6.10%

0.10% 0.10% 3.30% 0.50%

Market Share of Indonesia Financial System by Total Assets

Commerical BankRural BanksInsurance CompanyPension FundsMultifinance CompaniesVenture CapitalSecurities CompanyMutual FundPawn Broker (Dec'11)

There is a huge gap in poverty level disparity between provinces in Indonesia

(Jakarta = 4%, Papua = 31%, Indonesia = 12 %)

INDONESIAN POVERTY CHARACTERISTIC

Source : BPS, 2012

4

BIG GAP

DKI Jak

arta

Bali

Kalim

anta

n se

lata

n

Bangk

a Bel

itung

Bante

n

Kalim

anta

n Te

ngah

Kalim

anta

n Ti

mur

Kepul

auan

Ria

u

Sula

wesi U

tara

Kalim

anta

n Bar

at

Sum

ater

a Bar

atRia

u

Maluk

u Uta

ra

Jam

bi

Sula

wesi S

elat

an

Jawa

Barat

Sum

ater

a Uta

ra

Indo

nesia

Sula

wesi B

arat

Sula

wesi T

engg

ara

Jawa

Tim

ur

Sum

ater

a Se

lata

n

Sula

wesi T

enga

h

Jawa

Teng

ah

Lam

pung

DI Yog

yaka

rta

Goron

talo

Bengk

ulu

Nusa

Teng

gara

Bar

atAce

h

Nusa

Teng

gara

Tim

ur

Maluk

u

Papu

a Bar

at

Papu

a0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

3.70

3.95

5.01

5.37

5.71

6.19

6.38

6.83

7.64

7.96

8.00

8.05

8.06

8.28

9.82

9.89

10.41

11.66

13.01

13.06

13.08

13.48

14.94

14.98

15.65

15.88

17.22

17.51

18.02

18.58

20.41

20.76

27.04 30.66

Po

or

peo

ple

(%

)

LEVEL OF ACCESS TO FINANCIAL SERVICES 5

• More than 50 per cent of Indonesia household have no access to bank financial services

• Less than 20 per cent of Indonesia poor household have access to bank financial services Source : Improving Access to Financial Services in Indonesia, World Bank, 2010

THE ROLE OF MSME IN INDONESIAN ECONOMY

The trend of MSME Credit The Medium Scale Enterprise loan dominates the

MSME Credit (49,73%) The growth of MSME Credit around 15,39% (yoy)

and around 10,83% (yod)

MSME are the back bone of Indonesia’s economy but they get only a small portion of banks’ financing

MSME play a crucial role in Indonesia’s economy:

MSME are dominating the business units with share up to 99,9% of total business units.

MSME absorbs around 97,2% of total labor force.

MSME contributes around 59.1% to the GDP.

Source: MSME Statistics 2012, Ministry Cooperatives and MSME

Source: Bank Indonesia, June 2013

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MSME, 97.2%

Large Scale, 2.8%

Job Creations

MSME, 59.1%

Large Scale, 40.9%

Contribution to GDP

CONSTRAINT OF POOR HOUSEHOLD AND MSME

SUPPLY SIDE Asymmetric information Transaction cost vs Profit GainedService and Product are not fully fit to the need of people High Technology for effective the distibution channelRegulation and Policy for effective access to finance

DEMAND SIDE Limited financial capability, education, experience and psychological factors

Limited skills and capability in doing businessFormal identity problem

Innovation is needed to address the constraint of financial inclusiveness…

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Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

1

2

3

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Main Goal

Strategy

To reach economic welfare through poverty reduction, distribution income, and financial system stability in Indonesia by creating financial system that can be accessed by whole people in this country

Target GroupsMigrant Employee Group and People in Remote Areas

Very PoorWorking Poor/

Productive Near Poor Non - Poor

FINANCIAL INCLUSION FRAMEWORK 9

Poverty reduction

Financial System

Stability

Equitable Income

Distribution

Productive and high purchasing power societyEasy access to financial system

Financial Education

Intermediary/Distribution

Facility

Supporting Regulation/

Policy

Mapping on Financial

Information

Public Financial Facility

6 Pillars of Financial Inclusion

Customer Protection

BALANCING POLICY FOR FINANCIAL INCLUSIVE & PRUDENT OPERATION

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1. Simplicity; 2. Customized; 3. Flexible

1. Equal Treatment;2. Procedural; 3. Standards;4. Compliance based;

Prudent Inclusive

Indonesia Policy

FINANCIAL INCLUSION AND MSME PROGRAMS 11

• Education (poor household & MSME)•National

Campaign•Research and

Diagnostic

• Gov’t Credit Programs•G2P channel

•Financial Identity Number (FIN)•MSME information system

• Multilicensing • Provision of

Credit / Financing by Commercial Bank and Technical Assistance for MSME development• Branchless

banking

• TabunganKu• Branchless

banking • “Start-Up”

Credit• Land

Certification• MSME Rating• Credit Bureau• Micro Insurance

Strategy

Program• Banking

Mediation• Product Transperancy

FINANCIAL INCLUSION AND MSME

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Branchless Banking

Hand Phone number

As account number of no frill account “TabunganKu”

TabunganKu/ basic saving account

Financial Identity Number

Survey FinancialLiteracy

Customer profil data

Credit Rating

Financial Inclusion Information System

Micro credit

G2P transactioneg. Disbursement of social program

Bank Led/Telco Led

database

Price Information

Financial Education

Research & Diagnostic

THE CONNECTIVITY OF FINANCIAL INCLUSION & MSME PROGRAMS 12

13

2009 2010 2011 2012 2013 2014

Start-up creditDevelopment of financing scheme and financing generic model

Branchless Banking

Pilot Project

Guiding Principle for Branchless Banking Pilot ProjectResearch on Branchless

Banking Development

Progress of Financial Inclusion Program: What have we done so far? 13

System Information of

Financial Inclusive (SIFI)

Tailoring Strategy for SIFI

Blueprint of Financial Education

National Campaign “Let’s Go to the Bank”

Indonesia Saving Movement (Gerakan Indonesia Menabung)

Financial Education

TabunganKu

Intensive campaign of GIM

Financial Literacy Survey

Let’s Go to The Bank

Financial Identity Number

Baseline and Comprehensive Survey

FIN Information System Development

TabunganKu/ Basic saving

account

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No.Program &

TargetGoal Progress

1. Financial Education

a. Student(elementary, junior high/equal, senior high/equal, university)

• to enhance financial education• to input financial education to

national curriculum

Integrate financial education into National Curriculum for Senior High School in 2013

b. Migrant worker • To enhance financial education Assessment to integrate financial education into basic curriculum of worker training.

c. Certain society group including migrant worker

• To enhance financial education. Preparation of material and financial education plan.

2. Financial Identity Number (FIN)

General society, especially unbanked people.

Provide the database of unbanked people , that can be accessed by financial institution to bridge the an asymmetric information.

FIN Database development :• Baseline survey : 400.000 data• Comprehensive survey : 600 data

3. TabunganKu / Basic Account

General society & student To broaden the financial services access for society through “no frill account” product

TabunganKu June 2013: 3,93 millions accounts in the amount of Rp4,31 trillions

Champaign : Indonesia Saving Movement

General society & Student As an effort to increase society awareness to saving

Bank Indonesia, sent an appeal letter to all banking sectors to support the Saving day (Hari Rajin Menabung)

PROGRESS OF FINANCIAL INCLUSION PROGRAM

PROGRESS OF FINANCIAL INCLUSION PROGRAMNo.

Program &Target

Goal Progress

4. Branchless Banking

Remote area society & Unbanked people

Enhance financial service access using technology instead of physical bank.

Branchless Banking Pilot project • Participant : 5 banks and 3 telecommunication

companies• Conducted in 8 provinces in

Indonesia.Development of supporting regulations for Branchless Banking.

5. Credit for beginner (Start-up credit)

Beginner entrepreneur Developing financing scheme for beginner entrepreneur

Development of Financing Scheme

6. System Information of Financial Inclusive (SIFI)

General Society • Tailoring financial inclusive policy and regulation.

• As a base for decision making• Database study material.

Tailoring Strategy of SIFI

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Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

1

2

3

16

17

Banking Association

Bank Indonesia /

OJK

DPR / DPD

Related Ministry

Regional Government

BPD / BPR

Regional Office of

Bank Indonesia

Education institution

• Policy• Regulation

• Championship Sector

• Sectoral fostering and development

•Mapping leading sector & regional creative industry•Business model

development.

•Regional Banks and Rural Banks development•Finance

Infrastructure: PPKD

•Main player and regional host•Pioneer of Decreasing Micro Interest

Rate

•Capacity Building• Infrastructure

Synergy

Capacity Building

•Endorsement & constitution supports

National Economic

Regional Economic

COLLABORATION AND STRATEGIC PARTNERSHIP IN NATIONAL AND REGIONAL ECONOMIC DEVELOPMENT 17

WAY FORWARDIn order to improve access to finance services, particularly for the unbanked people, Indonesia recognising:• The importance of combating financial illiteracy that can increase financial

capability and assist the effectiveness of financial inclusion through financial education;

• The importance of innovative delivery channel (namely branchless banking and Financial Identity Number (FIN)) in order to increase access and to broaden the outreach financial services for unbanked people;

• The importance of a strong collaboration and coordianation among the parties involved to achieve synergy and avoiding redundancy for efficiency and effectiveness because financial inclusion is an ongoing process.

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Thank You