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STATE OF FINANCIAL ACCESS AND PAYMENTS IN INDONESIA 2015 - part 1
71 ATMs per 100,000 people in Jakarta
213 bank offices per 100,000 people in
Jakarta
17 ATMs per 100,000 people in Central
Kalimantan
27 bank offices per 100,000 people in Central Kalimantan
15 ATMs per 100,000 people in East Nusa
Tanggara
16 bank offices per 100,000 people in East Nusa Tanggara
Number of adults with accounts in formal financial
institutions
20 in 100 adults - Indonesia26.5 in 100 adults - Philippines
35.2 in 100 adults - India63.8 in 100 adults - China
State of household savings in Indonesia
68 out of 100 households have savings
48 out of 100 household have savings with formal
financial institutions
State of household borrowing
60% households may make borrowings
One serious concern is only 17% financing comes from
banks, while 36% comes from non-formal financial institutions
State of Credit Segment for Micro- and Small Medium Enterprises in Indonesia
More than 90% businesses in Indonesia are MSMEs.
Low MSME credit access is reflected on low MSME credit segment, which is less than 20%.
Through more in-depth observation, credit segment for micro sector turns out to be
lower, less than 19%.
State of Credit Segment for Micro- and Small Medium Enterprises in
Indonesia
The interest rate of MSME credit is considered high, above 15%.
It then creates more constraints for MSMEs to obtain financial
support
Why is there limited financial access?
Limited financial access also correlates to the increasing
gap level.
High economic growth (as indicated by increasing GDP/capita) should be followed
by gini ratio decrease.
However, the fact is reversed, where the
correlation of gini ratio and GDP/capita is parallel.
What confirms this?
This is confirmed by the decreasing number of low
income people against GDP growth, where such number has been decreasing since 2009 amidst more steady
economic growth above 6%.
Limited financial access cannot transmit
economic growth to unbanked people,
which further prevents poverty alleviation.
STATE OF INDONESIA’S CASHLESS
TRANSACTIONS
Indonesia still falls in the category of countries with high cash transactions (cash-based economy).
Indonesia sits in the lower group with Nigeria in terms of non-cash transactions.
What is the impact of high cash transaction on the financial sector?
From the financial inclusion perspective,
cash transactions make economic actors unable to have any incentive to
enter the financial sector.
This is also supported by consumptive behaviour and limited income for savings.
Consequently, economic actors have never been
recorded as the customers of financial institutions.
Why are financial records important?
STATE OF FINANCIAL ACCESS AND PAYMENTS
IN INDONESIA - part 1
Meanwhile, financial record is one of the important prerequisites for credit extension, which may
boost economic activities.
Why is the level of unbanked in Indonesia
high?
Supply side
Factors inhibiting services to the community: costly branch establishment
• complex establishment process, • high degree of formality, • bank’s perception of unprofitable grassroots
customers, and • unsupportive IT such as limited and inefficient
communication network.
Those factors result in bank’s decisions to prefer to enter mature areas, such as Java Island and big
cities outside Java.
Demand side
• insufficient money for savings, • expensive fees, • far distance from houses to bank
offices, • lack of understanding on saving
money with banks, • no documents as required like
resident's identity cards, • distrust in banking system, or
religious reasons
What are the 2 big models in financial
access expansion?
Telco-based model
Telco companies issue electronic money and save assets in an equal
value thereto in combined accounts with the bank.
Bank-based model (3 schemes)
First, banks provide individual accounts which can be used through branchless channels they manage, such as CAIXA in Brazil, bKash in Bangladesh, and Telenor in Pakistan.
Second, banks provide individual accounts accessible by agents and managed by non-banks and/or through the technology, like SMART (21 banks in the Philippines).
Third, banks issue electronic money for direct sale and distribution by non-banks to customers.
Telco- based model will be preferable if speed, wide coverage, mass market grasp, and many agents are the priority.
However, this model has some weaknesses due to the absence of deposit insurance by LPS, no interest for the e-money, and low credit extension potential.
If convenience becomes the priority (existence of consumer protection, regulation by the authority, deposit insurance by LPS, and interest), bank-based model is the option.
However, this model also has some weaknesses in terms of speed, limited access, and high cost.
Mobile Money or Electronic Money has quite expansive development in the international world.
The rapid growth of telecommunication sector is considered to support electronic money development. In the implementation of this model, focus on unbanked people is given to almost all developing and poor countries.
Until 2013, there are 219 implementations of mobile money in
84 countries.
In Part 2…
We’ll discuss…
• Bank Indonesia’s strategies for promoting financial inclusion
• How Electronic Money and Digital Financial Services synergy can help expand financial inclusion
• A financial inclusion development model we can use
Source: Public Lecture on the Central Bank -
Bank Indonesia’s Policies on Financial
Inclusion through Non-Cash National
Movement
More insights
at…
