International Workshop on Enhancing Access to Formal Financial
Services in Indonesia
December 9th 2009. Jakarta.
Directorat of Banking Research and Regulation
Beyond Credit; Financial Inclusion &Broader Access to FinancePresented by: Halim Alamsyah
1. Introduction;
– Access to finance (current conditions)
– G-20 Leader’s Statement
– Financial system in Indonesia
2. Indonesian Approach to Access to Finance
3. Problems in Building Financial Inclusion
4. Programs for Broader Access to Finance
(How to Reduce Asymmetric Information + Participating Guarantee
Scheme)
– The importance of financial education
– Financial identity database
– Saving account for basic saver
– Micro financial institutions (MFI’s) development & capacity building
– Building Strategic Network Among Related Institutions
Table of Contents
1. Introduction;
– Access to finance (current conditions)
– G-20 Leader’s Statement
– Financial system in Indonesia
2. Indonesian Approach to Access to Finance
3. Problems in Building Financial Inclusion
4. Programs for Broader Access to Finance
(How to Reduce Asymmetric Information + Participating Guarantee
Scheme)
– The importance of financial education
– Financial identity database
– Saving account for basic saver
– Micro financial institutions (MFI’s) development & capacity building
– Building Strategic Network Among Related Institutions
Table of Contents
• 2.5 billion adults, just over
half of world’s adult
population,do not use
formal financial services
to save or borrow
• 62% of adults, nearly 2.2
billion, living in Asia,
Africa, Latin America and
the Middle East are
unserved.
• A little more than 800
million served adults live
on less than $5 per day
ACCESS TO FINANCE
.... Globally there are still many people who do not use formal financial products.....
• At the end of 2008 the number of loans accounts / financing in
bank accounts reached 29,464,202 and the number of savings
accounts reached 73,832,779 accounts.
• While the Indonesian population is 228,523,300 persons, and with
assumption that 70% of the population are productive age
population, means in 2008 only 18% have access to credit and 46%
have access to savings accounts
• This shows that the existing financial institutions (in this case the
bank) has not utilized optimally because there is still large enough
population that do not have access to financial institutions/banks.
ACCESS TO FINANCE IN INDONESIA
.... In Indonesian, existing financial institutions (in this case the bank) has not
utilized optimally.....
6
• To take new steps to increase access to finance among
the world’s poorest
• Commit to improve access to financial services to the
poor such as micro finance
• Will launch a G-20 financial inclusion experts groups
• Commit to launch a G-20 SME finance challenge
G-20 Leaders’ Statement in The Pittsburg Summit
on September 2009
.... Commitment of G-20 Leaders to improve access to financial services to the poor.....
Financial System in Indonesia7
80.00%
3.20%
8.00%
5.80% 2.70% 0.30%
Banks
Pension Fund
Insurance
Finance Company
Securities Company
Pawn Shops
• Indonesia's financial system is
still dominated by the banking
industry with the mastery of
more than 80% of assets in the
financial system.
• It shows that banks play most
important role in the
effectiveness of financing to
support economic growth,
although the role of other
financial institutions (especially
microfinance institutions/MFIs)
can not be excluded due to
direct interaction with low-
income communities. Market Share of Indonesian Financial System in 2008 (Based on Assets Total)
.... In Indonesia, banks play most important role in the effectiveness of financing to support
economic growth.....
Financing To Micro, Small and Medium Enterprises (MSMEs) 8
MSMEs Micro Unit of
Commercial Bank (BRI Unit, DSP, Mandiri, Citifinancial, etc)
Rural Bank
Saving and Loan
Cooperative
Pawnshop Multi finance/ Leasing
Company
Non Bank/Cooperaitve
MicrofinanceInstitution
(BMT/LDKP/LPD/BKK/LPK)
Money Lender
Bank
Non
Bank
Total Credit = Rp. 1365,83 Trilion
Total Small Busines Loan = Rp
150,34
Total Credit = Rp. 27,29 Trilion
Total Financing =
Rp. 137,9 Trilion
Data Source: Monetary Statistic Data, August 2009.
.... parties who provide financing to MSMEs, formally and informally.....
1. Introduction;
– Access to finance (current conditions)
– G-20 Leader’s Statement
– Financial system in Indonesia
2. Indonesian Approach to Access to Finance
3. Problems in Building Financial Inclusion
4. Programs for Broader Access to Finance
(How to Reduce Asymmetric Information + Participating Guarantee
Scheme)
– The importance of financial education
– Financial identity database
– Saving account for basic saver
– Micro financial institutions (MFI’s) development & capacity building
– Building Strategic Network Among Related Institutions
Table of Contents
Indonesian Approach to Access to Finance;
A Brief Overview of The Strategy10
MSMEs
Special Financial
Institutions
- BPR
- Units of commercial banks
(BRI, DSP, etc)
- Village Credit Agency
(BKD)
- BMT, etc..
Guarantee Scheme
- Jamkrindo
- Askrindo
- Regional Credit
Guarantee
Corporation (LPKD)
Capacity Building
- Linking banks with the self-
help group/PHBK (1989 –
2000)
- Financial consultant as
bank’s partner/ KKMB
- Competency development
Goverment & Banking Regulations
- Obligation to allocate at least 20% of the total credit to small business loans (1990s)
- Easing banking regulation within the prudential banking frameworkCredit performance of loan up to IDR 500
million is based only on prompt repayment of principal and/or interest and in period of crisis it has been raised up to IDR 1 billion.
Risk–weighted Assets for Small Business Loan is calculated of 85%.
The Risk-weighted Assets is calculated of ≤50 % for credit guaranteed by government’s guarantee firms.
Special Products
- Agricultural Extension
Loans (Bimas/Inmas) in
1970s-1980s
- Credit to farmers
Loan/KUT in 1985–
1997/1998
- People Business Credit /
KUR
- Etc...
.... things have been done to support the financing for the MSMEs .....
1. Introduction;
– Access to finance (current conditions)
– G-20 Leader’s Statement
– Financial system in Indonesia
2. Indonesian Approach to Access to Finance
3. Problems in Building Financial Inclusion
4. Programs for Broader Access to Finance
(How to Reduce Asymmetric Information + Participating Guarantee
Scheme)
– The importance of financial education
– Financial identity database
– Saving account for basic saver
– Micro financial institutions (MFI’s) development & capacity building
– Building Strategic Network Among Related Institutions
Table of Contents
Problems in Building Financial Inclusion
Community
Financial
Institution
Borrowing
Saving• Lack of knowledge
• High cost of participation (joining
fee and administration fee)
• Lack of knowledge
• Legal aspect
• Lack of capacity in providing services
• Problems in network coverage
• Lack of information (no track record)
• Lack of information
.... lack of information becomes the major problems experienced by both
parties, community/public and financial institutions as well.....
1. Introduction;
– Access to finance (current conditions)
– G-20 Leader’s Statement
– Financial system in Indonesia
2. Indonesian Approach to Access to Finance
3. Problems in Building Financial Inclusion
4. Programs for Broader Access to Finance
(How to Reduce Asymmetric Information + Participating Guarantee
Scheme)
– The importance of financial education
– Financial identity database
– Saving account for basic saver
– Micro financial institutions (MFI’s) development & capacity building
– Building Strategic Network Among Related Institutions
Table of Contents
The Importance of Financial Education14
• Financial education is something that can not be ruled out to establish the
financial literated community; good understanding in financial institutions,
financial products and services, as well as financial management to achieve a
better living in the future.
• Financial education is an effort to change public behavior. Therefore, financial
education is a long-term program (more than 5 years).
• Because of the financial institutions are still dominated by banks, the financial
education begins with implementing banking education programs.
• Bank Indonesia in this regard have been initiated implementing banking
education since 2007 and intensified starting in 2008 with the declaration of
banking education year .
.... financial education needs to be done to improve the financial knowledge of the community .....
The Importance of Financial Education (continued...)15
Goals of banking education programs are:
• To build people's interest in banking (bank-minded & awareness)
• To increase public awareness in banking products and services as
well as awareness of the rights and obligations of customers
• To increase public awareness in prudential aspects of financial
transactions (risk awareness); and
• To increase awareness of the availability of complaints and dispute
settlement mechanisms to resolve problems with the bank
Financial Identitiy Database/Number16
• Financial identity database is a database contains data about the financial condition of a
person or a micro and small businesses that can be used by financial institutions as a
reference in providing financing.
• Financial identity database is more directed to those who have not been associated with
financial institutions. Datas are collected through community groups at the lower level,
such as the social gathering, farmers' groups, youth groups (karang taruna), and so on.
• The basic idea of the financial identity database is the asymmetric information
between financial institutions and small communities. In this case, the small communities
are often considered not "bankable" to save or borrow money because it can not meet
the financial institution’s requirements.
• On the other side they are who considered not "bankable" actually has great potential,
both as borrower and saver. They are generally small and micro entrepreneurs who have
good business prospects
• To reduce the information gap, both public and financial institutions can take advantage
from financial identity database as a means of clearing house of information about the
financial condition of customers/prospective customers of financial institutions.
.... Financial Identity Database needs to be provided to reduce the information gap problems
between public and financial institutions...
Logical Framework Of Financial Identity Number Program
Goal Improve public access to banks by creating a credible database of unbanked individuals
Keyindicator
65% of Indonesian population have bank account
Activities Outputs Outcomes
1. Develop unbanked database - draft blue print FIN- Focus Group Discussion (FGD) with relevant institutions
- pre survey in 3 pilot project- survey- benchmark to Germany and USA-blue print finalization
- Blue print FIN- Database of
unbanked in 3 pilot project area
- Database with the minimum requirements of KYC and inclusive (involving all parties)
Unbanked data in the database increased by 1,000,000 data per year
2. Encourage banks to provide free basic bank account services
Generic model of free basic bank account
Increasing number of banks which provides free basic account and individual who has basic bank account
.... the early stages of developing database begins by setting goals, key indicators and developing
blueprint of financial identity number program...
Methodology of Financial Identity Number Program 18
Unbanked Individual Database
Strategy ‘A’Arisan
Strategy ‘B’School Savings
Movement
Strategy ‘C’Tasik Loan
Scheme
Strategy ‘D’Micro Fin. Customers
Unbanked Population
Data collection should be well structured and sustainable
Commercial & Rural Banks
Track record
Credibility
Incentive
Survey
Unbanked Individual Database
Strategy ‘A’Arisan
Strategy ‘B’School Savings
Movement
Strategy ‘C’Tasik Loan
Scheme
Strategy ‘D’Micro Fin. Customers
Unbanked Population
Data collection should be well structured and sustainable
Commercial & Rural Banks
Track record
Credibility
Incentive
Survey
...methodologies to identify the unbanked population and compose the database...
Saving Account for Basic Saver
• Currently almost all financial institutions, particularly banks, charging the same monthly
administrative fee regardless of the existing balance. In addition, some banks are put
different rate/yield for a particular balance where generally low interest rates/yield will be
given to low savings balance.
• With this condition, not surprising if basic saver’s savings balance will continue eroded
because of the imposition of administrative costs that is greater than the interest/yield. If
this condition is continously allowed, then the consequence is the low-income people's
reluctance to keep money in banks and in turn will not lead the financial inclusion efforts.
• To overcome this condition, we need to create a special savings scheme for small savers
with low cost. This special saving scheme will provide financial access for low-income
communities and beginner depositors.
• In the beginning of 2010, most of national banks will launch a saving product named
TabunganKu, that is a saving product for individuals with easy and light requirements
without the administrative costs. This product is a joint product issued by most national
banks to enhance the saving culture and to improve the public welfare.
... the need for special savings products for low-income communities and beginner depositors...
20Micro Financial Institutions Development and Capacity Building
1. Linkage Program
Through linkage program, commercial banks with large financing resources
but can not distribute because of the limited scope and understanding of
the characteristics of borrowers can use the network of rural banks to
distribute the funds. This considers that rural banks have advantage in
reaching remote areas and its human resources likely familiar with the
characteristics of the debtor.
Through synergic cooperation between commercial and rural banks will
help the community to meet their funding needs.
Up to now linkage program have been able to deliver approximately Rp6, 5
trillion to the public financing of low income community and micro and
small businesses
Recently, linkage program even started extended to incorporate
cooperatives in order to have further improvement of public access to
financial institutions
... linkage program between commercial banks and rural banks, to improve the capacity of rural
bank to provide financing for the MSMEs...
21Micro Financial Institutions Development and Capacity Building
2. Encouraging the Role of Credit Guarantee
Facilitating access of MSMEs to bank loan for: "Feasible“ MSMEs (have a
good prospect on business), but... Not “Bankable” (dealing with collateral
problem)
BI acts as a facilitator:
- Regional parliament : approval to place fund in the credit guarantee
corporation
- MoU between regional government and credit guarantee corporation
- MoU between credit guarantee corporation and banks
Until now, regional credit guarantee institutions have been established in 19
provinces
... Credit guarantee especially to overcome MSME’s collateral problems in
obtaining bank’s financing ...
22
3. Provide technical assisstance and competency improvement for rural banks/MFIs and
MSMEs
Certification for rural banks Directors
Technical assistance : training, research, dissemination information and MSMEs
cluster development.
Linking banks with the self-help group/PHBK (1989 – 2000)
Financial consultant as bank’s partner/ KKMB
Developing database of potential SMEs
4. Promoting the establishment of MSME center
Special unit extending services to MSMEs
Information center for MSMEs clients
5. Facilitating dialogue between banking sector, MSMEs sector and government agencies in
the form of seminar, focus group discussion or exhibition (bazaar of banking
intermediary).
6. Supporting the establishment of Credit Bureau
Center of database on all bank
Micro Financial Institutions Development and Capacity Building
Building Strategic Network Among Related Institutions
• All parties have to carry out their respective roles in order to obtain synergies in enhancing financial
access and building financial inclusion;
– Financial Authorities facilitate and build a conducive situation for financial institutions to
carry out their duties as intermediary institutions.
– Financial institutions play their main role to do intermediary function.
– Development of financial identity database, linkage program, regional credit guarantee scheme,
providing special saving scheme are some examples of programs that can and should be done
by the financial authorities and financial institutions under its supervision.
– On the other hand, community also need to be empowered to improve their understanding
in financial institutions, financial products and their characteristics (benefits, risks, fees), rights
and obligations of public and financial institutions, and gradually lead to create financial planning
behavior for a better future.
– Related to this, non-governmental self help organizations together with banking
education working group could take a major role to accelerate the process of community
empowerment through educational activities that directly touch the major financial problems
that often faced by community.
• In addition, cooperation with other agencies such as Ministry of National Education, Ministry
of Home Affairs, Ministry of Cooperatives and SMEs, Ministry of Social Affairs, needs to be done to
further expansion of financial access. Cooperation can be done with the implementation of joint
programs or to integrate financial education programs in each government agencies programs that
have relevance to the wider community.
... all stakeholders should work together and build strategic network to
improve public access to financial ...