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2013/FMP/WKSP1/002 Session 1

Innovation for Financial Inclusion: Indonesia’s Perspective

Submitted by: Indonesia

Workshop on Promoting Financial Access Through Innovative Delivery Channel to

Enhance Financial InclusionJakarta, Indonesia

27-28 February 2013

INNOVATION FOR FINANCIAL INCLUSION:

INDONESIA PERSPECTIVE

Background

Innovative Approach in Financial Inclusion

Indonesia Practices

Challenges

Conclusions

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2

3

4

2

5

AGENDA

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1. BACKGROUND

High income OECD and 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 and Caribbean

40% Source : Worldbank, Global Financial Inclusion Index 2011

INDONESIA 19.6% MALAYSIA 66.7% PHILIPINA 26.5% THAILAND 77.7% VIETNAM 21.4% INDIA 35.2% CHINA 63.8% RUSIA 48.2% BRAZIL 55.9%

INDONESIA

20%

• Financial Inclusion Index Adult has account in formal financial sector

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BACKGROUND : HIGHER UNBANKED

BACKGROUND : WHAT LEAD TO FINANCIAL EXCLUSION?

Time

Financial Wealth

Economic Growth

INNOVATIONS

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BACKGROUND : INNOVATION FINANCIAL INCLUSION FOR ECONOMIC GROWTH & FINANCIAL STABILITY

Sustainable Economic

Growth

Financial Inclusion

Financial

Stability

INNOVATION

Product Regulation Channel

Collaboration : Central Bank, Financial Regulator, Government, Players

Individual/Household

Wealth

education

Infrastructure Device

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• Many countries have made efforts to improve access to financial services

• Financial inclusion become a concern in international fora, among others:

a. AFI - Maya Declaration

b. G20 - Global Partnership on Financial Inclusion

c. APEC – Financial Inclusion Initiative

d. OECD - International Network for Financial Education

e. ASEAN - Financial Inclusion Initiative

• More comprehensive way through national strategy on financial inclusion

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INTERNATIONAL CONCERN ON FINANCIAL INCLUSION

Region Countries with FI Strategy*)

Asia Cambodia, Indonesia, Laos, Nepal, Pakistan, Philippines, Vietnam

Africa Benin, Burkina Faso, Cameroon, Congo, Côte d'Ivoire, Ethiopia,

Gambia, Liberia, Madagascar, Mali, Malawi, Mauritania,

Mozambique, Niger, Nigeria, Rwanda, Sierra Leone, Senegal, South

Africa, Tanzania, Togo, Uganda, Zimbabwe

Eropa & Central

Asia

Kyrgyz Republic, Russia, Uzbekistan

Middle East Egypt, Jordan, Syria, Yemen

*) Source: Ros Grady, Asia-Pacific Economic Co-operation, “Accelerating Financial Inclusion in Asia and the Pacific: An Operational Dialogue on Innovative Financial Inclusion Policies”, Hawaii, 15 September, 2011

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2. INNOVATIVE APPROACH IN

FINANCIAL INCLUSION

• A key resource is the G20 Principles on Innovative Financial Inclusion.

• 2009 Pittsburgh Summit: Commitment members to improve access

• 2010 Toronto Summit Approved G20 Principles on Innovative Financial Inclusion.

Principles are as follows:

- Leadership

- Diversity

- Innovation

- Protection

- Empowerment

- Cooperation

- Knowledge

- Proportionality

- Framework

• 2010 Seoul Summit : reiterate strong commitment to financial inclusion and

recognize the benefits of improved access to finance to lift the lives of the poor and

to support the contribution of SMEs to economic development.

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INTERNATIONAL CONCERNS ON INNOVATIVE FINANCIAL INCLUSION

Innovative Financial Inclusion means improving access to financial services for poor

people through safe and sound spread new approaches…

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3. INDONESIA PRACTICES

• More than 17.000 islands • 33 provinces, 399 municipalities, 79.075 villages • Population: + 237 million, 44% lives in the city. • Poor people: 28,59 million (BPS, Sept 2012); spread in rural area : 18,08 million and urban area :

10,51 million people • GDP per capita : USD 3.542,9 (BPS, Dec 2011) • One bank office serves 15.992 people • Bank deposit and credit : Deposit/GDP : 39,13%; Loan/GDP : 32,85% (Dec 2012)

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INDONESIA AT GLANCE

NUMBER OF

FINANCIAL INSTITUTION

Commercial Banks 120

Rural Banks 1.669

Insurance Companies 139

Pension Funds 270

Multifinance

Companies 194

Venture Capital 86

Securities Companies 129

Mutual Funds 639

Credit Guarantee

Company 4

Pawn Broker 1

75.38%

1.15%

9.75%

2.92%

6.01%

0.06%0.88% 3.36%

0.06%

0.42%

Market Share of Indonesian Financial System

by Total Assets, as of Dec 2011

Commercial Banks

Rural Banks

Insurance Companies

Pension Funds

Multifinance Companies

Venture Capital

Securities Companies

Mutual Funds

Credit Guarantee Company

Pawn BrokerSource : Bank Indonesia and Related Ministries

saving loan

Source : Improving Access to Financial Services in Indonesia, World Bank, 2010

Economic bank based but higher unbanked people…..

Total Population

68% Save 32% Don’t Save

Main Reason:

i. No Money (79%)

ii. No Job (9%)

iii. Don’t see the benefit (4%)

iv. Don’t understand Banks(3%)

50% at formal

institutions

18% at only

informal

institutions

47% at

Banks

3% at other

formal

41% use own bank accounts

6% use others’

accounts

Total Population

60% Borrow 40% Don’t Borrow

at Present

Informal

43%

Banks

17%

Why Not?

i. 60% are not credit

worthy

ii. 20% don’t want it

iii. 4% no collateral

iv. 16% other0

Some factors why people excluded from formal financial

services :

1. Demand and supply side

2. Lack of banking services (branch, ATM’s, etc)

BACKGROUND : FACT

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Indonesia has done many programs to increase access to financial services but the programs were conducted in scattered manner each agencies setting their own goal:

Saving:

- saving program through post office (tapelpram, taska)

- Campaign “Let’s Go to the Bank”

Education:

- Financial Education for student

- Financial Education for migrant worker

Financing:

- Linkage Program

- APEX Bank

- Clustering

- Lending Model

- Credit program (KUR)

- Insurance for migrant worker

Infrastructure:

- Regional credit insurance agency

- Credit rating*

- SMEs database

- Mapping of competitive commodities, products, and services

*still on progress

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INDONESIA CONCERN ON FINANCIAL INCLUSION

COMPREHENSIVE STRATEGY : INDONESIA NATIONAL STRATEGY FOR FINANCIAL INCLUSION

Intermediary/

Distribution

Facility

Supporting

Regulation/

Policy

Mapping

on

Financial

Information

Public

Financial

Facility

Financial Institution

(Bank & Non Bank)

• Banking mediation

• Product transparency • TabunganKu • Branchless banking • “start-up” credit • land certification

• Multilicensing • branchless banking • “Start-up” credit

• Education (for example: migrant worker, student)

• National Campaign

• Financial Identity Number (FIN)

• Credit Rating

Poverty

reduction

Financial

System

Stability

Equitable

Income

Distribution

Productive and high purchasing power society

Easy access to financial system

Main :

Goal

Program

Strategy

Channel

6 Pillars of Financial Inclusion

Customer

Protection

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

Groups

Government

Financial

Education

Public Financial

• Subsidy

• Fiscal Incentives

• Social welfare

program

Financial

Product/Services

• Saving

• Credit

• Insurance

• Remittance

• Pension Fund

• Mutual Fund, dll

Migrant Employee Group and People in Remote Areas

Very Poor

Working

poor/

Productive

Near Poor Non - Poor

• PKH • Jamkesmas • BLT • Bansos

Resilience

Intermediation

Efficiency

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Innovation on

Device

Innovation on

regulation

Innovation on

product

Innovation on

channel

Innovation on

infrastructure

• EDC

• Mobile phone

• Simple KYC

• Agent banking

• Branchless Banking

• Mobile staff

• Mini ATM

• TabunganKu (no-frills account)

• Start-Up credit for new Entrepreneur

• Group lending

Financial

Inclusion • Financial Identity Number • Interoperability on ATM • SMEs database • Insurance for SME’s loan • National Payment

Gateway*)

Innovation

BI INNOVATIVE FINANCIAL INCLUSION PROGRAM

BANK INDONESIA STRATEGY FOR FINANCIAL INCLUSION

BI – Head

Office

Penetapan

Kebijakan & Ketentuan

Perbankan

Implementasi Kebijakan

& Ketentuan Perbankan

Regional Government and Regional Parliament

Regional Development

Bank Parliament Related Ministries

• Financial Inclusion

• Financial Stability:

• Systemic and real sector

surveillance in regional

• Resilience and Competitiveness:

• Multilicensing

• Intermediation:

• Minimum loan to SMEs 20% of

total loan

• Branchless Banking

Basic Saving Account &

Saving Culture

Education for Student and

Migrant Worker

To Facilitate Land

Certification

SMEs Database

APEX and Linkage Program

Finance Consultant for Banks

and Economic Cluster

Model Business for Competitive Sector &

Creative Industry

BPD Regional Champion

COORDINATION

Strategic Partner Strategic Partner

Branchless Banking

Start-up Credit

• Regional Champion

• Potensi UMKM & industri kreatif

• Kontribusi ekonomi

• Akses layanan & APEX

Financial Identity Number

BI – Regional Offices

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BANK INDONESIA STRATEGY FOR FINANCIAL INCLUSION

National Economy

Regional Economy

BI / OJK Parliament Related

Ministries

Education

Institution

Banking

Association

Regional

Government Regional

Development

Bank

BI Regional

Offices

• Policy

• Regulation

• Constitutional

endorsement &

support • Competitive sector

• Sectoral development

• Capacity building

• Infrastructure synergy

• Development of

regional credit banking;

• Infrastructure financing • Main actor and host in

the region

• Pioneer in micro sector

interest rate decline

• Competitive sector

and creative industry

mapping

• Business model

development

Capacity building

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4. CHALLENGES

• Innovative financial inclusion is an ongoing process that requires a

strong contribution among the parties.

• The new approach taken in order to improve access to financial

services should be appropriate and in accordance with the

characteristics of unbanked/unserved people.

• Costs allocated, especially for education and investment, is large

enough.

• To achieve optimal results should be supported by adequate

monitoring and evaluation mechanisms. However, we need

quantitative indicator.

• Collaboration inter agencies in order to achieve synergy and avoid

redundancy.

CHALLENGES

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5. CONCLUSION

• From micro perspectives, financial innovation could assist to

achieve individual and family wealth.

• From macro perspectives, financial innovation could promote

sustainable economic growth as well as financial stability.

• Financial inclusion can be achieved through financial innovation

that includes product, channel, infrastructure & device, regulation,

and implementation.

• Financial innovation is an ongoing process that can be achieved

through the coordination and cooperation among relevant

institutions.

CONCLUSION

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