Bank Indonesia (BI) Governor predicted that financial inclusion in Indonesia will keep increasing and reach 60 percent this year. A supporting factor behind the increase is the distribution of Social Assistance (Bansos) program through State Budget for 10 million recipients. After staying at below 40 percent for years, the inclusion rate now is 50 percent and this year could reach 60 percent.
Reasoning: The term financial inclusion was introduced after the 2008 global financial crisis. The crisis adversely affected people lie at the bottom of income groups pyramid, namely those who live with low and irregular income, living in remote areas, disabled people, and informal workers in sub-urban area. They are generally do not have access to financial services.
At the G20 Summit 2009, the members of G20 agreed on the need to increase access to financial services for people in the targeted groups. The agreement was reiterated at G20 Summit 2010 in Toronto, which adopted Nine Principles for Innovative Financial Inclusion as a guideline for improving financial inclusion. The principles are leadership, diversity, innovation, protection, empowerment, cooperation, knowledge, proportionality, and framework. Since then, many international fora have been focusing their activities on financial inclusion such as Consultative Group to Assist the Poor, World Bank, Asia Pacific Economic Cooperation, Asian Development Bank, Alliance for Financial Inclusion, and Bank for International Settlement for Financial Action Task Force.
According to the World Bank, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. Being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments.
In order to keep increasing financial inclusion in Indonesia, BI highlighted that the inclusion is not only influenced by the implementation of government program such as social assistance distribution. The growing expansion of financial-technology or “fintech” provides opportunity to increase financial inclusion. Access to financial services can be widely opened for all people thanks to the emerging development of fintech. As long as having internet connection, everybody is able to access various kinds of financial services, ranging from bank accounts up to electronic money.
Fintech could penetrate the market of 49 percent of community currently do not have access to basic financial services. Those among 49 percent include micro and small business owners in the need for financial supports. Today, the fast development of digital economy and financial has dramatically changed economic activity in real sector. Various digital innovations in some industries has proven their impact to speed up the process, which previously took longer time. The presence of digital innovations can accelerate financial inclusion. Fintech is expected to help around 60 million micro, small and medium enterprises to get access to banking or financial services, which in turn support the economy.
Takeaway: Indeed, fintech has a potential capacity to widely open access to banking and financial services and increase financial inclusion in Indonesia. Still, an important aspect needs to be monitored is on the conduct of fintech in offering services. Fintech consumers should be protected from the risk of financial difficulties, such as debt trap, if fintech expand their services to the low-income groups not only in funding, but also in lending.