TALKING POINTS
Mr. Erwin Rijanto, Deputy Governor of Bank Indonesia
"FINANCIAL INCLUSION FOR SME IN INDONESIA"
Kathmandu, 9 November 2016
I. INTRODUCTION
1. A very good afternoon and warm greetings to:
a. Mr. Shitangshu Kumar Sur Chowdhury, Chairman of APRACA;
b. Mr. Shiba Raj Shrestha, Vice Chairman of APRACA;
c. The member of APRACA;
d. Ladies and gentlemen.
Distinguished guests,
2. We are all aware that financial inclusion has become a priority in
the world, but it has now also been considered as national agenda
for Indonesia.
3. In this honorable meeting, I would like to share Indonesian's
experience regarding the financial inclusion in Indonesia, and its
relation to SME.
Ladies and gentlemen,
II. CURRENT CONDITION IN INDONESIA
4. Considering the current condition, Indonesia with its population of
almost 250 million people which 28 million people living in poverty
line remains to be unbanked. Taking a closer look these large
portion of the unbanked clustered around poverty line remains
vulnerable. Geographic condition adds the challenge in providing
access to this target group as Indonesia consist of almost 17.000
island and most of poor people live in a very remote area with
different culture. On the supply side, there are several factors
inhibiting services to the community such as limited
communication network and electricity infrastructure.
5. Based on our survey, banked people reached 39% in 2015. It is
still in a long journey to reach the target of 75% banked people at
the end of 2019. The percentage of 39% in our survey means
they have a savings or credit account, insurance or formal means
of low-cost payments. Outside of 39% still use financial services
but rely on the age-old informal mechanisms: family and friends,
the rotating savings club, the moneylender, the pawnbroker, cash
under the mattress and long-term savings in the form of livestock.
These mechanisms are incomplete, and can be very unreliable,
risky and expensive.
6. Interestingly, Indonesia is one of the fastest-growing user
smartphone in the world: Nearly 60 million of the country's
citizens will have smartphones in 2016. Continuously, Indonesia's
smartphone users are expected to grow at a compound annual
growth rate (CAGR) of 11.2% between 2016 and 2020, to
reach more than 100 million and become the fourth-largest
global market.
7. On the other hand, Indonesia faces some challenges regarding the
implementation of digital financial inclusion such as cash based
mindset, lack of information of non-cash instrument, limited
interconnection, coordination amongst stakeholders, and lack of
infrastructure.
8. Regarding the challenges as mentioned, Indonesia has high
concern to increase financial access, especially for unbanked and
underbanked, through the financial inclusion policy. Financial
inclusion policy will eliminate the barriers for people to reach
financial access.
Ladies and gentlemen,
III. PRESIDENTIAL DECREE NO. 82 YEAR 2016 REGARDING
NATIONAL STRATEGY OF FINANCIAL INCLUSION ON
SEPTEMBER 1ST 2016
9. Financial Inclusion has been considered as national priority for
Indonesia; therefore in 2012, Indonesia launched its National
strategy for Financial Inclusion (NSFI)1. With the vision to improve
the coordination between ministries, Bank Indonesia, related
institutions and bodies in implementing this strategy, NSFI has
been amended and formulated as legal entities in Presidential
Decree No. 82 Years 2016 regarding National Strategy for
Financial Inclusion.
10. NSFI has 5 Pillars and 3 enablers as follow :
a. Pillar 1: Financial Education, aims to improve public
knowledge and awareness about the formal financial
institutions, financial products and services, as well as to
improve public's skills in financial planning and management.
b. Pillar 2: Public Property Rights, aims to expand the
guarantee thus people could access credit from formal
financial services.
c. Pillar 3: Financial Intermediation Facility and Distribution
Channels aims to expand the range of financial services to
meet the needs of the different groups of people.
d. Pillar 4: Financial Service in Government Sector, aims to
improve the governance and transparency of public services in
the distribution of government funds. This can be achieved by
distribution of aid through non cash which is expected to
increase targeting accuracy, quantity, price, time, quality, and
administrative.
e. Pillar 5: Consumer Protection, aims to provide a sense of
security to the community to interact with financial
institutions, and take advantage of the products as well as
financial services and payment systems offered. Principle of
consumer protection are transparency, equal treatment,
reliability, confidentiality and security of data / consumer
information, and complaint handling, as well as consumer
dispute resolution in a simple, fast, and affordable cost.
11. The five pillars of National Strategy of Financial Inclusion must be
supported by three enablers as follows:
a. Conducive Policies and Regulations: The implementation of
inclusive financial programs needs policies and regulations of
the government and authorities/regulators.
b. Supportive Infrastructure and Information Technology: It is
necessary to minimize information asymmetry that is obstacles
or bottlenecks in accessing financial services.
c. Effective Organization and Implementation Mechanism: The
diversity of financial inclusion actors and organizations leads to
a need of mechanism to encourage the implementation of
various activities together and integrated.
Distinguished guests,
IV. ROBUST, SOUND, EFFICIENT AND SECURE PAYMENT SYSTEM
TO SUPPORT FINANCIAL INCLUSION INITIATIVES
12. Bank Indonesia as the payment system regulator also put high
concern in financial inclusion. By bringing people to financial
system, we believe it will support financial stability. First, it will
increase the resilience of financial system through the increase of
financial buffer from the retail deposits. Second, with expanding
financial access to retail sector, for both saving and borrowing
side, it will diversify liquidity and credit risk. Meanwhile, financial
inclusion combined with electronification2 will increase the
efficiency of financial transaction. For the benefit of the economy,
financial inclusion will bring positive impact in minimizing the gap,
reducing the poverty level, and increasing asset accumulation of
people.
13. To support access to finance, Bank Indonesia implements a dual
policy approach, which include financial inclusion and
electronification. Currently, 64% of the unbanked people in
Indonesia are subject to financial inclusion through
electronification via e-money and Digital Financial Services agents.
Once these unbanked people are accustomed to perform cashless
transactions and able to maintain the amount in their electronic
money (registered with maximum amount Rp 5 million), they will
be asked to open a savings account at a bank through the Laku
Pandai program. Thus, overtime, these unbanked people will
become bankable and are subsequently expected to utilize other
financial service products through Banks and Insurance.
14. In the mean time, the 36% banked people are also encouraged to
utilize electronic payments. This is carried out through the
National Non Cash Movement initiative that is supported by G to P
(Government to Person), P to G (Person to Government), and P to
P (Person to Person) programs.
15. Payment technology in terms of financial inclusion implementation
is perceived as enabler because it creates more efficient usage of
financial services and plays an important role to enhance financial
access for the society. To increase the effectiveness and efficiency
of transaction, Indonesia supports the interoperability and inter-
connectivity among payment infrastructure.
16. In order to increase financial access, Bank Indonesia implement
financial inclusion program. Most of our financial inclusion
programs are developed based on digital technology. As a main
access is Digital Financial Services (DFS) and develop ecosystem
through electronification. Both programs are implemented through
sectoral approach, such as electronic Government to People (G2P)
assistance, People to Government payment, especially public
services, electronification for migrant worker and fisher
community, and electronic payment in smart city.
17. Implementing the financial inclusion strategy will promote the
financial access of SME as well because it is fundamental for
enabling SME, as the engine of economic growth and employment,
to expand their business.
Distinguished guests,
V. SME FINANCING
18. Indonesian SME dominates the number of business units with the
percentage of 99%. They also create employment opportunity for
97% of the total workforce and contribute to 60% of Indonesia's
GDP. In contrast with the number and contribution of SME, their
financing is still relatively low. The SME loans share on August
2016 is 19.7%. Most of them are disbursed to trade sector for
about 53%. Some issues trigger the low percentage of SME
financing are
a. Banks encountered difficulties in assessing the financial viability
of SMEs.
b. There is asymmetric information where Banks require the
information on the potential SMEs and the eligibility of SMEs.
c. Banks looked at SMEs as high risk business.
d. The limited public access to finances, especially in remote areas.
Ladies and gentlemen,
VI. CONCLUSION
19. Despite the limitation in telecommunications network in Indonesia
and lack of socialization and assistance for end user, Bank
Indonesia continuously perform our best efforts to improve SME
access to finance through the means of information technology
(IT) since IT will broaden the range of SME access to finance
facilities/infrastructure in an easier, cheaper, and reach out to
broader and remote region. Then, it could also facilitate change of
SME behavior in recording and conducting financial transactions of
its business. Finally, information technology is also expected to
encourage SME to utilize the development/innovation of
technology in conducting its business
Distinguished guest, ladies and gentlemen,
I would like to conclude my presentation by quoting the statement from
Christine Lagarde, Managing Director of the IMF: "Greater financial inclusion
has tangible economic benefits, such as higher GDP growth and lower
income inequality. By providing access to accounts, credit, infrastructure,
women and low income users, financial inclusion helps make growth more
inclusive". Thank you.
Kathmandu, 9 November 2016
Mr. Erwin Rijanto
Deputy Governor of Bank Indonesia