Uncovering Determinants, Barriers, and Impacts of Financial Inclusion in Indonesia: Major Empirical Analyses and Insights
Creators: name: Pratiwi, Rianti
Publisher: name: RMIT University
Year: 2025
Subjects: classificationCode: 350204
subject: Financial institutions (incl. banking)

description: This study investigates the multifaceted relationships between financial inclusion, financial literacy, poverty alleviation, and the financial performance of banks in Indonesia. Despite significant economic progress, Indonesia continues to lag behind other Southeast Asian nations in achieving widespread financial inclusion and improving financial literacy. These gaps hinder economic empowerment and limit access to essential financial services for marginalized communities. This study aims to address these challenges by exploring four interconnected objectives: the role of financial literacy in overcoming barriers to financial inclusion, the impact of financial inclusion on poverty reduction, the influence of digital financial services such as e-money on financial wellbeing, and the effect of financial inclusion on the financial performance of Indonesian banks.
The study employs both quantitative and qualitative methodologies, integrating nationally representative data from the Financial Inclusion Insights (FII) survey, Indonesia's Central Bank, the World Bank FINDEX database, and financial reports from commercial banks. Analytical methods, including regression analysis, principal component analysis (PCA), and interaction regression models, are used to assess determinants and barriers to financial inclusion, analyze its effects on poverty alleviation, and evaluate its influence on the efficiency, liquidity, and profitability of banks.
The findings reveal that financial literacy plays a pivotal role in enhancing access to formal financial services by equipping individuals with the knowledge and confidence to engage with financial systems. However, barriers such as inadequate infrastructure, lack of documentation, cultural factors, and distrust in financial institutions persist, particularly in rural and underserved communities. Financial inclusion was found to have a significant positive impact on poverty reduction, providing unbanked individuals with opportunities for savings, investments, and credit access, ultimately improving their economic security.
Digital financial services, particularly e-money, emerged as transformative tools for broadening access to financial services, especially among marginalized populations such as the uneducated and part-time workers. While e-money ownership significantly contributed to poverty alleviation, its impact was slightly diminished during the COVID-19 pandemic, underscoring the need for strengthened digital infrastructure and targeted interventions.
Additionally, the study finds that financial inclusion positively influences the performance of banks in Indonesia by enhancing efficiency, profitability, and liquidity. Banks that actively promote financial inclusion not only contribute to broader economic goals but also improve their operational metrics. The results underscore the complementary role of conventional and Sharia-compliant financial institutions in driving financial inclusion and poverty reduction.
This research makes a significant contribution to policy discourse, advocating for a multi-pronged approach to financial inclusion that integrates financial literacy programs, investments in digital infrastructure, and targeted support for underserved populations. By addressing structural and social barriers, policymakers and financial institutions can create a more inclusive financial ecosystem that promotes economic growth, reduces poverty, and enhances the resilience of financial systems. These findings provide valuable insights for developing sustainable strategies to expand financial inclusion and improve financial wellbeing in Indonesia.