Digital Financial Services: Indonesia Infrastructure Development for Financial Inclusion

Transcription

1 2015/SMEWG40/026 Agenda Item: a Digital Financial Services: Indonesia Infrastructure Development for Financial Inclusion Purpose: Information Submitted by: Indonesia 40 th Small and Medium Enterprises Working Group Meeting Atlanta, United States June 2015

2 DIGITAL FINANCIAL SERVICES : INDONESIA INFRASTRUCTURE DEVELOPMENT FOR FINANCIAL INCLUSION JUNE 2015, ATLANTA, USA ELECTRONIFICATION AND FINANCIAL INCLUSION PROGRAM BANK INDONESIA TRANSFORMATION OFFICE 1

3 1 2 INDONESIA AT GLANCE FINANCIAL INCLUSION 3 DIGITAL FINANCIAL SERVICES 4 ISSUE & CHALLENGES 2

4 01 INDONESIA AT GLANCE 3

5 INDONESIA AT GLANCE People, Financial Access and Ratio ± islands ±247 M population ±155 M adult people ± 28 M is poor people ± 44% lives in city POINT ACCESS 1 & POVERTY 2 B: 23,2 B: 31,6 B: 26,4 A: 30,0 A: 82,4 A: 30,0 B: 36,8 17,7 6,35 8,74 A: 70,9 6,4 120 commercial banks rural banks cooperatives MFI (incl. non-formal) B: 17,2 A: 27,6 14,3 B: 22,4 A: 39,9 31,53 B: 13,8 A: 22,1 14,39 B: 79,0 A: 237,0 3,7 B: 34,7 A: 88,4 4,5 B: 17,7 A: 19,1 20,24 Source: 1 Banking Statistic (February 2014), 2 BPS, September 2012, Process, B: 18,1 A: 27,1 19,3 4

6 INDONESIA AT GLANCE Large population of Farmers & Fishermen 1. Indonesia as an agricultural and a maritime country has large potential in the agricultural and fisheries sector to contribute in the economy and improve the welfare (the third largest contributor to GDP, + / % in QIV-2013). 2. The number of farmers / fishermen quite large (+ / - 40 million people). 3. Generally, poor people are farmers and fishermen (+ / % of the total population of working poor). Farmer/ Fishermen (39,96 million) The population of Indonesia (240 million)* Age >15 (175,09 million) Labor Force (121,19 million) Work (114,02 miliion) Micro Traders (24,81 million) Factory Workers (14,78 million) Not a Labor Force (53,90 million) Construction Workers (6,89 million) Poor People by Sector (2012) Others (27,58 million) Non Agricultural Agricultural Housewife (32,18 million) Source: BPS, 2013 Source: compiled from various sources (BTPN, BPS, February 2013, SUSENAS-August

7 INDONESIA AT GLANCE High Financial Exclusion 20% Adults have account in formal financial institution Source: World Bank, Global Financial Inclusion Index Saver s Financial Inclusion Total SME credit to bank credit only < 20%. Loan to Micro sector to MSME loan is < 19% SME loan rate is high (>15%) Source: Banking Statistic,Maret 2014 Borrower s Financial Inclusion > 68% people do saving > 48% saving only in Banks > 40% can not borrow > 17% financing from Bank > 36% borrow from informal institution Source: World Bank. Improving Access to Financial Services In Indonesia

8 02 FINANCIAL INCLUSION 7

9 FINANCIAL INCLUSION National Strategy for Financial Inclusion Main Goal 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 Equitable Income Distribution Poverty reduction Financial System Stability Productive and high purchasing power society & Easy access to financial system Target Groups Migrant Employee Group and People in Remote Areas Very Poor Working poor/ Productive Near Poor Non - Poor Channel Financial Product/Services Saving Credit Insurance Remittance Pension Fund Mutual Fund, etc Resilience Intermediation Efficiency Financial Institution (Bank & Non Bank) Government Public Financial Subsidy Fiscal Incentives Social welfare program 6 Pillars of Financial Inclusion Strategy Financial Education Public Financial Facility Mapping on Financial Information Supporting Regulation/ Policy Intermediary/ Distribution Facility Customer Protection Program Education (for example: migrant worker, student) National Campaign PKH (Household Conditional Cash Transfer Program) Healthcare for the poor Cash Transfers Social Assistance Financial Identity Number (FIN) Credit Rating Multilicensing Digital Financial Services Start-up credit My Saving Digital Financial Services start-up credit land certification Banking mediation Product transparency 8

10 FINANCIALINCLUSION CURRENT PROGRAM ON FINANCIAL INCLUSION The bottom of the pyramid Digital Financial Services Bank Led Financial Education G2P Remmittances Handphone Number Mobile Agriculture Database Development E-money registered HP Number linked with Acc. Number E- national identity Financial Identity Number Customer Data Profile Credit Rating Micro Credit 9

11 FINANCIAL INCLUSION CURRENT PROGRAM ON MSME New Entrepreneurs Increasing capability Cluster Lending Model MSME Training/ Assistance /Promotion Training SME RATINGS Reducing assymetric information Regional Government Regional Credit Insurance Agency Land certification Livestock insurance Financial record keeping culture Bazaar Intermediation Banks 10

12 03 DIGITAL FINANCIAL SERVICES : Infrastructure of Financial Inclusion 11

13 DIGITAL FINANCIAL SERVICES MAIN FACTORS : MOBILE PHONE & AGENT the provision of some mix of financial and payment services that are delivered and managed using mobile or web technologies and a network of agents *) HIGH MOBILE PHONE PENETRATION1) >15 YEARS WORKS IN INFORMAL SECTOR 1) Source: Bank Indonesia Survey, 2012 Source: Telco s Marketing Comparison Data, ) Source: National Statistic, August *) Old Problems, New Solution: Harnessing Technology and Innovation in the Fight againts Global Poverty, Thw 2012 Brookings Blum Roundtable Policy Briefs, Cameron Peake, Mercy Corps,

14 DIGITAL FINANCIAL SERVICES A CHALLENGING PROCESS Guiding Principles on Branchless Banking Framework of Pilot Project The objectives of pilot project is to review the proposed business model that suitable to be implemented in Indonesia in order to publish the regulation. Used guiding principles on branchless banking as technical guidance. Conducted from May until November 2013 Implemented in 5 provinces (West Java, East Java, Central Java, Bali, South Sumatera) 2 districts in every provinces. Implemented by 5 banks and 2 Telco s. General aspects : risk management, operational requirement, aspect related to agent and infrastructure/technology, anti money laundering and terorism financing, and customer protection Result: Pilot Project high animo of local society in doing transaction with the agents major transactions: cash in, payment for public facilities, and transfer significant increase of agents number Monitoring & Evaluation Regulation on Digital Financial Services*) 13 *) as a part chapter of Regulation on Electronic Money No. 16/8/2014

15 DIGITAL FINANCIAL SERVICES PILOT PROJECT (5 Banks & 2 Telco s) 14

16 DIGITAL FINANCIAL SERVICES REGULATION BY USING INDIVIDUAL AGENT PROVIDERS High Capital Bank, strong risk mgt, governance, IT & internal control AGENTS Integrity, competency and reputation Local people Has own business in permanent place Deposit Non exclusive Anti Money Laundring & Terrorism Fund full KYC, CDD by agent, approval by bank, transaction limit Technologi Real time transaction, two authentication, high standard security in software, hardware & network, fraud detection, interoperable Transparency Education Redressal Risk Management Customer Protection Transparent charge, handling customer complaints, financial education Expansion 15

17 DIGITAL FINANCIAL SERVICES TRANSACTION MECHANISM 5 KYC E-Money Register : No. HP 1 2 authentication USSD & notification platform Data deposit as an agent Debit/ credit 3 Debit/ credit Agent account Customer account Supporting party Open account, cash-in/out, payment, G2P tranfer I Agent Transaction II Mobile Account Transaction Transfer & payment 1 Data credited Merchant account 2 3 platform debited Customer account 16

18 DIGITAL FINANCIAL SERVICES BUSINESS MODEL BY USING INDIVIDUAL AGENT Agent Deposit Banks* SLA Product: E-money Branches Supervision TELCO Individual Agent Individual Agent Individual Agent Individual Agent Encryption Real Time Settlement Real Time Notification Two Authentication *) Bank with high core capital (> $5 billion rupiahs) E-MONEY Customers 17

19 DIGITAL FINANCIAL SERVICES BUSINESS MODEL BY USING LEGAL ENTITY AGENT Deposit Banks & Non Banks SLA Product: E-money Branches Supervision Legal Entity Agents Legal Entity Agents TELCO Encryption Real Time Settlement Real Time Notification Two Authentication E-MONEY Customers 18

20 DIGITAL FINANCIAL SERVICES LINKAGE WITH OTHER FINANCIAL INCLUSION PROGRAMS G2P Remmittances To support cashless transaction LKD agents used as a point of fund withdrawal LKD agents perform the functions of financial education To support remmittances of immigrant worker LKD agents used as a point of fund withdrawal in Indonesia (beneficiary country) LKD agents perform the functions of financial education Increasing Financial Inclusion Education Customer Protection 19

21 DIGITAL FINANCIAL SERVICES CONTRIBUTION TO THE ECONOMY Increase of financial activities & transactions Facilitate Payment Efficient economy Digital Financial Services Enhance intermediation Expand of retail funding Expand of micro loan Agent As agent of development Financial Behaviour Changing Saving: buffer Loan: productivity Increase welfare of individual and family 20

22 DIGITAL FINANCIAL SERVICES ISSUE & CHALLENGE No FACTOR REMARK 1 Infrastructure - Quality of telecomunication network - Adequate security - Interoperability 2 Provider - Sustain business model - Understanding customer needs - Quality of sevices - Proper customer protection - Combating AML & TF - Inactive client and agent 3 Agent - Cash management - Quality of services - KYC 4 Customer - Literacy level - Lack of trust to agent and mobilephone - Marketing target 5 Regulator - Balancing risk & innovation - Balancing KYC and combating AML/TF - Provate sector leadership - Balance competition - Interoperability VS systemic concern - Coordination 21

23 04 CHALLENGES 22

24 FINANCIAL INCLUSION ISSUE & CHALLENGE Demographic and geographic condition of Indonesia are the main challenges for financial inclusion program. Sharing role on some financial inclusion programs among institutions need collaboration and coordination effort effectively and efficiently. High level of financial illiteracy caused people hard to accept the new technology and innovation of financial services. Change the people way of life from traditional view to use formal financial services and its products. 23

25 WAY FORWARD In order to improve access to finance services, particularly for the unbanked people, Indonesia recognising: The importance of a strong collaboration and coordination among the parties involved to achieve synergy and avoiding redundancy for efficiency and effectiveness, ie Education program, implementing and improving Digital Financial Services The importance of improving financial literacy that can increase financial capability and assist the effectiveness of financial inclusion through financial education. The importance of social-reenginering to change people way of life. The importance of innovative delivery channel and new technology in order to increase access and to broaden the outreach financial services for the unbanked people 24

26 Now, we Can step-in into the Bank 25