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 Inclusion Jakarta, Indonesia 27-28 February 2013
INNOVATION FOR FINANCIAL INCLUSION: INDONESIA PERSPECTIVE
AGENDA 2 1 2 3 4 5 Background Innovative Approach in Financial Inclusion Indonesia Practices Challenges Conclusions
3 1. BACKGROUND
BACKGROUND : HIGHER UNBANKED Financial Inclusion Index Adult has account in formal financial sector High income OECD and non- OECD 92% Middle East & North Africa 42% Central Asia & Eastern Europe 50% East Asia & Pacific 42% 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% 4 Latin America and Caribbean 40% Sub-Saharan Africa 12% South Asia 22% INDONESIA 20% Source : Worldbank, Global Financial Inclusion Index 2011
BACKGROUND : WHAT LEAD TO FINANCIAL EXCLUSION? Time INNOVATIONS Economic Growth 5 Financial Wealth
BACKGROUND : INNOVATION FINANCIAL INCLUSION FOR ECONOMIC GROWTH & FINANCIAL STABILITY Sustainable Economic Growth Individual/Household Wealth Financial Stability Financial Inclusion INNOVATION Product Channel Infrastructure Regulation Device education Collaboration : Central Bank, Financial Regulator, Government, Players 6
INTERNATIONAL CONCERN ON FINANCIAL INCLUSION 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 Asia Africa Region Eropa & Central Asia Middle East Countries with FI Strategy*) Cambodia, Indonesia, Laos, Nepal, Pakistan, Philippines, Vietnam 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 Kyrgyz Republic, Russia, Uzbekistan Egypt, Jordan, Syria, Yemen 7 *) 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
2. INNOVATIVE APPROACH IN FINANCIAL INCLUSION 8
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 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. 9
10 3. INDONESIA PRACTICES
INDONESIA AT GLANCE 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) 9.75% 1.15% 2.92% 0.88% 0.06% 6.01% Market Share of Indonesian Financial System by Total Assets, as of Dec 2011 3.36% 0.06% 0.42% 75.38% Commercial Banks Rural Banks Insurance Companies Pension Funds Multifinance Companies Venture Capital Securities Companies Mutual Funds Credit Guarantee Company Pawn Broker 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 Source : Bank Indonesia and Related Ministries 11
BACKGROUND : FACT Economic bank based but higher unbanked people.. saving Total Population loan Total Population 50% at formal institutions 47% at Banks 41% use own bank accounts 68% Save 18% at only informal institutions 3% at other formal 6% use others accounts 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%) Informal 43% 60% Borrow Banks 17% 40% Don t Borrow at Present 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) Source : Improving Access to Financial Services in Indonesia, World Bank, 2010 12
INDONESIA CONCERN ON FINANCIAL INCLUSION 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 13 *still on progress
COMPREHENSIVE STRATEGY : INDONESIA 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 Very Poor Migrant Employee Group and People in Remote Areas Working poor/ Productive Near Poor Non - Poor Channel Financial Product/Services Saving Credit Insurance Remittance Pension Fund Mutual Fund, dll 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 14 Education (for example: migrant worker, student) National Campaign PKH Jamkesmas BLT Bansos Financial Identity Number (FIN) Credit Rating Multilicensing branchless banking Start-up credit TabunganKu Branchless banking start-up credit land certification Banking mediation Product transparency
BI INNOVATIVE FINANCIAL INCLUSION PROGRAM Innovation on channel Branchless Banking Mobile staff Mini ATM Innovation on product TabunganKu (no-frills account) Start-Up credit for new Entrepreneur Group lending Financial Inclusion Innovation Innovation on regulation Innovation on infrastructure Simple KYC Agent banking Financial Identity Number Interoperability on ATM SMEs database Insurance for SME s loan National Payment Gateway*) Innovation on Device EDC Mobile phone 15
BANK INDONESIA STRATEGY FOR FINANCIAL INCLUSION Parliament Strategic Partner Related Ministries Strategic Partner Regional Government and Regional Parliament Regional Development Bank 16 COORDINATION Regional Champion Potensi UMKM & industri kreatif Kontribusi ekonomi Akses layanan & APEX Penetapan Kebijakan & Ketentuan Perbankan BI Head Office BI Regional Offices Implementasi Kebijakan & Ketentuan Perbankan 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 APEX and Linkage Program Finance Consultant for Banks and Economic Cluster Model Business for Competitive Sector & Creative Industry Start-up Credit Basic Saving Account & Saving Culture Education for Student and Migrant Worker To Facilitate Land Certification SMEs Database BPD Regional Champion Branchless Banking 16 Financial Identity Number
BANK INDONESIA STRATEGY FOR FINANCIAL INCLUSION Policy Regulation Constitutional endorsement & support Competitive sector Sectoral development BI / OJK Parliament Related Ministries Capacity building Infrastructure synergy Banking Association Regional Government Development of regional credit banking; Infrastructure financing National Economy Regional Economy Regional Development Bank Main actor and host in the region Pioneer in micro sector interest rate decline BI Regional Offices Education Institution Capacity building Competitive sector and creative industry mapping Business model development
18 4. CHALLENGES
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. 19
20 5. CONCLUSION
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. 21