2013/SMEWG37/018 Agenda Item: 11.2.1 Financial Inclusion and MSME Programs in Indonesia Purpose: Information Submitted by: Indonesia 37 th Small and Medium Enterprises Working Group Meeting Bali, Indonesia 4-5 September 2013
FINANCIAL INCLUSION AND MSME PROGRAMS IN INDONESIA Eni V. Panggabean Executive Director Department of MSME and Financial Access Development Bank Indonesia APEC 37 th Meeting SMEs Working Group 2013
OUTLINE 2 Access to Finance Condition in Indonesia 1 Financial Inclusion and MSME Program 2 Collaboration and Strategic Partnership 3
FACTS OF INDONESIA 3 World Bank (2011) : There is only 20% of Indonesian adults have owns account balance in formal financial institution High income OECD & non- OECD 92% Indonesia 19.6% Malaysia 66.7% Philippines 26.5% Thailand 77.7% Vietnam 21.4% India 35.2% China 63.8% Russia 48.2% Brazil 55.9% Middle East & North Africa 42% Latin America & Caribbean 40% Sub-Saharan Africa 12% Central Asia & Eastern Europe 50% South Asia 22% East Asia & Pacific 42% INDONESIA 20% Sourcer: Worldbank, Global Financial Inclusion Index, 2011 Indonesia has a huge economic potential and large market for financial services More than 13,000 islands Population: + 234 million 1) GDP Growth 2012: 6.23% yoy 2) GDP per capita Dec 2012: USD 3.051 2) Banking industry covers ± 75.8% of assets in financial sector Source: 1) BPS, 2010; 2) BPS, 2012 1.20% 10.10% Market Share of Indonesia Financial System by Total Assets 2.80% 6.10% 0.10% 3.30% 0.10% 0.50% 75.80% Source: Bank Indonesia and Bapepam-LK, 2012 Commerical Bank Rural Banks Insurance Company Pension Funds Multifinance Companies Venture Capital Securities Company Mutual Fund Pawn Broker (Dec'11) NUMBER OF FINANCIAL INSTITUTION Commercial Banks 120 Rural Banks 1.653 Insurance Companies 1397 Pension Funds 269 Multifinance Companies 200 Venture Capital 89 Securities Companies 754 Credit Guarantee Company 6 Pawn Broker 1
INDONESIAN POVERTY CHARACTERISTIC 4 There is a huge gap in poverty level disparity between provinces in Indonesia (Jakarta = 4%, Papua = 31%, Indonesia = 12 %) 35.00 30.00 27.04 30.66 Poor people (%) 25.00 20.00 15.00 10.00 5.00 BIG GAP 3.70 3.95 5.01 5.37 5.71 6.19 6.38 6.83 7.64 7.96 8.00 8.05 8.06 8.28 9.82 9.89 10.41 11.66 13.01 13.06 13.08 13.48 14.94 14.98 15.65 15.88 17.22 17.51 18.02 18.58 20.41 20.76 0.00 Source : BPS, 2012
LEVEL OF ACCESS TO FINANCIAL SERVICES 5 More than 50 per cent of Indonesia household have no access to bank financial services Less than 20 per cent of Indonesia poor household have access to bank financial services Source : Improving Access to Financial Services in Indonesia, World Bank, 2010
THE ROLE OF MSME IN INDONESIAN ECONOMY 6 MSME are the back bone of Indonesia s economy but they get only a small portion of banks financing MSME play a crucial role in Indonesia s economy: MSME are dominating the business units with share up to 99,9% of total business units. MSME absorbs around 97,2% of total labor force. MSME contributes around 59.1% to the GDP. The trend of MSME Credit The Medium Scale Enterprise loan dominates the MSME Credit (49,73%) The growth of MSME Credit around 15,39% (yoy) and around 10,83% (yod) Job Creations MSME, 97.2% Large Scale, 2.8% Contribution to GDP MSME, 59.1% Large Scale, 40.9% Source: MSME Statistics 2012, Ministry Cooperatives and MSME Source: Bank Indonesia, June 2013
CONSTRAINT OF POOR HOUSEHOLD AND MSME 7 Innovation is needed to address the constraint of financial inclusiveness SUPPLY SIDE Asymmetric information Transaction cost vs Profit Gained Service and Product are not fully fit to the need of people High Technology for effective the distibution channel Regulation and Policy for effective access to finance DEMAND SIDE Limited financial capability, education, experience and psychological factors Limited skills and capability in doing business Formal identity problem
OUTLINE 8 Access to Finance Condition in Indonesia 1 Financial Inclusion and MSME Program 2 Collaboration and Strategic Partnership 3
FINANCIAL INCLUSION FRAMEWORK 9 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 Productive and high purchasing power society Easy access to financial system Financial System Stability Target Groups Migrant Employee Group and People in Remote Areas Very Poor Working Poor/ Productive Near Poor Non - Poor Strategy 6 Pillars of Financial Inclusion Financial Education Public Financial Facility Mapping on Financial Information Supporting Regulation/ Policy Intermediary/ Distribution Facility Customer Protection
BALANCING POLICY FOR FINANCIAL INCLUSIVE & PRUDENT OPERATION 10 Inclusive Prudent 1. Simplicity; 2. Customized; 3. Flexible Indonesia Policy 1. Equal Treatment; 2. Procedural; 3. Standards; 4. Compliance based;
FINANCIAL INCLUSION AND MSME PROGRAMS 11 FINANCIAL INCLUSION AND MSME Strategy Program Education (poor household & MSME) National Campaign Research and Diagnostic Gov t Credit Programs G2P channel Financial Identity Number (FIN) MSME information system Multilicensing Provision of Credit / Financing by Commercial Bank and Technical Assistance for MSME development Branchless banking TabunganKu Branchless banking Start-Up Credit Land Certification MSME Rating Credit Bureau Micro Insurance Banking Mediation Product Transperancy
12 12 G2P transaction eg. Disbursement of social program Branchless Banking Bank Led/Telco Led Financial Education Hand Phone number TabunganKu/ basic saving account Price Information As account number of no frill account TabunganKu Survey Financial Literacy database Financial Identity Number Financial Inclusion Information System Customer profil data Research & Diagnostic Credit Rating Micro credit
Progress of Financial Inclusion Program: What have we done so far? 13 2009 2010 2011 2012 2013 2014 Financial Education TabunganKu/ Basic saving account Blueprint of Financial Education National Campaign Let s Go to the Bank TabunganKu Indonesia Saving Movement (Gerakan Indonesia Menabung) Let s Go to The Bank Financial Literacy Survey Intensive campaign of GIM Financial Identity Number Baseline and Comprehensive Survey FIN Information System Development Branchless Banking Research on Branchless Banking Development Guiding Principle for Branchless Banking Pilot Project Pilot Project Start-up credit Development of financing scheme and financing generic model System Information of Financial Inclusive (SIFI) Tailoring Strategy for SIFI
PROGRESS OF FINANCIAL INCLUSION PROGRAM 14 No. Program & Target 1. Financial Education a. Student (elementary, junior high/equal, senior high/equal, university) Goal to enhance financial education to input financial education to national curriculum Progress Integrate financial education into National Curriculum for Senior High School in 2013 b. Migrant worker To enhance financial education Assessment to integrate financial education into basic curriculum of worker training. c. Certain society group including migrant worker 2. Financial Identity Number (FIN) General society, especially unbanked people. 3. TabunganKu / Basic Account To enhance financial education. Provide the database of unbanked people, that can be accessed by financial institution to bridge the an asymmetric information. Preparation of material and financial education plan. FIN Database development : Baseline survey : 400.000 data Comprehensive survey : 600 data General society & student Champaign : Indonesia Saving Movement General society & Student To broaden the financial services access for society through no frill account product As an effort to increase society awareness to saving TabunganKu June 2013: 3,93 millions accounts in the amount of Rp4,31 trillions Bank Indonesia, sent an appeal letter to all banking sectors to support the Saving day (Hari Rajin Menabung)
PROGRESS OF FINANCIAL INCLUSION PROGRAM 15 No. Program & Target 4. Branchless Banking Goal Progress Remote area society & Unbanked people 5. Credit for beginner (Start-up credit) Novice entrepreneur Enhance financial service access using technology instead of physical bank. Developing financing scheme for novice entrepreneur 6. System Information of Financial Inclusive (SIFI) General Society Tailoring financial inclusive policy and regulation. As a base for decision making Database study material. Branchless Banking Pilot project Participant : 5 banks and 3 telecommunication companies Conducted in 8 provinces in Indonesia. Development of Financing Scheme Tailoring Strategy of SIFI
OUTLINE 14 Access to Finance Condition in Indonesia 1 Financial Inclusion and MSME Program 2 Collaboration and Strategic Partnership 3
COLLABORATION AND STRATEGIC PARTNERSHIP IN NATIONAL AND REGIONAL ECONOMIC DEVELOPMENT Policy Regulation Bank Indonesia / OJK Endorsement & constitution supports DPR / DPD Related Ministry 17 15 Championship Sector Sectoral fostering and development Banking Association Capacity Building Infrastructure Synergy Regional Banks and Rural Banks development Finance Infrastructure: PPKD Regional Government National Economic Regional Economic BPD / BPR Main player and regional host Pioneer of Decreasing Micro Interest Rate Education institution Capacity Building Regional Office of Bank Indonesia Mapping leading sector & regional creative industry Business model development.
WAY FORWARD 18 In order to improve access to finance services, particularly for the unbanked people, Indonesia recognising: The importance of combating financial illiteracy that can increase financial capability and assist the effectiveness of financial inclusion through financial education; The importance of innovative delivery channel (namely branchless banking and Financial Identity Number (FIN)) in order to increase access and to broaden the outreach financial services for unbanked people; The importance of a strong collaboration and coordianation among the parties involved to achieve synergy and avoiding redundancy for efficiency and effectiveness because financial inclusion is an ongoing process.