Editorial: In banks we trust

The campaign to expand financial inclusion has been stepped up after the launch by President Susilo Bambang Yudhoyono in early 2010 of a national campaign to encourage adults to put their savings in banks under a Tabunganku (My Savings) drive, which has thus far resulted in 2.55 million accounts being filled with Rp 2.75 trillion (US$294.25 million) in savings.

 Yet the latest study by the Office of the Vice President concluded about one third of the country’s 240 million people still did not have access to modern financial services. This not only indicates a skewed distribution of finances but also very low bank penetration, hindering growth and the development of households and small businesses.

Indeed, measured by the ratio of bank credit to gross domestic product (GDP), the number of saving accounts per 1,000 people and the number of bank branches per 1,000 people, bank penetration in Indonesia is the lowest among the major economies in the ASEAN region. This highlights the potentially huge market for financial service companies to tap into as well as the extent of the non-banking, impoverished segment of the society.

This does not, however, mean that the government or monetary authorities should jawbone commercial banks into massively expanding their branch networks across the country to provide the people with broader, easier access to formal financial services.

Financial inclusion cannot be promoted with a single program, such as expanding banking networks, as the panelists at the ASEAN Conference on Financial Inclusion here pointed out last week. Such a campaign could instead be counter-productive if financial literacy among most people remains low, especially when consumer financial protection mechanisms in the country remain utterly inadequate.

Promoting financial literacy through formal education and information campaigns by the central bank should be the foremost components of a drive to expand financial inclusion. Educating and empowering consumers to utilize financial services is even most imperative, especially now when financial products are becoming more complex and are accessible via increasingly numerous modes of communication.

In fact, with the rapid developments in information and telecommunication technology, banks can now expand their services through mobile and Internet banking and ATM networks without having to set up physical branches.

As Bank Mandiri president Zulkifli Zaini pointed out at the conference, the history of Indonesia’s banking industry was now almost 67 years old, yet only 70 million poeople already had bank accounts. Mobile telephones were introduced on a mass scale only about 20 years ago, but there are now over 200 million subscribers of cellular phone services.

This simply indicates the huge potential for expanding financial services across this vast archipelagic country through all this telecommunication and electronic equipment.

But as electronic and mobile banking services expand, the government needs to strengthen the legal and regulatory framework for the telecom service providers and the various formal financial institutions involved to sustain effective risk management.

Obviously, many underprivileged people in rural areas may still feel uncomfortable with modern gadgets in
conducting financial transactions.

Hence, the Tabunganku campaign, which allows people to open small savings accounts without going through arduous bureaucratic procedures and without administrative fees, should be continued.