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ew rules have just been implemented on microfinance and insurance that are expected to improve practices and protect the mostly financially illiterate customers in Southeast Asia'€™s largest economy.

Widespread and unregistered microfinance institutions, which are able to reach the low-income bracket and could boost Indonesians'€™ access to banks, will be identified and registered as the new 2013 law on microfinance institutions recently came into effect.

The law requires monitoring and regulatory functions for microfinance institutions that may total in the hundreds of thousands across the country. According to a study by the House of Representatives, if mismanaged, these institutions could pose risks to customers.

'€œThe OJK [Financial Services Authority] has given the existing institutions a one-year period until January next year to get themselves of OJK'€™s list to start the process of getting a license and becoming a legal corporation,'€ said Suparlan, OJK director of supervision for micro-financial institutions.

The microfinance law also requires that those who serve villages and sub-districts to have minimum capital of Rp 50 million (nearly US$4,000), while those in district and regency levels should have a minimum of Rp 100 million and Rp 500 million, respectively.

'€œMicrofinance institutions have a wide range of sizes. The smaller ones still write their financial reports manually without the use of computers,'€ Suparlan added. The law also regulates capacity building for human resources serving the microfinance institutions.

Indonesia'€™s microfinance institutions, which are non-banks, come in a variety of forms, from small cooperatives to sharia-based financing body Baitul Maal wat Tamwil (BMT), which could all be found easily in villages and regencies.

A lot of Indonesians do not have access to banks or formal financial institutions '€” only a quarter of the population do '€” with only 23,000 bank branches and 1,630 rural banks spread throughout the country serving about 250 million people.

In the new 2014 insurance law, which is modernized from the previous 1992 insurance law, changes include the insurers'€™ actuarial consultants, legal formation, ownership and liquidation, according to OJK commissioner Firdaus Djaelani, who oversees non-banking financial industry.

'€œWe hope that the new law will encourage better operations among insurance companies as well as provide more protection for their customers,'€ Firdaus said recently. The insurance bill canceled a 49 percent cap on foreign ownership in insurance firms, from 80 percent regulated in a 2008 government regulation.

The new law stipulates previously uncovered issues that range from holding company, controlling shareholders, compulsory insurance program, guarantee for insurance policy, statutory manager and sharia insurance to prohibition of insurance coverage from an affiliated insurance company.

Only 18 percent people in Indonesia are aware of the terms and benefits of insurance and only 12 percent of Indonesians use insurance products and services, according to an OJK survey. Global re-insurer Swiss Re also noted that the country'€™s insurance penetration only amounted to 1.77 percent of GDP in 2013, versus 6.03 percent in Singapore and 4.8 percent in Malaysia.