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Fintech could boost inclusion: IFC
As financial technology (fintech) continues to grow in Indonesia, the country’s financial inclusion index grows along with it
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As financial technology (fintech) continues to grow in Indonesia, the country’s financial inclusion index grows along with it.
According to the World Bank’s 2017 Global Inclusion Financial Index, Indonesia’s rating stands at 49.8 percent, up from 36 percent in 2014 and from 20 percent in 2011. The country is slowly but surely inching closer to its target of 75 percent financial inclusion by 2019.
According to Financial Service Authority (OJK) deputy commissioner Nurhaida, branchless banking programs and the fast growing fintech industry, specifically peer-to-peer (P2P) lending, played a key role in improving financial inclusion.
“Banks have continued to intensify their branchless banking programs. At the same time, the P2P [lending] fintech sector is also growing very fast,” she said during the Indonesia Fintech and Financial Inclusion Forum in Jakarta on Tuesday.
Around 780,000 agents are currently under the branchless banking program, which has served more than 19 million people, she said. In the first semester of 2018, meanwhile, financing through P2P lending increased 189 percent year-on-year (yoy) to Rp 7.6 billion (US$527,182) in transactions.
“Right now we have more than 50 P2P lending companies registered at the OJK and the same number of fintech companies are in the pipeline [for registration],” Nurhaida said. “This is a good sign for us [...] We hope these companies can reach more people outside Jakarta and Java Island.”
Despite the rapid growth, fintech still has the potential to improve financial inclusion in Indonesia. Some 95 million people currently do not have access to financial services, although 69 percent of them own smartphones, which is were fintech could fill in the gap.
Philippe Le Houérou, CEO of International Finance Corporation (IFC), a sister organization of the World Bank, said maximizing fintech to finance micro and small and medium enterprises (SMEs) could help increase financial inclusion. Some 58 million SMEs operate in Indonesia, but many face difficulties accessing financing from banks, he added.
“They [SMEs] remain significantly credit-constrained. In 2017, we estimated the finance gap at $166 billion. Fintech can potentially help to close the gap” Le Houérou said, adding that limited physical infrastructure was also a constraint for SMEs.
“Anyone with a mobile phone could access payment, savings, investment, credit and insurance.”
However, optimizing the use of fintech in Indonesia would require the government to expand internet infrastructure and increase fintech literacy.
“This means continued investment in broadband internet, mobile data services and access to critical data repositories, as well as digital identity [ID] infrastructure,” Le Houérou said, adding that regulators also needed to establish flexible monitoring frameworks.
According to Indonesian Financial Technology Association (Aftech) chairman Niki Luhur, fintech as a means for financial inclusion is possible, but supporting infrastructure related to digital ID is also needed. The face-to-face system for the know-your-customer (KYC) process for fintech has become an obstacle, he said, as it was difficult to assess customers who live across the archipelago.
“If [KYC] can be done digitally, we can accelerate the growth of fintech.”
