The International Monetary Fund, through its recently released book titled “Realizing Indonesia’s Economic Potential”, suggested that Indonesia needed to expand its domestic investor base, support financial innovation and enhance financial literacy.

“The authorities should continue to raise the public’s financial literacy, especially about digital financial services [DFS], through education,” Heedon Kang, a senior financial sector expert at the IMF’s monetary and capital markets department, wrote in the book.

Over the past several years, the country’s financial inclusion and literacy have improved, although the figures remain quite low. According to data from the Financial Services Authority (OJK), Indonesia’s financial literacy was recorded at 29.7 percent in 2016, up from 21.8 percent in 2013. The financial inclusion index also improved to 67.8 percent in 2016 from 59.7 percent in 2013.

The OJK conducts the national survey once every three years and the next survey will be conducted in 2019.

Authorities have issued a national strategy for financial inclusion, with the aim of achieving 75 percent financial inclusion by 2019.

The IMF also highlighted in its book that financial deepening is needed as the depth and size of Indonesia’s financial markets are largely behind that of its regional peers.

Citing its own 2015 report, the organization noted that Indonesia’s overall financial development lagged behind fellow emerging Asian markets such as Malaysia, Thailand and the Philippines.

In Indonesia, banks still dominate the financial system. Bank assets stood at 55 percent of GDP, whereas asset holdings by pension funds and insurance companies remain small with outstanding asset under management at 2 percent and less than 8 percent of the GDP, respectively. This reflects the country’s narrow domestic investor base.

It is also important to note that foreign investors hold about 39 percent of government securities denominated in the local currency, making Indonesia vulnerable to capital flow reversals.

“To achieve financial deepening and greater inclusion, Indonesia needs to strengthen fundamentals, including upgrading the supervisory and regulatory framework along with financial market development, establishing a liquid benchmark yield curve, promoting long-term financing with new financial instruments,” Kang mentioned.

Tirta Segara, OJK board of commissioner for education and consumer protection, said that the authority, together with related government institutions, had carried out efforts aimed at improving financial inclusion, such as distributing non-cash social assistance to ensure that vulnerable groups will have registered accounts in financial institutions.

“Currently, [authorities] are working on creating a national strategy for market development and deepening, which includes six financial markets, namely the foreign exchange market, capital market, money market, structured product market, bond market and Islamic financial market,” Tirta told The Jakarta Post recently.

So far, he added that the use of financial technology was also important to increase financial inclusion. The World Bank’s 2017 Global Financial Inclusion Index shows that many unbanked people use mobile phones. Therefore, the implementation of branchless banking, peer-to-peer lending, equity crowdfunding, is expected to boost financial inclusion, he added.

Responding to the statement, Piter Abdullah, a research director at the Center of Reform on Economics (CORE), agreed that the OJK has thus far made many breakthroughs to accelerate financial inclusion.

“However, the main focus of financial inclusion is still in banks; many other non-bank financial institutions are still untapped. Furthermore, financial inclusion is also still mainly targeted at funding,” he said.

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