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Jakarta Post

Editorial: Access to financial services

The unfortunate fact that around 40 million people or more than 25 percent of Indonesia’s adult population have no access to formal financial services, and even have never opened a bank account, is a true reflection of the skewed distribution of finance, which is hindering growth and the development of poor households and small businesses

The Jakarta Post
Fri, July 1, 2011

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Editorial: Access to financial services

T

he unfortunate fact that around 40 million people or more than 25 percent of Indonesia’s adult population have no access to formal financial services, and even have never opened a bank account, is a true reflection of the skewed distribution of finance, which is hindering growth and the development of poor households and small businesses.

But the problem, as cited by Bank Indonesia deputy governor Muliaman Hadad at a conference on financial literacy and financial inclusion policy in Jakarta early this week, requires a solution from both the supply and demand sides.

This means the government should play an important regulatory and facilitating role in enhancing financial inclusion for a greater percentage of the population, while the private sector — financial service institutions — should see the huge untapped market for financial services as a great opportunity for market expansion.

It is within this perspective we see the important role of cooperation between the government (central bank) and the Organization for Economic Cooperation and Development (OECD), in promoting financial inclusion to a greater share of the population.

But a financial inclusion strategy and policy is not simply a matter of providing as many people as possible with as wide access as possible to the formal financial industry, and notably banking as its most basic component. Such a drive could be counterproductive if the financial literacy of most people remains very low and the rate of inflation cannot be brought below 5 percent.

Financial literacy is especially important because financial products and services are increasingly complex and accessible from a growing number and type of providers and through a wide variety of media of communications. Financial literacy is thus mostly about educating and empowering consumers so they are knowledgable about finance in a way that is relevant to their lives, and enables them to use this knowledge to evaluate financial products and make informed decisions.

From the government’s perspective, strengthening the existing legal and regulatory framework for the various formal financial institutions should also be an important step in improving access to finance and strengthening the protection of consumers’ finance.

For example, given the huge number of mobile phone and Internet users in the country, the government could expand the regulatory framework for service providers to use mobile and electronic banking, and allow both banks and non-banks to provide a wider range of services through low-cost mobile banking solutions such as short message service (SMS).

According to the World Bank, in the Philippines, person-to-person transfers are allowed by mobile banking, enabling Filipino migrant workers to send remittances worth millions of US dollars home every month. Indonesia could do the same, if its regulatory framework permitted it.

On the other hand, banks and other financial service companies should create and provide easier, low-cost banking services to enable low-income earners to open bank accounts. In this context, the Tabunganku (my savings) national campaign by the central bank and commercial banks, launched by President Susilo Bambang Yudhoyono last year, has become an entry point for educating small savers about financial services and products.

Encouraging people to use such small savings accounts gradually without administration fees would help them move toward normal savings accounts and fully utilize the range of financial services that meet their needs.

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