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The benefits of financial services are certain in the course of economic development. Policy makers realize that a great deal may be acquired if financial services can reach people who are currently underserved.

The poor and the vulnerable are partly underserved because they feel that they do not have money and therefore do not need nor benefit from financial services. However, such a reason is groundless since in the long term, economic growth has enabled Indonesia to join lower middle-income countries, with 2013 income recorded at around US$3,500 per capita. Economic growth has also brought down the number of people living below the poverty line. In 2000, right after the Asian financial crisis, there were about 38.7 million people living below the poverty line. In March 2014, more than 10 million people moved up above the poverty line, leaving about 28.3 million people below the line.

However, 48 percent of Indonesian people do not have access to financial services. From the 52 percent of Indonesian people that have access to financial services, only 50 percent save in banks and 17 percent borrow from banks. The penetration of bank branches and ATMs is still very low in Indonesia. On average there are only 9.24 bank branches per 1,000 square kilometers, compared to 9.76 in Singapore, 11.77 in Thailand and 19.91 in Malaysia.

Financial services among the poor and vulnerable in Indonesia are still limited. Despite a significant amount of money released by the government of Indonesia for transfer payments, the main delivery method is still cash payments through post offices. The use of formal accounts is very limited, unlike in the Philippines where the mandatory payment method in transfer payments is through banks. Savings are considered as financial services that can be extended out to the poor and the vulnerable. Unsurprisingly, for them, savings are more common at arisan (community gatherings) that can act as savings clubs, compared to formal financial institutions. Another type of financial services is loans, and in Indonesia borrowing from family members and/or friends is more popular than borrowing from financial institutions.

Promoting financial services for the poor and vulnerable would require efforts from all relevant agencies. Financial inclusion is about reaching out to the poor and vulnerable in ways that allow them to take part in the world of financial services either for saving or getting credit. There are at least three ways to do this. First is by providing savings access to the poor and second is a microcredit scheme for the poor and vulnerable. And last is by enhancing Government-to-Person (G2P) or public transfer payments.

International experience has shown that savings and credit product design has significant impacts on individual decisions to use financial services. The design of savings products needs to consider some factors that might cause exclusions on saving. It ranges from soft persuasion such as prized savings (Kenya, Venezuela and Japan) and lottery-linked savings to coerced saving like the social-security program in the US '€” involuntary saving and financed by the government. To deal with the lack of discipline and to remove the family pressure of sharing, there are commitment savings like in the Philippines. In some countries, promotion of basic savings accounts (minimum balance, minimum documentation requirements and low fees) is still ongoing. In Indonesia, TabunganKu, an initiative of Bank Indonesia, is a generic individual savings account with relatively simple terms and conditions.

On the credit side, one of the best innovations in credit is group lending. In Bangladesh, Grameen Bank implemented solidarity lending where most of the clients are women and loans are typically for agriculture or retail purposes. Loans have low interest and do not require collateral but when one member cannot pay the loan on time,
other members must cover the repayment. A similar mechanism also exists in Indonesia, known as Simpan Pinjam (Kelompok) Perempuan or SPP, which was established under women'€™s business groups in rural areas.

Another innovation is branchless banking, where banking services are conducted through third parties as depicted in Figure 2. Further development of ICT enables the creation of new and mutually beneficial business models where branchless banking can extend a consumer basis to unbanked people using banking infrastructure and/or other technology platforms such as mobile phones. Bank Indonesia'€™s pilot project on branchless banking conducted by five banks in 2013 showed promising results. Most customers use the service for saving with frequent cash-in transactions with small ticket sizes. Trusted agents and brands are important and rural agents are better since they feel benefits more.

With the ratio of mobile phone subscribers at 121 percent in 2013, mobile branchless banking with agents is the way forward for Indonesian financial inclusion. Electronic payment systems can be a gateway for people to financial services products both from the demand and supply sides.

This system can also enable consumers who are relatively new to financial services to trust the services as well as the institutions that manage them. One key element of this system is electronic money (e-money) or mobile money (m-money). One example of an m-money scheme that is quite successful in delivering G2P transfers was developed for the distribution of conditional cash transfers in Brazil, called Bolsa Familia.

On Oct. 8, 2014, Indonesia started to use digital payments for the distribution of conditional cash transfers to 1,860 Program Keluarga Harapan (PKH) families using mobile branchless banking with agents (Agen Layanan Keuangan Digital) of two banks (Bank Mandiri and BRI). Moreover, Otoritas Jasa Keuangan is currently preparing regulations on branchless banking (Layanan Keuangan Tanpa Kantor, or LAKU PANDAI). With the stipulation of LAKU PANDAI regulations, the development of branchless banking in Indonesia will be accelerated.