Poverty has been at the center of economic development issues, therefore many developing countries have pursued economic growth as one of their development goals. However, rapid economic growth can also raise the poverty rate to a serious level. Indonesia is an example of this phenomenon: a developing country that had an average poverty rate of 11.13 percent in September 2015, although its average economic growth was recorded at 5.5 percent in the 2011 to 2015 period.

Indonesia and the other G20 countries have agreed that an increase in financial access, especially for the poor, is needed. The poor include those with low income, those with uncertain income and those with unpredictable income. They also suffer from lack of access to financial products and services suitable for their needs. These unbanked people will eventually be marginalized, being unable to engage in optimized production activities and consequently not contributing significantly to the economy.

The financial sector has an important role in supporting the poor'€™s economic activities, enabling them to function properly. The support for the unbankable can be in the form of access and basic banking products and services such as savings, loans, transfer facilities, affordable insurance policies and transparency.

A comprehensive understanding of how Indonesians make financial decisions can improve financial access, allowing people to decide on savings, loans and their future. To support this, some effective behavior interventions are needed to increase savings, improve decisions on insurance, widen credit access, improve credit feasibility evaluation and encourage retirement savings. Each of these steps will face different challenges depending on the social environment, as well as certain people'€™s habits and needs.

One of the government efforts through Bank Indonesia (BI) and the Financial Services Authority (OJK) is promoting the branchless banking system, which is hoped to improve the ratio of financial access. Branchless banking could reduce banks'€™ operational costs, given the high costs of opening a branch in remote areas to reach out to economically-marginalized people.

Based on a 2012 data by BI, only 48 percent of households in Indonesia had savings either in a bank, non-bank institution or non-financial institution. To encourage people in remote areas to put their savings in banks , the banks could send agents to those areas without setting up a branch. In this way people would also not be burdened by the physical and administrative costs of going to a bank branch and opening up an account. Agents could inform people about how to become a bank customer, and the advantages of doing so.

Indonesia is one of seven Asian countries that have a financial inclusion program to improve financial access for the public. Financial inclusion is closely related to the number of adults who have a bank account in the formal financial sector (the financial inclusion index). Based on World Bank data, Indonesia'€™s financial inclusion index is 35.9 percent, much lower than Thailand (78.1 percent), Malaysia (80.7 percent), China (78.9 percent) and India (53.1 percent), but slightly above the Philippines (28.1 percent) and Vietnam (30.9 percent). However, between 2011 to 2014 Indonesia'€™s index increased by 16.4 percentage points, representing the most significant improvement among developing countries in East Asia & the Pacific.

This is due to the public'€™s increasing awareness that they can enjoy banking facilities for loans and savings for their business. Currently, the government is promoting the micro, small and medium-scale enterprise sector (MSME) sector, which is expected to open more jobs for people who have low levels of education and, in turn, decrease the amount of poor people in Indonesia.

With the rapid advancement of the MSME sector, opportunities have opened up for cooperation between SME entrepreneurs and banks in financial terms. For example, for entrepreneurs in remote areas that have employees who are poorly educated and are not aware of how to access banking facilities, banking agents could directly come to that area and assist employers and employees in providing information about banking. If employers start to save and earn in the bank, then after a few years employers can apply for credit and pay employees wages through their savings accounts. Hence employees will have bank accounts and can utilize banking facilities.

According to the Ministry of Cooperatives and SMEs, MSMEs contributed about 57.48 percent of the gross domestic product in 2013. There are many programs related with financing for MSME, including the micro credit program (KUR) which will be channeled by various financial institutions.

BI also requires banks to channel 20 percent of its lending portfolio into micro credit. Another measure already taken by the government was to lower the KUR lending rate from 12 percent to 9 percent. Although this type of credit can only be secured by non-newly established entrepreneurs, this will help SMEs entrepreneurs to get a lower lending rate, which is important for them to develop their businesses.

The government should create a new mechanism specifically for newly-established MSMEs by providing not only knowledge in finance and banking but also easy ways to obtain loans. The government is expected to provide a guarantee to banks through the related ministry and regulators so newly established MSMEs can access knowledge and loans. Strict supervision by the government is also needed so that newly established MSMEs run effectively and provide a contribution in income for businessmen and the country'€™s economic growth, something that will be enjoyed in the long run.
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The writer is an analyst at Mandiri Institute.

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