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Jakarta Post

Fintech Talk: Fintech: Moving beyond financial literacy

  • Aldi Haryopratomo

    Indonesian Fintech Association's financial inclusion and literacy head and RUMA CEO

Jakarta   /   Tue, March 14, 2017   /  01:29 pm
Fintech Talk: Fintech: Moving beyond financial literacy Fintech Talk (JP/File)

“She borrowed money to maintain her lifestyle, even though it is unlikely that she will be able to repay [it]. Her husband works as a day laborer. Now, no bank, cooperative or money lender will give her loans anymore,” Evi Ujiani said about her neighbor Ani.

As someone who often organizes community events in Tegal Wangi village, Evi also runs several support groups for her neighbors and friends.

The topic that comes up most frequently is day-to-day financial decisions, like borrowing and purchasing goods on installments.

For Ani, more access to loans does not increase her prosperity. It actually put her in a cycle of never-ending debt.

Last year, Financial Inclusion Insights published research that concluded that too much access to motorcycle loans was likely to increase poverty in Indonesia. More access to financial services does not always result in positive outcomes.

(Read also: Fintech Talk: Loan provision for the unbanked. Is it possible?)

So how can financial technology (fintech) companies help those who already have access to financial products make better financial decisions?

We can use a health analogy to try to answer this question.

These days, there are plenty of food options, from candy to burgers to salads.

We need to know which foods are good for us and which ones are not. We should thank our parents for always saying, “eat your vegetables.”

Sugar and calorie labels on food packaging provide transparency that should lead to better decisions.

(Read also: Fintech Talk: The emergence of fintech: disruptive or collaborative?)

In finance, there are already activities to increase citizens’ financial literacy. Both the Financial Services Authority (OJK) and Bank Indonesia have put financial literacy as one of their key priorities.

The early results were positive, as the financial literacy index in Indonesia increased to 29.7 percent in 2016 from 21.8 percent in 2013.

Fintech companies have provided a new twist on how to learn complicated financial concepts, such as calculating your mortgage interest rate.

Mindblown Labs, for example, does so through a mobile game that is to use.

Yet even though most people are aware of what they should eat to stay healthy, how many people actually do so? Changing your diet is difficult because it requires you to change your habits.

A few things are usually needed to make a new habit stick — a consistent program for you to follow and community support.

First, program consistency, one proven technique to keep to your diet is to stick to a program.

Fintech startups have also been successful at building habits through program automation.

Qapital, for example, is an app that forces you to stick to your savings habit by automatically deducting money from the users’ bank accounts to be put into a separate account tied to a specific financial goal.

This is possible because the banks in the United States have enabled customers to authorize third-party applications to view and deduct bank balances, which is something not yet widely available in Indonesia.

Second, community support, no matter how great the program, without the help of a coach and your surrounding community, sticking to a diet is tough.

The same goes for making better financial decisions. Having support from the community to refrain from making bad decisions is essential. Having a coach that can help you make a realistic plan is even better.

Evi is a coach who can combine technology with community leadership. Even though others would not lend to Ani, Evi decided to give Ani a second chance.

Evi helped Ani get a loan for a rice cooker through Mapan, a rotating savings and credit group (arisan). Other group members also vouched for Ani’s capability to make repayments.

Unlike any other arisan, Mapan has a mobile app that helps members create financial plans, allocate each member’s contribution and manage recurring payments.

After the rice cooker arrived, Evi continued to support Ani to follow her financial plan. Within two months, Ani was able to pay off the rice cooker.

She regained the trust of her neighbors. Now she is applying to be a Mapan leader. She is ready to create her own arisan group and help others make better financial decisions.

Never underestimate the power of a supportive community to change your habits.

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