Rural banks can, for example, establish a digital collaboration with financial technology (fintech) companies, such as peer-to-peer (P2P) lending platforms, or with conventional banks. “In order to survive, rural banks have to improve their services by applying digital technology,” Joko Suyanto, chairman of the Association of Rural Banks (Perbarindo), said during a recent seminar in Jakarta.

In Joko’s view, the growing digital transformation has opened a new window of mutually beneficial cooperation for rural banks, rather than a rivalry that could disrupt their business.

He said a discussion was ongoing between Perbarindo, P2P lending fintech companies and conventional banks to forge a partnership in digital services.

“Fintech [firms] can, for example, provide the digital platform in the collaboration, or also connect investors with rural banks.”

Rural banks can benefit from their conventional counterparts’ branchless services to serve their customers, he said.

Branchless banks allow customers to make banking transactions, such as withdrawing and depositing money to pay bills, without having to visit a bank.

Joko added that state-owned lender Bank Mandiri had launched a digital partnership pilot project with 150 rural banks in several parts of the country.

Under the cooperation, rural banks can issue electronic money called BPR e-cash, which allows users to deposit or withdraw cash.

Rural banks used to be the backbone of individual businesspeople or small and medium enterprises (SMEs), as they were considered a reliable source of loans for those living in small villages and the outskirts of cities.

However, their business has dropped sharply in the past few years amid growing competition from commercial banks, which have not only expanded to small cities, but also rural areas.

The government’s subsidized credit scheme provided through commercial banks to help micro, small and medium enterprises (MSMEs) has also severely hurt rural banks, which generally impose high lending rates.

The growing number of P2P lending fintech companies, which is accessible to anyone connected to the internet, has also added to their concerns.

In addition to struggling with a lack of capital, poor quality of human resources and regulatory restrictions, rural banks must also compete with commercial banks.

Speaking at the same seminar, Sigit Ariyotejo, head of micro business at online lending platform Modalku, acknowledged that there was a large opportunity for partnership and cooperation between rural banks and P2P online lenders.

Meanwhile, Roberto Akyuwan, a senior executive analyst for microfinance development at the Indonesian Financial Services Authority (OJK), strongly supported the operation of rural banks.

He added that the OJK was currently reviewing suitable programs that could help revitalize their business.

With the changes in people’s lifestyles, businesses should embrace digitalization to reach out to their customers, said Destya D. Pradityo, head of payment and financial services at e-commerce platform Bukalapak.

Indonesia has some 130 million internet users, more than half of the total population, he explained. However, only 25 million people are buying products online.

Destya is confident that the figure will continue to grow, making digitalization a must for Indonesian businesses. (sau)

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