Financial technology (fintech) companies, together with the government’s noncash social aid program, have improved financial inclusion in the country by giving more people access to financial services, a recent survey shows.

According to the 2018 Financial Inclusion Insights Survey, the results of which were published by the National Committee for Financial Inclusion (DNKI) on Thursday, 55.7 percent of the respondents had formal financial accounts with banks, fintech companies or cooperatives in 2018.

That figure marks a jump in financial inclusion from 35.1 percent in 2016 and moves the country closer to President Joko “Jokowi” Widodo’s target of 75 percent financial inclusion by the end of this year. If achieved, 75 percent of the country’s adult population would have access to financial services, such as savings, loans, insurance, pensions and payments.

The survey, which involved 6,695 respondents in all provinces of Indonesia, however, revealed that only 38.7 percent of the respondents have bank accounts.

“Digital technology is the enabler of financial inclusion. As more and more people use smartphones and online payment systems, it has the potential to be the game changer,” DNKI project management head Djauhari Sitorus told reporters on the sidelines of the report’s publication in Jakarta on Thursday.

The survey found that the rate of smartphone users reached 70.2 percent of the population in 2018, while smartphone-based electronic transactions had more than quadrupled since 2016.

Financial inclusion is a government priority as it is expected to help boost economic growth, lead to a more even distribution of income, alleviate poverty and increase financial system stability.

Djauhari said Indonesians who did not have any formal financial accounts could adopt financial services through fintech. He highlighted the increase in the number of smartphone users and the use of electronic transactions, which had opened up opportunities for financial service providers to reach the so-called unbanked population that had no access to formal financial services yet.

He said, however, that the survey was “unable” to specifically measure fintech’s contribution to financial inclusion, as that would require a more thorough study.

Fintech companies, former foes of the banking industry because of the disruptions they cause, are now collaborating with banks to reach unbanked people by giving them access to financing.

Peer-to-peer (P2P) lending platform Amartha, for instance, works together with privately owned Permata Bank and Mandiri Capital Indonesia, a subsidiary of state-owned Bank Mandiri, to provide loans for businesswomen in villages across Indonesia. Meanwhile, another P2P lending platform, TaniFund, takes a different approach by obliging farmers to have at least one bank account to receive loans.

About 92 million of the 181 million Indonesians were still unbanked, as they did not own a bank account and had insufficient access to credit, investment and insurance services, according to the e-Conomy Southeast Asia report released recently by American tech giant Google, Singaporean holding company Temasek and management consulting firm Bain & Company.

“Digital financial services have the potential to solve many of these challenges. Enabled by technology and based on robust data, they can help to increase access, improve convenience and deliver more inclusive financial services,” the report stated.

The World Bank’s 2017 Findex report shows that Indonesia has made progress in getting adult citizens involved in the financial system, bringing the percentage of adults with bank accounts up to 48.9 percent in 2017 from 36.1 percent in 2014.

Its study defined financial inclusion as ownership of bank accounts, while the DNKI survey included those who have access to the financial system through banks and other institutions, such as fintech companies.

Iskandar Simorangkir, undersecretary for macroeconomics and finance at the Office of the Coordinating Economic Minister, attributed the increase in financial inclusion partly to the disbursement of social aid through banks.

“This is in line with the DNKI’s program to boost bank account ownership through cashless transactions as the government’s social aid, such as [for the] Family Hope Program and the noncash food assistance program, is [paid out] through bank transfers,” said Iskandar during his remarks at the event to publish the survey.

He added that the government would push for several programs to further boost financial inclusion, such as strengthening financial literacy and consumer protection, optimizing the role of bank agents, enhancing digital financial services and speeding up property rights certification.

“What we expect is actually a financial inclusion that is measured through the number of loan accounts [rather than savings accounts], as that will show us if the financial institutions really finance most Indonesians,” said Center of Reform on Economics Indonesia research director Piter Abdullah.

He urged the government to increase inclusion by enhancing financial literacy, boosting loan issuance to micro, small and medium enterprises and spurring credit demand by supporting economic activity.

A lack of financial literacy, particularly in rural areas, was still the main hurdle for financial inclusion in the country, said Institute for Development of Economics and Finance senior economist Enny Sri Hartati.

“We need to promote financial literacy, because lower income earners are still unaware of the benefits of having a bank account, which is considered something for the elites,” said Enny, adding that social aid from the government could open up opportunities for people on low incomes to eventually get bank loans.

Popular

Volcano erupts in North Sulawesi, hundreds evacuated

Dubai roads, airport reel from floods after record rains

Ramadan boosts consumer confidence, retail sales