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Jakarta Post

ADB approves $500 million loan for Indonesia to expand financial inclusion

  • Riska Rahman

    The Jakarta Post

Jakarta   /   Thu, December 10, 2020   /   01:46 pm
ADB approves $500 million loan for Indonesia to expand financial inclusion One hundred dollar notes are seen in this photo illustration. (AFP/Getty Images/Brendan Smialowski)

The Asian Development Bank (ADB) has approved a US$500 million loan to support Indonesia’s effort to expand access to funding for micro, small and medium enterprises (MSMEs) and marginalized groups, such as women and youth.

The loan is part of the multilateral financial institution’s program to promote innovative financial inclusion aimed at helping the government target and track financial inclusion and improve the payments infrastructure, the ADB said in a statement on Wednesday.

It is also expected to strengthen the regulatory framework for digital financial services, data privacy, consumer protection and financial literacy, the bank added.

“The program’s reforms support policy and technology enablers to foster innovations and boost financial inclusion by providing access to formal financial products and services, improving their quality and increasing their use by financially underserved populations,” ADB financial sector specialist for Southeast Asia Poornima Jayawardana said in the statement.

Based on the National Financial Literacy and Inclusion Survey (SNLIK) published by the Financial Services Authority (OJK), the country’s financial inclusion index reached 76.19 percent as of 2019. The figure reflects a significant increase from 67.8 percent recorded in 2016.

Despite the progress, Indonesia still lags behind other Southeast Asian countries, such as Malaysia, which reached 85 percent, while Thailand reached 82 percent.

The ADB program is expected to help the government reach its target of increasing the number of Indonesians using financial products or services offered by formal financial institutions to 90 percent in 2022.

Read also: Fintech's role in financial inclusion rises but infrastructure, literacy challenges loom

An inclusive financial services sector as the target of the program is hoped to reduce poverty and inequality, as well as support Indonesia’s long term sustainable development, the ADB stated.

Jayawardana added that financial inclusion would play an important role in Indonesia’s recovery from the COVID-19 pandemic.

“More equitable, efficient access to financial products and services will support government measures to mitigate the pandemic’s economic and social impacts, rebuild livelihoods and prepare for future economic shocks,” she said.

Indonesia has entered its first recession since the 1998 Asian financial crisis as its economy shrank 3.49 percent on an annual basis in the third quarter, as almost all gross domestic product (GDP) components fell amid the persistent rise in COVID-19 cases, according to Statistics Indonesia (BPS).

Indonesia passed a grim milestone of half a million coronavirus cases on Nov. 23, with around 6,000 new cases found on Wednesday. The new cases brought the national tally to 592,900, the highest in Southeast Asia despite the low testing rate.

Meanwhile, Indonesia’s more than 60 million MSMEs, which account for more than half of the gross domestic product (GDP) of Southeast Asia’s largest economy, are struggling to stay afloat with travel and social restrictions to contain the coronavirus severely affecting their income. Their operations are either closed or limited and many workers have been laid off or furloughed.

Read also: ADB pledges to double funds for Indonesia, pushes for green recovery