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How public policy deals with challenges in the banking sector
Based on the Cybersecurity Exposure Index survey in 2020, the cybercrime index in Indonesia currently reaches 0.62, higher than the global average of 0.54.
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The banking industry long enjoyed popularity among students, attracting quality job-hunters. However, the current trend is expected to have a certain influence on the job market. (Shutterstock/File)
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ublic policy can be generally defined as "a set of laws, guidelines and actions decided, taken and promulgated by the governmental entity or its representatives in favor of the public."
The banking industry has become one of the significant determinants of economic dynamics in each country. It not only provides funds for production and consumption, but the industry also serves as a medium for the public to save. With its essential role, the banking industry's performance contributes considerably to economic activities in every jurisdiction, including Indonesia.
A widespread bank panic in 1997/1998 underlined the potential role of banks in destabilizing the entire financial system in Indonesia. The public-policy implications of banking got reiterated and heavily underscored as sovereigns had to bail out banks experiencing liquidity problems. Financial stability has become a paramount objective of banking regulation in addition to depositor and consumer protection.
There are some challenges standing in the way the Financial Services Authority (OJK) designs public policy in the banking sector.
First, banks are seen as powerful institutions to facilitate economic growth and inclusive growth. Hence in many jurisdictions, especially in Indonesia as an emerging market economy, the role of public policy is not only confined to micro and macro-prudential regulations but also extends to matters concerning access to finance.
OJK discovered financial inclusion rate in the country stood at a 76.19 percent in 2019. Indonesia is lagging behind neighboring countries such as Singapore (98 percent), Malaysia (85 percent) and Thailand (82 percent).
Financial inclusion has a vital role in improving the community's standard of living. One of the obstacles faced by Indonesia is that many people remain unaware of the benefits of products from financial-service institutions; another is the lack of knowledge of small entrepreneurs about how to administer their financial transactions to become bankable customers.
