Financial crises are not new. Many workers in Indonesia who are in their prime may barely remember the financial crisis of 1997-1998 – over 40 percent of the current population was not alive at that time and the majority of those of prime working age today – 25 to 54 years old – were children.

The two decades of gross domestic product growth that followed created opportunity for many across all levels of society, the crisis eventually becoming a distant memory. There is a well-known phrase: “a rising tide lifts all boats.” What sits at the heart of improving people’s lives and prospects are access to good healthcare, education and financial resources. 

While Indonesia may be able to hold onto many of the gains it made in universal healthcare and gender equality in education over the decades since the crisis, the economic reality of the last two years is that government safety nets are strained and for many across Asia, life has become more challenging. In Indonesia, the country’s Gini coefficient (which, according the Borgen Project NGO, is a measure of national consumption inequality), the country has seen an increase from 31.1 in 1999 to 38.2 in 2019. In these terms, inequality has increased.

In employment terms, women and youth were disproportionally hit across the region according to data from the International Labor Organization while UNESCO research reveals that children from less privileged backgrounds had fewer hours studying, reduced access to learning resources, and lower quality teaching support than their better off peers.

All this has an impact. A World Bank report shows that the decline in student reading levels in the four months to July 2020 alone could result in a present value loss of lifetime earnings for all students of about US$150 billion. That’s equivalent to 13.5 percent of Indonesia’s 2019 GDP.

At a time when current income and future prospects are under threat, the loss of access to safe credit could well compound matters for many.

Creating opportunities for improvement is critical at times like this. Increased financial literacy may seem like a luxury, but they are key tools for addressing inequality and can have an enduring impact on populations and economies like Indonesia. Access to these tools can empower people to realise their potential and take greater control of their future. Well-regulated lending combined with increased financial literacy are powerful drivers for any economy.

A 2021 Organisation for Economic Co-operation and Development report provides a clear summary: “Consumers are more likely to be able to build resilience in environments where they trust the financial services sector, receive clear communications about their financial products and related financial matters, feel that they have been treated in a fair and transparent manner, can access financial services that are properly tailored to their physical and financial needs and where mistakes are rectified promptly”. 

It also noted that even though nearly 100 percent of Indonesians were “active savers” – having put money aside in the previous 12 months – almost 60 percent of those had struggled to ‘make ends meet’ at times over that period. In addition, more than 20 percent of respondents had accepted fraudulent financial advice. The need for safe, consumer credit is clear.

However, with many lenders reeling from losses, write downs and write offs, a cautious approach to lending is key. Those with money and a good credit history can of course weather economic storms better. But with less credit available, those whose credit risk profiles may now have become less robust or more difficult to measure could find themselves without access to finance.

Lack of regulated credit can do more than result in missed opportunities. It can drive borrowers into the unregulated lending market significantly increasing risk and the financial burden on the borrower. It also removes from them their “credit history” meaning getting a foot on the regulated credit ladder remains a challenge.

In the age of online access to everything, governments need to make sure that this credit gap isn’t filled by unscrupulous lenders. The Financial Services Authority (OJK) has closed down hundreds of illegal fintechs and just last month put in place new regulations including minimum capital requirements for peer-to-peer lenders, a group that appealed to the underbanked but has come under attack by consumers for aggressive debt collection practices. This is welcome oversight.

Lenders need to play their part as well by investing in targeted technology that is able to properly evaluate risks which can be used to reduce unacceptable financial burdens for businesses or households. Allowing as many people as possible that can safely borrow to do so should be the goal. According to the e-Conomy SEA 2019 report published by Google, Temasek and Bain & Company, over three-quarters of the adult population of Indonesia either did not have a bank account or did not have access to adequate credit. That’s 137 million unbanked or underbanked people.

“Safely” also means helping to increase financial literacy across the population so that borrowers have the information and understanding to act responsibly. With only about 40 percent of the population financially literate in 2019, there is still far to go.

Governments are already working hard to rebuild economies. Indonesia’s presidency of the Group of 20 – itself a response to the 1997-1998 crisis – is centered on “Recover Together, Recover Stronger”, aiming to “leave no one behind”. Lessons have been learned and more informed plans are being implemented.

With mounting global issues – energy security, food supply disruption, rising inflationary pressures – the challenge of safe access to credit could be cast as non-essential. However, for many individuals and communities, access to responsible credit sources can be transformational.

If that access is cut off, the impact can also be transformational, and not for the better.

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The writer is non-executive director at Home Credit.