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2013/SMEWG37/018 Agenda Item: 11.2.1

Financial Inclusion and MSME Programs in Indonesia

Purpose: Information

Submitted by: Indonesia

37th Small and Medium Enterprises Working Group Meeting

Bali, Indonesia4-5 September 2013

APEC 37th MeetingSMEs Working Group

2013

FINANCIAL INCLUSION ANDMSME PROGRAMS

IN INDONESIA

Eni V. Panggabean

Executive Director Department of MSME and Financial Access Development

Bank Indonesia

Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

11

22

33

2

NUMBER OF FINANCIAL INSTITUTION

Commercial Banks 120

Rural Banks 1.653

Insurance Companies 1397

Pension Funds 269

Multifinance Companies 200

Venture Capital 89

Securities Companies 754

Credit Guarantee Company

6

Pawn Broker 1

FACTS OF INDONESIAFACTS OF INDONESIA 3

High income OECD & non-OECD

92%

Central Asia & Eastern Europe

50%East Asia & Pacific

42%

South Asia

22%

Middle East & North Africa

42%

Sub-Saharan Africa

12%

Latin America & Caribbean

40%

Sourcer: Worldbank, Global Financial Inclusion Index , 2011

Indonesia 19.6%Malaysia 66.7%Philippines 26.5%Thailand 77.7%Vietnam 21.4%India 35.2%China 63.8%Russia 48.2%Brazil 55.9%

INDONESIA

20%

World Bank (2011) : There is only 20% of Indonesian adults have owns account balance in formal financial institution

Indonesia has a huge economic potential and large market for financial services• More than 13,000 islands • Population: + 234 million 1)

• GDP Growth 2012: 6.23% yoy 2)

• GDP per capita Dec 2012: USD 3.051 2)

• Banking industry covers ± 75.8% of assets in financial sector

Source: 1) BPS, 2010; 2) BPS, 2012

Source: Bank Indonesia and Bapepam-LK, 2012

75.80%

1.20%

10.10%

2.80%6.10%

0.10%0.10%

3.30%

0.50%

Market Share of Indonesia Financial System by Total Assets

Commerical Bank

Rural Banks

Insurance Company

Pension Funds

Multifinance Companies

Venture Capital

Securities Company

Mutual Fund

Pawn Broker (Dec'11)

There is a huge gap in poverty level disparity between provinces in Indonesia

(Jakarta = 4%, Papua = 31%, Indonesia = 12 %)

INDONESIAN POVERTY CHARACTERISTIC

Source : BPS, 2012

4

BIG GAP

3.70

3.95 5.

01

5.37

5.71 6.19

6.38 6.83 7.64

7.96

8.00

8.05

8.06

8.28 9.

82

9.89 10

.41

11.6

6

13.0

1

13.0

6

13.0

8

13.4

8

14.9

4

14.9

8

15.6

5

15.8

8

17.2

2

17.5

1

18.0

2

18.5

8

20.4

1

20.7

6

27.0

4 30.6

6

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Poo

r p

eop

le (

%)

LEVEL OF ACCESS TO FINANCIAL SERVICES 5

• More than 50 per cent of Indonesia household have no access to bank financial services

• Less than 20 per cent of Indonesia poor household have access to bank financial services Source : Improving Access to Financial Services in Indonesia, World Bank, 2010

THE ROLE OF MSME IN INDONESIAN ECONOMY

The trend of MSME Credit The Medium Scale Enterprise loan dominates the

MSME Credit (49,73%) The growth of MSME Credit around 15,39% (yoy)

and around 10,83% (yod)

MSME are the back bone of Indonesia’s economy but they get only a small portion of banks’ financing

MSME play a crucial role in Indonesia’seconomy:

MSME are dominating the business units withshare up to 99,9% of total business units.

MSME absorbs around 97,2% of total laborforce.

MSME contributes around 59.1% to the GDP.

Source: MSME Statistics 2012, Ministry Cooperatives and MSME

Source: Bank Indonesia, June 2013

6

MSME, 97.2%

Large Scale, 2.8%

Job Creations

MSME, 59.1%

Large Scale, 40.9%

Contribution to GDP

CONSTRAINT OF POOR HOUSEHOLD AND MSME

SUPPLY SIDE Asymmetric information

Transaction cost vs Profit Gained

Service and Product are not fully fit to the need of people

High Technology for effective the distibution channel

Regulation and Policy for effective access to finance

DEMAND SIDE Limited financial capability, education, experience and psychological factors

Limited skills and capability in doing business

Formal identity problem

Innovation is needed to address the constraint of financial inclusiveness…

7

Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

11

22

33

8

Main Goal

Strategy

To reach economic welfare through poverty reduction, distribution income, and financial system stability in Indonesia by creating financial system that can be accessed by whole people in this country

Target GroupsMigrant Employee Group and People in Remote Areas

Very PoorWorking Poor/

Productive Near Poor Non - Poor

FINANCIAL INCLUSION FRAMEWORK 9

Poverty reduction

Financial System

Stability

Equitable Income

Distribution

Productive and high purchasing power societyEasy access to financial system

Financial Education

Intermediary/Distribution

Facility

Supporting Regulation/

Policy

Mapping on Financial

Information

Public Financial Facility

6 Pillars of Financial Inclusion

Customer Protection

BALANCING POLICY FOR FINANCIAL INCLUSIVE & PRUDENT OPERATION

10

1. Simplicity; 2. Customized; 3. Flexible

1. Equal Treatment;2. Procedural; 3. Standards;4. Compliance based;

PrudentInclusive

Indonesia Policy

FINANCIAL INCLUSION AND MSME PROGRAMS 11

• Education (poor household & MSME)

•National Campaign

•Research and Diagnostic

• Gov’t Credit Programs

•G2P channel

•Financial Identity Number (FIN)

•MSME information system

• Multilicensing• Provision of

Credit / Financing by Commercial Bank and Technical Assistance for MSMEdevelopment

• Branchless banking

• TabunganKu• Branchless

banking• “Start-Up”

Credit• Land

Certification• MSME Rating• Credit Bureau• Micro Insurance

Strategy

Program• Banking

Mediation• Product Transperancy

FINANCIAL INCLUSION AND MSME

12

Branchless Banking

Hand Phone number

As account number of no frill account “TabunganKu”

TabunganKu/basic saving account

Financial Identity Number

Survey FinancialLiteracy

Customer profil data

Credit Rating

Financial Inclusion Information System

Micro credit

G2P transactioneg. Disbursement of social program

Bank Led/Telco Led

database

Price Information

Financial Education

Research & Diagnostic

12

13

2009 2010 2011 2012 2013 2014

Start-up creditDevelopment of financing scheme and financing generic model

Branchless Banking

Pilot Project

Guiding Principle for Branchless Banking Pilot ProjectResearch on Branchless

Banking Development

Progress of Financial Inclusion Program: What have we done so far? 13

System Information of

Financial Inclusive (SIFI)

Tailoring Strategy for SIFI

Blueprint of Financial Education

National Campaign “Let’s Go to the Bank”

Indonesia Saving Movement (Gerakan Indonesia Menabung)

Financial Education

TabunganKu

Intensive campaign of GIM

Financial Literacy Survey

Let’s Go to The Bank

Financial Identity Number

Baseline and Comprehensive Survey

FIN Information System Development

TabunganKu/ Basic saving

account

14

No.Program &

TargetGoal Progress

1. Financial Education

a. Student(elementary, junior high/equal, senior high/equal, university)

• to enhance financial education• to input financial education to

national curriculum

Integrate financial education into National Curriculum for Senior High School in 2013

b. Migrant worker • To enhance financial education Assessment to integrate financial education into basic curriculum of worker training.

c. Certain society group including migrant worker

• To enhance financial education. Preparation of material and financial education plan.

2. Financial Identity Number (FIN)

General society, especially unbanked people.

Provide the database of unbanked people , that can be accessed by financial institution to bridge the an asymmetric information.

FIN Database development :• Baseline survey : 400.000 data• Comprehensive survey : 600 data

3. TabunganKu / Basic Account

General society & student To broaden the financial services access for society through “no frill account” product

TabunganKuJune 2013: 3,93 millions accounts in the amount of Rp4,31 trillions

Champaign : Indonesia Saving Movement

General society & Student As an effort to increase society awareness to saving

Bank Indonesia, sent an appeal letter to all banking sectors to support the Saving day (Hari Rajin Menabung)

PROGRESS OF FINANCIAL INCLUSION PROGRAM

PROGRESS OF FINANCIAL INCLUSION PROGRAMNo.

Program &Target

Goal Progress

4. Branchless Banking

Remote area society & Unbanked people

Enhance financial service access using technology instead of physical bank.

Branchless Banking Pilot project • Participant :

5 banks and 3 telecommunication companies

• Conducted in 8 provinces in Indonesia.

5. Credit for beginner (Start-up credit)

Novice entrepreneur Developing financing scheme for novice entrepreneur

Development of Financing Scheme

6. System Information of Financial Inclusive (SIFI)

General Society • Tailoring financial inclusive policy and regulation.

• As a base for decision making• Database study material.

Tailoring Strategy of SIFI

15

Access to Finance Condition in Indonesia

Financial Inclusion and MSME Program

Collaboration and Strategic Partnership

OUTLINE

11

22

33

14

17

Banking Association

Bank Indonesia /

OJK

DPR / DPD

Related Ministry

Regional Government

BPD / BPR

Regional Office of

Bank Indonesia

Education institution

• Policy• Regulation

• Championship Sector

• Sectoralfostering and development

•Mapping leading sector & regional creative industry

•Business model development.

•Regional Banks and Rural Banks development

•Finance Infrastructure: PPKD

•Main player and regional host•Pioneer of Decreasing Micro Interest

Rate

•Capacity Building• Infrastructure

Synergy

Capacity Building

•Endorsement & constitution supports

National Economic

Regional Economic

COLLABORATION AND STRATEGIC PARTNERSHIP IN NATIONAL AND REGIONAL ECONOMIC DEVELOPMENT 15

WAY FORWARDIn order to improve access to finance services, particularly for the unbankedpeople, Indonesia recognising:• The importance of combating financial illiteracy that can increase financial

capability and assist the effectiveness of financial inclusion throughfinancial education;

• The importance of innovative delivery channel (namely branchless bankingand Financial Identity Number (FIN)) in order to increase access and tobroaden the outreach financial services for unbanked people;

• The importance of a strong collaboration and coordianation among theparties involved to achieve synergy and avoiding redundancy for efficiencyand effectiveness because financial inclusion is an ongoing process.

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