Bank Indonesia policy on Financial Inclusion

The 1st International Islamic Financial Inclusion Summit 2012

Dr. Muliaman D Hadad

Outline

• Facts and Figures • BI Household Survey • National Strategy on Financial Inclusion • Bank Indonesia Initiatives on Financial Inclusion • Challanges Ahead

Fact and Figures

Some key facts of Indonesia:– Population of Indonesia: 237 million– GDP per capita: USD 3,508– Banking industry holds more than 80% of financial sector assets– 97.4% of banks accounts are less than Rp100 million (less than USD10,000)– Number of commercial banks: 120– Number of rural banks: +1.667– Number of cooperatives: +13.000– Number of microfinance institutions: +8.000

Category Quantity Percentage on Total Population

Population 237.641.326 Number of Loan Account 37.929.527 15,96%Number of Insured life Insurance 34.564.028 14,54%Number of pension fund participant 2.817.997 1,19%

Public access on financial services is relatively low that is reflected by (a) the number of loan accounts which reach only 15.96% of the population, (b) the number of insured life insurance which reach only 14.54% and (c) the number of pension fund participants which is only 1.19 %

No Indikator Indonesia Malaysia Thai Phil Brazil

1 Financial Services Utilization*) (Percentage of Total Population)

Account at Formal Financial Institution 20% 66% 73% 27% 56%

Adults saving in the past year (using Formal Account) 15% 35% 43% 15% 10%

Adults Originating a new loan in the past year (Formal Financial Institution)

9% 11% 19% 11% 6%

Adults With Mortgage 1% 13% 5% 4% 1%

Adults paying personally for health insurance 1% 16% 24% 5% 8%

2 Banking Services Access**)

Number of Bank Branch per 1.000 km2 7,71 6,18 11,59 15,69 2,33

Number of Bank’s Branch per 100.000 adult population

8,32 10,48 11,16 7,69 13,76

Number of ATM per 1.000 km2 12,39 33,12 80,68 30,35 20,46

Number of ATM’s per 100.000 adult population 13,37 56,18 77,69 14,88 120,62Source : *) WorldBank Policy Research Working Paper, April 2012**)IMF & WorldBank, 2010

Financial Services : Comparison

ACCESS TO FINANCE IN INDONESIA

Below Poverty Line

Living in Rural Area

13.33% 64.25%

Without access to bank

60%

% MSME compare to total business

unit

99.91%

MSMEs that have not been linked to bank

60-70%

5

Outline

• Facts and Figures

• BI Household Survey • National Strategy on Financial Inclusion • Bank Indonesia Initiatives on Financial Inclusion • Challanges Ahead

Save in bank, non bank institution,

Non Financial Insti-tution

39%

Do not have saving ac-

count 62%

2010

Save in bank, non bank institu-tion, Non Finan-cial Institution

48%

Do not have sav-ing account

52%

2011

BI HOUSEHOLD SURVEY : Saving

BI HOUSEHOLD SURVEY : Saving

Save in Bank Save in Non Bank Financial Institution

Save in Non Financial Institution

34.72%

3.78%2.57%

43.57%

6.06%

3.30%

2010 2011

9

With Loan 45%

Without Loan 55%

2011

With Loan 41%

Without Loan 59%

2010

BI HOUSEHOLD SURVEY : Credit

BI HOUSEHOLD SURVEY : Credit

10

Loan from Bank Loan from Non Bank Financial Institution Loan From Non Financial Institution

18.21% 17.84%18.46%

19.58%

16.04%

24.37%2010 2011

Outline

• Facts and Figures • BI Household Survey

• National Strategy on Financial Inclusion • Bank Indonesia Initiatives on Financial Inclusion • Challanges Ahead

National Strategy on Financial Inclusion

12

Mission

Vision

13

Financial Inclusion Framework

: On going Programn by BI

: Program will be conducted by BI: Paralel program with other

institutions outside of BI

Remarks Infrastructure

Financial Access to Bank andNon-Bank Financial Institutions

Saving

Credit/ Financing

Insurance related to Credit

Payment System

Other financial Services for MSMEs

Main Products

Fin.Education & Customer Protection

Mapping on Financial

Information

Intermediation Facilitation

Distribution Channel

Supporting Policy &

Regulation

Strategic Target

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Financial Education

The Improvement of financial literacy on: a. Banking products ;b. Consumer Protection;c. Financial management

Financial Eligibility

Increasing the number of eligible/bankable person or SME’s

Policy and Regulation

Preparing the regulation that support financial access and eliminating the various types of barriers

Intermediation

Increasing the range of formal financial system especially to remote areas community

Distribution Channel

Increasing the financial distribution channel in terms of number and quality

Outline

• Facts and Figures • BI Household Survey • National Strategy on Financial Inclusion

• Bank Indonesia Initiatives on Financial Inclusion • Challanges Ahead

16

Financial Education and Customer Protection Programme

Financial Education for Student & Migrant

Workers

Financial Planning

Financial Literacy Survey

• School curricula• Pilot Project in 6 provinces for elementary & junior high school

• Joint workshop & expanding outreach• Financial education for migrant workers in 5 provinces• Establish local financial education team

• Basic Saving Account with no administrative charges• TabunganKu, targetted to achieve 5 million account and Rp5

trillion by end of 2012• Campaign of TabunganKu

• Joint effort, Bank Indonesia and banking industry

• Policy recommendation on financial education• Fine tune financial education programme

Pillar 1 - Education

Financial Education and Customer Protection Programme

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Financial Mapping & Intermediation Facilitation Programme

Financial Identity Number

• Baseline and comprehensive surveys• Database of individuals’ financial track record

• Integrated with national identity database

Pillar 2 - Eligibility

Pillar 3 - Intermediation

Financial Mapping & Intermediation Facilitation Programme

Start-up Credit • Affordable credit scheme for new entrepreneur and

productive poor• Cooperation with related governmental institutions

18

Distribution Channel and Supporting Regulation Programme

National Strategy for Financial

Inclusion• Guidance for implementing financial inclusion

initiatives• In the process of endorsement from the President of the

Republic of Indonesia

Pillar 4 - Distribution

Pillar 5 - Regulation

Distribution Channel and Supporting Regulation Programme

Branchless Banking• Expanding access into remote area

• Agent banking, mobile banking, electronic banking• IT Based infrastructure

Outline

• Facts and Figures • BI Household Survey • National Strategy on Financial Inclusion • Bank Indonesia Initiatives on Financial Inclusion

• Challenges Ahead

Challenges Ahead

Supporting Regulation

• Regulation to protect the rights of MFI consumer

Financial Eligibility

• Revisit regulation related to the opening of bank account for lower income people

• Regulation to promote start up credit : should deal with bank prudential regulation.

Problems Identified Pillars Proposed Program

Lack of Customer Protection Framework for MFI Customer

Lower income people is categorized as unbankable since they can not fulfill bank requirement

Challenges Ahead

Problems Identified Pillars Proposed Program

Education• Coordination and cooperation with

the educational authorities• The promotion of saving habbit to

the school students

Intermediation Facility

• Policy to promote linkage program which satisfy the banks and MFIs

Distribution Channel

• Regulation on Branchless banking : to support and to protect customer and banking industry.

Accelerating Financial education Program

Banks and MFI compete in the same segment

Financial services for people in remote are

Thank You