Blueprint for Poverty Reduction: Legacy for an Inclusive Ontario
Creating Inclusive Financial Services for Economic Growth and Poverty Reduction in Indonesia
description
Transcript of Creating Inclusive Financial Services for Economic Growth and Poverty Reduction in Indonesia
Presented at the 1st International Islamic Financial Inclusion Summit Solo, July 17th, 2012
P.S. Srinivas, Lead Financial EconomistFinancial and Private Sector Development Unit
World Bank Jakarta Office
1
Creating Inclusive Financial Services for Economic Growth and Poverty
Reduction in Indonesia
Outline of Presentation:
2
1. Financial Inclusion contributes to poverty reduction
2. Indonesia’s relative position on Financial Inclusion
3. World Bank’s engagements related to Financial Inclusion in Indonesia
4. How Islamic Finance links to Financial Inclusion
3
What is Financial Inclusion ? How does it contribute to economic growth and poverty
reduction?
How does Financial Inclusion relate to poverty reduction?
4
Poverty Reduction
Financial inclusion (Access
to Finance)
Expand the financial capacity of
the poor
Social inclusion(Access to Basic
Services )Promote
empowerment among the poor
(e.g., Health & Education, Social
mobilization)
Economic inclusion
Increase access to the income generating
opportunities for the poor (e.g., MSME
development)
Without inclusive financial systems, poor individuals and small enterprises will have to rely on their personal wealth or internal resources to invest in their education, become entrepreneurs or take advantage of promising growing
opportunities
5
Importance of Financial Inclusion for Poverty Reduction
Poorest(Cluster 1) with limited assets
Economic Inclusion
Social
Inclusion
Financi
al
Incl
usi
on
Poorer(Cluster
2)with sources
of income
Financi
al
Incl
usi
on
Economic
Inclusion
Social
Inclusion
Poor(Cluster
3)almost
graduate (still vulnerable)
Financi
al
Incl
usi
on
Economic
Inclusion
Social
Inclusion
i.e. PNPM Program:• Mandiri Rural-Urban,
Revolving Loan Fund (RLF)• PISEW (regional
infrastructure development)
• P2DTK (enhancing the development of underdeveloped region)
• KUR Program (partial guaranteed credit)
• KUBE program (joint business group program for productive poor)
NEEDS:• Asset Building• Entry point for
Formal Financial Services (saving)
• Asset Building & business start up
• Start Accessing Broader Formal Financial Services ( Saving, Credit, remittance etc)
• Financial management & Planning Skills
Escape from
poverty
• Asset & income expansion
• Regular Access to Formal Services
• Asset/life protection (insurance)
• PKH (CCT program)• Scholarship & school
operational assistance
• Jamkesmas (health assistance)
• Raskin (rice assistance)
Financial Inclusion goes beyond credit / microcredit
Financial Inclusion
Asset Building
Saving
Deposit
Mutual Fund/Stock
Income generating activities
Credit
Payment System
Leasing
Bonds
Risk mitigation
Insurance
Pension
Financi
al Educa
tion/E
ntr
epre
neurs
hip
Transa
ctio
ns
& T
ech
nolo
gic
al Supp
ort
7
Financial inclusion is four dimensional
• Meet the needs of consumer
• Stability & improvement to family, business, & economy
• Regularity & duration of use
• Increase in Financial Penetration
1.Access
2.Usage
3.Quality
4.Welfare
7
8
Financial Inclusion in Indonesia: Where are we? What is happening?
16
21
49
27
29
28
94
106
Mexico
Pakistan
Russia
Indonesia
Brazil
Philippines
Malaysia
Singapore
21
30
35
36
48
53
117
143
15
9
6
8
14
8
10
10
6
12
0
8
2
16
6
613
47
4
128
13
121
15
56
59
19
6
9
12
20
30
33
3,493
Indonesia’s access to finance is behind other emerging economies
9
Bank Deposit Value (% of GDP)
Bank Loan Value (% of GDP)
Bank Branches per 100,000 adults
ATM per 100,000 adults
ATM per 1,000 sq km
Source: IMF FAS 2011, data as 2010
Bank Branches per 1000 sq km
Formal financial sector is dominated by banks, and the poor segment is excluded from access to finance
10
Source: World Bank Study, Improving Access to Financial Services in Indonesia 2010
49 3 31 17
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(All sample)
Bank Formal Other Informal & Semi-formal Underserved
Using Formal - 52 %
Financially Served - 83 %
Underserved
19 2 40 39
0% 20% 40% 60% 80% 100%
Access to Financial Services in Indonesia(Poor Households)
Bank Formal Other Informal & Semi-formal Underserved
Using Formal - 21 %
Financially Served - 61 %
Underserved
The poor have much less access to formal financial services (Savings slightly better than credit but still limited)
11Source: World Bank Study, Improving Access to Financial Services in Indonesia 2010
Nationwide Access to FinanceOverlap Usages of Saving Instruments
No Saving31.9 %
Banks
Informal
16.6%
20%
1.9%
1.2%2.6%
7.5%
18.2%
Formal Non-Bank
41 3 18 6 32
0% 20% 40% 60% 80% 100%
Access to Savings in Indonesia(All sample)
Bank Formal others Informal Other's accounts Underserved
Using Formal - 44 %
Financially Served - 68 %
Underserved
12 2 21 5 60
0% 20% 40% 60% 80% 100%
The Poor's Access to Savings(Represents 13% of total HHs)
Bank Formal others Informal Other's accounts Underserved
Using Formal - 14 %
Financially Served - 40 %
Underserved
Informal sector has larger share than banks in credit
12
17 9 34 40
0% 20% 40% 60% 80% 100%
Access to Credit in Indonesia(All sample)
Bank Semi-formal Informal Underserved
Using Formal - 26 %
Financially Served - 60 %
Underserved
6 5 35 54
0% 20% 40% 60% 80% 100%
The Poor's Access to Credit(Represents 13% of total HHs)
Bank Semi-formal Informal Underserved
Using Formal - 11 %
Financially Served - 46 %
Underserved
Semi-formal
Informal
Nationwide Access to FinanceOverlap Usage of Credit Instruments
No Credit40.2%
33.6%
4.2%
4.6%
1.5%
2.5%
5.5%
7.9%
Banks
1. Do not have money
Series1 4%
9%
79%
Reasons for financial exclusion
13
Saving (Bank
account)
Credit
Insurance
2. Do not have a job
3. Do not see advantages of having a bank account
Series1 4%
20%
60% 1. Not creditworthy
2. Do not want to borrow
3. No collateral
1. Do not have money
2. Know nothing about insurance
3. Do not need insuranceSeries1 17%
29%
45%
Source: World Bank Study, Improving Access to Financial Services in Indonesia 2010
World Bank’s engagements in Financial Inclusion
in Indonesia
14
Who does the World Bank work with?
Government /Central Bank
Vice President’s Office
Bank Indonesia
Coordinating Min. of Economic Affairs
Bappenas
Min. of Finance, Bapepam -LK
Min. of Home Affairs
Coordinating Min. of People’s Welfare
Min. of Public Works
Min. of Cooperatives & SMEs
BNP2TKI
Min. of Manpower & Transmigration
Local Government
Civil Society
Research Institutes
Local community
based organizations
Private Sector
Commercial Banks
BPRs (Rural Banks)
Associations of Insurance
Companies
Credit Guarantee Companies
PPTKIS (Migrant Workers Recruitment
Companies)
15
The Range of Financial Inclusion Engagements in Indonesia
20072008
20092010 2011
16
2012
Pilot Project (Research on Fin. Literacy Assessment on MWs)
Diagnostic Stage
Individual Projects
Macro / National Strategy
Two Diagnostics Studies
Fin Literacy ToT for GoI
NSFI development
Microinsurance Regulatory Framework
Microinsurance Marketplace
Evaluation of TabunganKu (Basic
bank account)
Review on MW Microinsurance
Reform on GoI funded PNPM Mandiri RLFs Scheme
Branchless Banking regulatory review
Assessment on KUR (GoI Credit Guarantee
Program)
Islamic Finance for MSMEs
Strengthening Savings & Loans Cooperatives
Collaborative partnership
Results of collaborative partnership
20072008
2009 2010
2011
17
2012
Broader Awareness of Importance of Fin Incl among policy makers and regulators
National Strategy of Fin Inc ideveloped
Bappepam-LK Master Plan 2010-2014Facilitation of Microinsurance Development
No frills account (TabunganKu) introduced in Feb 2010 has reached more than 2.5 million
accounts
Awareness of Importance of Sustainability of GoI funded Fin Inc Program
- Reform of GoI funded PNPM Mandiri RLFs Scheme- Improving KUR scheme
KUR introduced and offered to previously unbanked MSMEs & TKIs
ASEAN Financial Inclusion Seminar
GoI Mid-Term Dev Plan (2010-2014): Improving Access to Finance for MWs
Commitment at G20 Mexico
Islamic Finance and Financial Inclusion for MSMEs in Indonesia
18
Islamic Finance in Indonesia: A fast growing industry with strong potential
The World Bank commissioned a study to look at access of Islamic finance for SMEs which include the following activities:
1. Reviewed current Indonesian Islamic finance industry (products, clients, etc.)
2. Conducted surveys: demand- supply side, covering 1,100 MSMEs and 100 Islamic Financial Institutions (IFIs)
3. Developing strategy to enhance access SMEs to Islamic finance
What the World Bank has done
2006 2007 2008 2009 2010 2011
20.45 27.94 38.20 46.8968.18
102.66
20.67 28.0136.85
52.2776.04
115.42
26.7236.54
49.5666.09
97.52
145.47
Assets, Financing and Deposits of Islamic Banks and Business Units (trillion Rp)
Financing Depositor Funds Assets
2006 2007 2008 2009 20100.00%
0.50%
1.00%
1.50%
2.00%
2.50%
0.99%1.15%
1.36%
1.71%
2.05%
Proportion of Sharia Insurance Assets
Source: BI, Bapepam LK, WB estimates
15%
81%
3% 1%
Proportion of Shares Bonds in local Bond Market
Corporate Bonds Goverment Bonds Government Sukuk
Corporate Sukuk
Sharia banks have been providing higher access to financing for SMEs - at 70%, compared to convential banks – at around 50%
Safer
Simple process
Reasonable transaction costs
Low admin fee
Attractive profit sharing rate
It suits MSME needs
Other
47.80%
67.20%
14.90%
4.50%
19.40%
53.70%
7.50%
The Reasons Why MSME Used Sharia Financing:
Sharia financing to MSMEs has been mostly used for productive uses – additional working capital for current business or expanding the business
15%
5%
7%
61%
11% Purchase new ve-hiclesPurchase goldPurchase new landIncrease business scaleOpen a new place/branch
Sharia Banks and MSMEs: Key Messages from the Study (1)
Sharia bank believe their products better serve the needs of MSMEs and their simple process for granting financing provides competitive advantage over conventional banks
Mar
gin
(cost
s, .
..
Cov
era
ge
Sim
plic
ity
Pro
du
ct v
aria
...
Bra
nd
Pro
moti
on
/Gift
Pro
cess
ing
tim
e
Ser
vic
e
Oth
er0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
85.10%
35.80%
82.10%
41.80%49.30%37.30%68.70%77.60%
7.50%
Important Factors in Choosing between Sharia and Con-ventional Financing
Cost (margin/interest), simple process and quality of services are the main considerations for choosing Sharia financing over conventional. Not much different factors seen in conventional.
Source: WB estimates
Source: WB estimates
2011 409400%
20%
40%
60%
80%
100%
120%
70% 71%
30% 29%
Non-SMEs
SMEs
Lack of understanding of Sharia products appears to be a significant hindrance for higher access of Sharia products by MSMEs
39%
22%3%
29%
3%4%
Why MSMEs do not use Sharia banks’ products?
Do not understand the products
No offers
Difficult to be reached/inac-cessable
No interest
Closely related to one particular re-ligion
OtherYes
No
57.50%
42.50%
If you understand the products, would you use Sharia products?
More than half of MSMEs surveyed said that they would use Sharia banks’ products, if they have enough understanding. Awareness can play a significant role in increasing the usage of Sharia financing
6%
67%
26%
1%
MSME's awareness about IFIs
Know it very well
Somewhat know
Have heard about it
No idea at all
Only a small share of MSMEs surveyed claimed to know Sharia banks and their products well
mudharaba1.34%
musharaka2.48%
murabahah
73.79%
istishna0.43%
ijara5.03%
Qardh16.94%
Most MSMEs use murabahah for Akad (73.79%) – there is a room for product diversification
Sharia Banks and MSMEs: Key Messages from the Study (2)
Source: WB estimates
A significant portion of MSMEs respondents (30%) indicated that do not have access to financial institutions. A more prevalent for Micro enterprises
Co
mm
erc
ial B
an
ks
Sh
ari
a B
an
ks
Sh
ari
a C
oo
pe
rati
ve
s (B
MT
)
Co
op
era
tiv
e
BP
R
Ind
ivid
ua
l le
nd
er/
loa
n s
...
Re
gio
na
l Ba
nks
Ve
ntu
re C
ap
ita
l (S
ha
ria
U...
Sh
ari
a B
PR
Co
mm
erc
ial B
an
ks (
Sh
ari
...
Sh
ari
a V
en
ture
Ca
pit
al
Bu
sin
ess
su
pp
lier
Pa
wn
sho
p
Ve
ntu
re C
ap
ita
l
Sh
ari
a P
aw
nsh
op
Sh
ari
a R
eg
ion
al B
an
ks
Re
gio
na
l Ba
nks
(S
ha
ria
U...
Oth
er0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
39.7%
29.6%
8.4%5.7%
3.5%2.3%2.2%1.8%1.5%1.3%1.0%1.0%0.6%0.6%0.3%0.3%0.1%0.1%There are around 4,000 BMTs in Indonesia. With their current presence in rural areas, these institutions have the potential to serve more productive poor at grass root level.
Empowering Micro Sharia financial institution such as the BMT is an effective strategy in enhancing financial inclusion (access to finance) for the productive poor and help them escape poverty.
MSMEs’ source of financing by type of institutions
Micro-Sharia financial institutions such as the BMT seems to be very popular source of financing by MSMEs, much higher than conventional cooperatives and rural banks.
Sharia Banks and MSMEs: Key Messages from the Study (3)
Source: WB estimates
70%
30%
Have access to any Financial Institution?
Yes No
CONCLUSION
23
Conclusion Financial inclusion is means to achieve poverty reduction
and local economic growth
A more “inclusive” Indonesia is an overall policy goal for the country
Financial sector should be inclusive as well Less than 50% of Indonesians have access to the formal
financial sector Less than a fifth have ever borrowed from a bank Much lower for poor
Enhancing Access to Islamic Financing for SMEs in Indonesia
The Islamic finance industry has been growing strongly in Indonesia, but it is still relatively small. Like its conventional peers, sharia banks dominate the industry.
Currently Sharia banks are already more inclined to served MSMEs. Building awareness can play a significant role in increasing the use
of Sharia financing by MSMEs. Empowering the micro sharia financial institutions can potentially
increase financing for productive poor who run micro enterprises.
ANNEX:World Bank Engagement on Financial Inclusion in Indonesia
25
Financial Services for Migrant Workers (PPP)Partners: BI, Commercial bank, PPTKIS
26
What we are doing
MWs have specific financial needsNumber of MWs is significant
Steady growth in the number of legal MW: around 520,000 in 2011 (drop in recent years was due to GoI moratorium policy)
Remittance growing: 6.9 USD billion in 2010 (about 1% as share of GDP)
• MWs have financial needs along the stages of migration, but lack of knowledge in financial literacy and financial credibility hinder their access.
• Credits• Saving
s• Insura
nce
Pre-Departure
• Remittance Channel
• Savings
• Insurance
During Migration
• Savings
• Credits
Post Migration
Assist BI to develop a business model that integrate a financial scheme covering each stage of migration process and providing MWs (and their families) with a wide range of financial services and products including credit, savings, remittances and financial literacy training to both MWs and their family
WB with BI +
Private Sector
0
2
4
6
8
10
0
200,000
400,000
600,000
800,000
People USD Billion
Total Legal MWs Total Remittance
Supporting
Government
Initiatives
Regulatory review on Branchless BankingPartners: IFC, BI, Banking Association, Telco Association
27
•Comparing cell phone penetration with access to finance, Indonesia has the highest potential for branchless banking implementation, (reaching 83 million individuals).
• Assisting BI in assessing the regulatory environment for branchless banking development in Indonesia which consisted of 3 components: Industry assessment Legal and regulatory review Oversight framework
Indo
nesia
Paki
stan
Bangl
ades
h
Niger
iaIn
dia
Phili
ppin
es
Afgha
nist
an
Mor
occo
Ugand
a
Cote
d'Iv
oire
0
10
20
30
40
50
60
70
80
90Top 10 countries by potential im-
pact (millions of individuals)
What we are doing
WB Initiativ
es
Improving microcredit scheme under PNPM MandiriPartners: Menko Kesra, Bappenas, MoHA, Min. Public Works
28
What we are doing
Project Title: PNPM Mandiri Revolving Loan Fund Capacity-Building and Sustainability Project Project Area : 4 provinces (Central Java, Yogyakarta, NTT and West Sumatra) Activities:
Restructure and improve performance of RLF operations (through needs assessment & technical trainings & capacity building )
Determine the legal structure of RLFs Establish linkage with commercial banks and other formal financial providers Develop a long term strategy for revitalizing PNPM Mandiri RLFs
Supporting
Government
Initiatives
29
• This pilot is a randomized research. The main objective is to evaluate the impact of financial literacy training for migrant workers and their families and to explore the effective ways to improve their knowledge in managing their remittances
• Development of financial literacy training modules for migrant workers and migrant workers’ families, and development of training supporting tools
• Providing financial literacy training: trainings are conducted for migrant workers who have registered to recruitment agencies (PPTKIS) to work overseas and/or their families.
• Phone and face to face monitoring were carried out to assess how the training affected the household’s financial behavior.
Activities Output and Outcome• Modules: Training Guidelines, Trainer’s Guide for
Migrant Workers, Trainer’s Guide for Migrant Workers’ Family; and supporting training tools: poster, comic book, financial book, and brochure
• Overall, 432 migrant workers and/or their families from Greater Malang area have been trained
• Currently, the pilot is analyzing all the data collected from the monitoring stage. Report on the results are expected to be published in mid June 2012.
• Preliminary analysis of the monitoring data shows that there is a positive correlation between financial literacy training and opening savings account.
Pilot Project on Financial Literacy Training for Indonesian Overseas Migrant Workers and Their FamiliesPartners: CMEA, BNP2TKI, Disnakertrans Malang, PPTKIS
WB Initiativ
es
30
• ToT on financial literacy for staffs of BNP2TKI, BP3TKI (regional office of BNP2TKI, in 19 provinces across Indonesia) & Govt-owned banks; 2 batches in 2011 & 1 batch in 2012
• Mentoring and monitoring during BNP2TKI – BP3TKI financial literacy trainings to MWs and MWs families: 17 provinces in 2011 (April – November 2011) and 9 provinces in 2012 (March – July 2012)
Activities• ToT implementation: March 29 – April 8, 2011, 58 staffs from 19 BP3TKIs, Bank BRI, Bank BNI, Bank Mandiri, TIFA Foundation, and Sahabat Wanita Foundation participated in the training. March 5 – 8, 2012, 37 staffs from 19 BP3TKIs, Bank BNI and Bank Mandiri participated in the training.
• Monitoring tools formulated: checklist, pre test/post test questionnaire, time keeping form, mentoring & monitoring form
• Overall, 1,287 people were trained in 2011 (542 MWs, 723 MW’s families, 22 ex MWs)
• Mailing list established (for BNP2TKI & BP3TKI staff) as a media to discuss, learn, and share experience in conducting FL training
• FL advocacy video produced, and FL training tutorial video in production process
• Website on MWs financial education is under construction
TA to Support GOI’s Financial Literacy Initiatives for Indonesian Overseas Migrant Workers and their FamiliesPartners: CMEA, BNP2TKI, BP3TKI, Disnakertrans, Government-owned Banks
Outcome• BNP2TKI staff gained competency as mentor & Master Trainer during ToT in 2012
• Banks (BRI, BNI and Mandiri )committed to provide support to BNP2TKI by involving their trainers in the ToT
• Bank Mandiri committed to expand FL training as part of its CSR activities
Output
Supporting Government Initiatives
Promoting Micro-insurancePartners: BNP2TKI, Bapepam-LK, Min. of Manpower & Transmigration
Despite of its mandatory features critical problems still exist : its effectiveness to provide protection for MWs has been increasingly questionable.
31
The insurance industry in Indonesia is relatively small compared to the overall financial sector
Bapepam-LK’s master plan for 2010-2014 includes the development of micro insurance in Indonesia:
a) expansion of the overall insurance market, particularly given the low levels of penetration; and
b) as a tool for social protection/safety net
31
Conduct a review on the existing MWs insurance product and mechanism
Gather information on type of data collected by any institution related to MWs
Support microinsurance marketplace More details in the following page
T.A. for Insurance Bureau of BapepamLK: to develop regulation for microinsurance to support enabling environment in Indonesia
What the we are doing
What we are doing
Review of Mandatory TKI InsuranceSupport on Micro-insurance Development
Background Background
Supporting
Government
Initiatives
Informal insurance
Insurable, without access
Uninsurable through market
mechanisms
Formal insurance industry
WEA
LTH
POPULATION
Promoting Micro-insurancePartners: Bapepam-LK, the Indonesia Insurance Council, Institute of Risk Management and Insurance (STIMRA), IFC, Global Index Insurance Facility (GIIF)
3232
• Two days event consisting of plenary session and exhibition of existing micro insurance product
• Plenary session was used to share international and local best practices
• Exhibition was used to promote micro insurance product and services
• Around 370 people participated in the event coming from both insurance and non-insurance sector
What we are doing
Microinsurance Marketplace Event (October 2011)
WB w/ Private
Sector + GoI
Basic no frills accounts: TabungankuPartners: BI, Commercial Banks, BPR
33
Basic bank account initiative led by Bank Indonesia along with 70 commercial banks and more than 1,000 BPRs/Sharia with main features: free monthly administration fee, low minimum account balance & low opening balance.
Overview of TabunganKu
What we are doingAssist Bank Indonesia to evaluate
TabunganKu: Has it met costumer’s demand? Has it enhance access to formal
savings? Is it commercially sustainable?
Supporting
Government
Initiatives
Credit Guarantee Scheme for MSMEs: KURPartners: CMEA, BI, State Owned Bank, Credit Guarantee Companies
In 2007, the GoI launched KUR program to give access to credit for unbanked MSMEs by providing partial credit guarantees to selected state owned banks
In a few years KUR has grown into one of the largest credit guarantee programs in the World. As of April 2012, total disbursements were IDR 72 trillions with 6.3 million borrowers
Due to the size of KUR, the GoI decided to review the KUR’s effectiveness in order to maintain performances and prepare its scaling up in the coming years
34
The World Bank assists CMEA to evaluate the KUR program’s achievements to date and develop recommendations on how to strengthen the program
Main findings: There was evidenced that KUR has helped to increase access to credit
to MSMEs KUR has encouraged banks to lend to small enterprises and especially
to microenterprises However further changes to improve the KUR scheme’s effectiveness
are still needed
Background
What we have done
Supporting
Government
Initiatives
35
Support to KUR’s Policy Committee (CMEA) to develop KUR’s Monitoring & Evaluation (M&E) Framework Partners: KUR Policy Committee (CMEA)
KUR program has been expanding strongly in respects of disbursement, number of participating banks and debtors. The Government has indicated continued supports on KUR and it has increased the target of disbursement of KUR.
There is absent of an integrated M&E framework of KUR which is important if GoI wants to review/assess impacts of the KUR program.
M&E is required by KUR related regulations (KUR’s MOU, Inpres No. 5/2008, PP No. 39/2006).
Background
Organized discussions with related stakeholder (BPKP, BI, Guarantee Company, Banks) to understand existing monitoring systems in each institutions.
Identified the gap/areas for improvements and currently on the process of drafting a proposed framework of M & E.
Expected completion by December 2012.
What we have been doing:
Supporting
Government
Initiatives
Supporting
Government
Initiatives
Enhancing Access to Islamic Financing for SMEs in Indonesia: Partners: BI, Bapepam LK and Ministry of SMEs & Cooperative
The Islamic finance institutions (banking and NBFI) - have been growing strongly In Indonesia. The Sharia banking assets has increased by around 40% annually but it only accounts 5% of total banks’ asset. It suggest the potential for further growth is strong.
On the other hand, MSME also shows strong growth of number of entities and business volume However, access to financing is still known as one constraint.
There is a growing interest in the World Bank to work on supporting Islamic finance to complement the MSME finance works but its knowledge on level of access of MSMEs to Islamic financing is limited hence it commissioned this project.
The results also expected to Indonesia has the potential to have a vibrant Islamic finance industry.
Background
The project had a number of activities: Conducted an review of current Indonesian Islamic finance industry (products,
clients, etc) Conducted demand and supply –side surveys Develop an assessment tools on how to assess level of access to Islamic finance Prepare a concept of financing facility for the World Bank to consider supporting
in Indonesia.
What we have done
Supporting
Government
Initiatives
Supporting
Government
Initiatives
WB Initiativ
es
Enhancing Access to Islamic Financing forSMEs in Indonesia: Partners: BI, Bapepam LK and Ministry of SMEs & Cooperative
• The survey results suggest the perception of Micro-SMEs toward Islamic Financial Institutions (IFI) is positive and Sharia finance is well received by the Micro-SMEs.
• A majority of Micro-SMEs surveyed indicated the simple process of Sharia financing is an important factor for their decision to use Sharia financing and Sharia finance products do serve their needs.
• The lack of understanding of Sharia products appears to be a significant hindrance for higher access of Islamic finance for Micro-SMEs in Indonesia.
Supporting
Government
Initiatives
Supporting
Government
Initiatives
Safer
Simple process
Reasonable price of selling-buying
Low administration fee
Interesting sharing rate
Suitable for the MSME need
Others
47.80%
67.20%
14.90%
4.50%
19.40%
53.70%
7.50%
The Reasons why MSME used Sharia Financing: Perception of IFIs
What we have found:
39%
22%3%
29%
3% 4%
The main reason MSME not used IFIs Product
Not understanding the products
No offering
Inaccessible locations
No interest
Identical to particular religion
Others
WB Initiativ
es
Financial Stability
Economic Growth
Poverty Reductio
n
Strategy designed with a mutually reinforcing fit between these three
components:
Targeting the poor
Promoting Local
Economic Developme
nt
Promoting Enabling
Regulation & Consumer Protection
National Strategy of Financial InclusionPartners: TNP2K, Bank Indonesia, Bappepam-LK
Supporting
Government
Initiatives
Supporting
Government
Initiatives
What we are doing•Assisting the Vice President office to develop the National Strategy for Financial Inclusion•Accomodate socialization / discussion between the VP office with Bank Indonesia (regulator of banks) and Bappepam-LK (regulator of NBFI)•Assisting VP office in providing a better understanding to the other ministries on their role & involvement in the strategy
a “People-Centered” strategy approach with the mission “to Achieve a Financial System that is Accessible by all Layers of the Community to Promote Economic Growth, Poverty Reduction and Income Equality in Indonesia”
Strengthening and Empowering the Saving and Loan Cooperative Sector : Increasing Access to Finance for Micro-SMEsPartners: Bappenas, Ministry of SMEs & Cooperative
KSP /USP shows strong growth of business and plays important roles in providing financing for Micro and Small enterprises.
GoI’s policy to strengthen and empower KSP/USP to increase the above roles whilst maintaining the value of Cooperatives.
Need to have a through analysis of issues, challenges and prospects of the KSP/USP before formulating policies.
Background
The activities will be divided into two components: Component 1: Conduct a KSP/USP study:
Phase 1 designing and preparing the study (literature review, write case studies, prepare research tools. (March – June 2012)Phase II Complete the study, will include surveys/interviews (July 2012 – June 2013)
Component 2: Follow up of Study: Technical Assistant & Capacity Building
What we will do
Supporting
Government
Initiatives
Supporting
Government
Initiatives