Promoting Financial Literacy

for Micro-Entrepreneurs and SMEs

OECD/Thailand Seminar on Financial Inclusion

and Financial Literacy in Asia Bangkok, 16-17 December 2014

Financial Access and SME Development Department Bank Indonesia

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2

Outlines

1. Indonesia at Glance

2. Financial Inclusion in Indonesia

3. Financial Literacy: Bank Indonesia’s Programs

4. The Way Forward

INDONESIA AT GLANCE

Adults in Indonesia have account in formal financial institution

20%

DEMOGRAPHIC ±17.000 islands ±247 M population ±155 M adult people ± 28 M is poor people ± 44% lives in city

FINANCIAL INSTITUTION 120 commercial banks + 4.194 rural banks +187.598 cooperatives +600.000 MFI (incl. non-formal)

Source: World Bank, 2011 Global Financial Inclusion Index

Source : Bank Indonesia and Ministry of Finance, processed Source : National Statistic

Bureau-Indonesia, 2012

ACCESS TO FINANCE

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Source: Ministry of Cooperatives and SME

SME’s ROLE IN INDONESIA’S ECONOMY

99.9% of 55 million

business units

absorb around 97,2% of total

labor force.

contribution around

57,48% to the GDP

Economic Conditions

FINANCIAL INCLUSION IN INDONESIA

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Save 48%

Don’t save 52%

74%

5% 3% 2%

5% 6%

5%

Saving only in Bank

Saving only in Non-BankFinancial Institution(NBFI)Saving only in Non-Financial Institution(NFI)Saving in Bank & NBFI

Saving in Bank & NFI

Saving in NBFI & NFI

Borrow 45%

Can’t Borrow

55%

23%

17%

30%

6%

11%

9% 4%

Borrow only from Bank

Borrow only from Non-Bank Financial Institution(NBFI)Borrow only from Non-Financial Institution (NFI)

Borrow from Bank &NBFI

Borrow from Bank & NFI

Borrow from NBFI & NFI

Source: Household Balance Sheet Survey-BI, 2011

S

A

V

I

N

G

B

O

R

R

O

W

I

N

G

Household Saving & Borrowing Behaviour

MSME’s Loan from Banks

7.926.250 9.462.228 10.662.581

39.440.522 38.974.819 39.934.395

9,5%

19,4% 17,8% 20,1%

24,3% 26,7%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

-

10.000.000

20.000.000

30.000.000

40.000.000

50.000.000

2012 2013 Sep 2014

MSME Loan Accounts Total Loan Accounts

MSME Loan Accounts Growth (% - yoy) MSMS Loan Account Share (%)

MSME Loan Accounts MSME Loan Outstanding

550,4 635,9 709,6

2.725,7

3.319,8 3.592,1

15,7% 15,5% 15,2%

20,2%

19,2% 19,8%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

-

500,0

1.000,0

1.500,0

2.000,0

2.500,0

3.000,0

3.500,0

4.000,0

2012 2013 Sep 2014

MSME Loan Outstanding Total Loan Outstanding

MSME Loan Growth (% - yoy) MSME Loan Share (%)

Source: Banks’ monthy report-September 2014, BI

FINANCIAL INCLUSION IN INDONESIA

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THE NEED OF INCREASING FINANCIAL LITERACY FOR SMEs

Financial Education for SMEs

Financial education is a primary factor on demand side for formal savings, loans and insurance1.

Financial Literacy Survey (2009)2:

Society awareness on financial products and services is in line with education level, and society preference on financial products is highly affected by the promotion of the products over the safety guarantee of the savings.

Financial Literacy Survey (2012)3:

Financial literacy in Indonesia is highly influenced by gender, age, level of education (positive correlation), risk aversion (positive correlation), household income, distance from the house to the bank .

1) Cole S, Sampson T, dan Zia B. 2009. Prices or Knowledge? What Drives Demand for Financial Services in Emerging Market.

2) Bank Indonesia dan LD-FEUI. 2009. Tingkat Literasi dan Pemahaman Masyarakat terhadap Produk Keuangan dan Perbankan.

3) Bank Indonsia dan LD-FEUI. 2012. Financial Literacy Survey.

Source: Bank Indonesia survey, 2010

Survey result on impact of financial education for SMEs the SMEs become:

less likely to overcome delayed payment through banking payment

more likely to document their income and expenditure

more likely to plan expenditure and to separate business and household finance

more likely to have better financial management

Research Period : January 2011 – April 2013 Number of Respondents : 700 SMEs as borrowers of a Rural Bank, divided into 2

groups : Control and Treatment Group Number of Surveys : 1 Baseline survey followed by 2 Follow up surveys Type of Intervention : Training on Financial Education

Joint Research BI and ILO

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BANK INDONESIA’S PROGRAMS

Developing and Implementing Programs and Modules related to Financial Education

Framework of BI MSME Development

Increasing Access to

Finance

Minimize Asymmetric

Information

Strategy Coordination &

Strategic Partnership

Capacity Building

The Growth of MSME & Real Sector and Inflation Control Final Objective

Supporting food security and creation of new economic centers in the regions Short Term Objective

• Cluster Development

• Entrepreneurship

Development

• Financial transaction

recording movement

• Strengthening

Financial

Infrastructure

• Facilitation of

Government Credit

Program (KUR, KKPE,

KUPS)

• Provision of

study/research

• Dissemination of

Information

• Development of

MSME Microsite in

the website of Bank

Indonesia

Coordination with local government,

central government

and international

institutions

Research Training Provision of Facilitation Information

Programs

Methods

Cooperation with Ministries/Institutions/International

Organization

Financial Institutions,

Financial Product and Services

PART OF MSME DEVELOPMENT

PROGRAM

Financial Infrastucture

development and/or facility to promote financial access for

MSME (eg: SME credit rating, Government

Credit Programs)

COOPERATION WITH

STAKEHOLDERS

Financial Education &

Enterpreneur-ship for Migrant

Worker

Financial Education for

MSME & Entrepreneurs

Financial Transaction Recording

Progam

Training for Trainers

BANK INDONESIA’S PROGRAMS Implementation of Financial Education

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THE WAY FORWARD

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1. Integration of financial education with other SME development programs.

2. Widening the cooperation and coordination with related stakeholders to expand the target groups of financial education.

3. Focus of financial education on Training of Trainers (ToT) provide education directly to the community.

4. Replication of financial education program at national level to improve financial literacy increase financial capability and assist the effectiveness of financial inclusion.

Thank You 9