A Look into Financial Inclusion in Indonesia

Updated: Oct 7, 2020

The country of Indonesia has seen a decrease in poverty in the past two decades. At the start of the 21st century, Indonesia’s poverty rate is 19% but now, it’s at 9%. This can be attributed to the steps the government has made not only in direct strategies to reduce poverty but also in deepening financial inclusion in the country. 

Financial inclusion remains low due to the lack of physical access to financial institutions, so it’s a good thing that the country has put some strategies in place to further financial inclusion. To take a look into financial inclusion in Indonesia, here are some of the strategies accomplished so far, and what more needs to be done to go further. 

National Strategy for Financial Inclusion (NSFI)

Launched in 2016, Indonesia’s National Strategy for Financial Inclusion (NSFI) will make banking services more accessible to citizens through financial inclusion programs. The NSFI has five pillars to focus on: Financial Education, Public Property Rights, Financial Intermediary Facilities and Distribution Channels, Financial Services at Government Sector, and Consumer Protection. The strategy is expected to increase the rate of citizens with bank accounts from 36% to 75%.

Digitization of Government to Persons (G2P) Payments

The digitization of the Government to Persons (G2P) payment started in 2017 to improve the delivery of social benefit transfers. Through digitization, efficient and swift transfer of money to those in need is ensured, and financial inclusion is promoted among the population. Aside from deepening financial inclusion in the country and increasing convenience for the recipients, G2P payments can reduce direct costs to the government and reduce fraud and corruption. After the G2P was put into place, there has been a significant increase in new bank accounts. 

Policy-Based Loan Financial Market Development and Inclusion Program (FMDIP)

To develop Indonesia’s financial sector and to expand access to financial products and services for low-income households, the Asian Development Bank (ADB) decided to work with Indonesia. ADB approved of the Policy-Based Loan Financial Market Development and Inclusion Program (FMDIP) with 400 million USD to further financial inclusion in the country. The FMDIP also provides support to the government of Indonesia and its financial services authority to strengthen regulatory frameworks that focus on microfinance, branchless banking, and consumer protection. 

While Indonesia has the above strategies to promote financial inclusion among the population, there is still a lot to be done to make sure that the rate of financial inclusion continues to increase in the following years. Enhancements to the current National Strategy for Financial Inclusion is key to moving forward, and the office of the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development (UNSGSA) has some recommendations. 

Many Indonesians remain unbanked due to a lack of financial knowledge and a lack of access to financial services. To address this, the UNSGSA suggested simplifying systems and regulations to expand financial inclusion. Another problem is that low-income households are less likely to open a bank account unless they need it for G2P payments. Opening an account can also be tedious due to numerous requirements so the UNSGSA suggested using the biometric data captured for the citizens’ national digital ID to prove their identity. This will facilitate faster account opening. 

To promote technological solutions in the banking sector, the UNSGSA said that Indonesia should create an environment where financial technology and its innovations can flourish. This goes hand in hand with expanding digital payments and mobile banking in the country — as they move from cash to cashless can ensure secure and efficient transactions. 


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