JAKARTA (TheInsiderStories) – Digital Financial Services may well be the next big thing, combining existing mobile phone usage and the country’s increasing appetite for financial services.
Earlier this week, Queen Maxima of the Netherlands, the United Nations Secretary General’s Special Advocate (UNSGSA) visited Indonesia for Inclusive Finance for Development, expecting more systematic and programmed financial inclusion across regions in Indonesia.
Her Majesty was further informed about several efforts made by the Indonesian government to improve financial inclusion. For example, the government has already issued 19.7 million Indonesian Smart Cards (Kartu Indonesia Pintar). This is a non-cash aid for the poorest families (intended to allow them to pay their children’s school fees).
Meanwhile, the government’s Family Hope Program (Program Keluarga Harapan), a non-cash transfer program for the nation’s poorest households, will reach 10 million families in 2018 (up from 6 million last year).
Her Majesty also met the Board of Go-Jek, Indonesia’s first unicorn, a ride-hailing start-up that is particularly known for its online on-demand motorcycle and car taxi services. This rapidly-growing company has an expanding workforce, most of whom have humble backgrounds and therefore have difficulty accessing financial services.
Indonesia’s Financial Inclusion Program is a government effort to improve public access for all Indonesian people to financial services such as banking, credit, insurance, and pension funds. Among the program’s targets is raising the ratio of access to financial penetration at up to 75 percent of the total Indonesian population by 2019.
Currently, there are still many Indonesians who lack access to financial services, especially those who work in the agriculture sector in remote areas.
This is an important program because access to finance for the community contributes to the nation’s economic and social development and reduces poverty.
Chairman of Indonesia Financial Services Authority (FSA) Wimboh Santoso stated that Indonesia’s economy today is indeed the 16th largest economic power of the world, and is expected to become the 8th largest by 2030. However, Indonesia is still perched at 112th in the world ranking in terms of GDP per capita, far lower than Malaysia (ranked 68th) and Thailand (84th).
A lack of financial inclusion has been blamed for Indonesians’ relatively low savings rate. Data from the International Monetary Fund (IMF) show that Indonesia’s gross national saving to the gross domestic product (GDP) stood at a ratio of 30.87 percent as of 2014, compared to 46.73 percent as reported by neighboring Singapore.
This potential has been targeted by financial services players to expand their business to digital and branchless banking across the nation through sophisticated technology.
With a population of more than 260 million and a burgeoning middle class, Indonesia is pulling in banks and financial services firms, especially from more mature North Asian markets.
The pattern of north Asian institutions hunting for assets in the southeast continues apace, with news that state-owned Industrial Bank of Korea is set to buy Indonesian lender Bank Agris.
The Seoul-based acquirer is known to have trawled throughout Southeast Asia looking for an acquisition, in a bid to become a bigger financial player in the region, and especially Indonesia, according to a report.
Japanese lenders facing a rapidly ageing and shrinking domestic markets are among the most ambitious suitors. Mitsubishi UFJ is in the process of purchasing a 40 percent stake in Indonesia’s Bank Danamon for around $1.75 billion. Four years ago, Sumitomo Mitsui Financial Group shelled out $1.32 billion to purchase 40 percent of mid-sized Indonesian lender PT Bank Tabungan Pensiunan Nasional.
But buying into Indonesia’s financial sector is not easy, due to stringent requirements and red tape.