Financial Inclusion Spurs Economy

KOMPAS/RADITYA HELABUMI

A man unloads a box of social assistance provided by the Jakarta provincial administration on Tuesday (20/10/2020) in community unit (RW) 002 of North Kedoya subdistrict, West Jakarta. The eighth batch of relief aid was distributed for people affected by the Covid-19 health emergency, with So far, a total of 2.46 million families in Jakarta and Thousand Islands regency has received the government’s emergency aid.

The disbursement of aid through formal financial services opens up public access. However, the utilization is not optimal.

JAKARTA, KOMPAS — The disbursement of social assistance during the Covid-19 pandemic has driven financial inclusion. One way is that the government engages banks in the disbursement of the social assistance.

Even though the involvement of the banking sector in the distribution of the social assistance opens up people\'s access to formal financial services, such benefits must be optimized to drive the economy.

The budget ceiling for the national economic recovery program this year was Rp 695.2 trillion. Based on data from the Finance Ministry as of 14 October 2020, the realized absorption of the budget was Rp 344.11 trillion.

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The results of a survey by the Financial Services Authority (OJK) show that access to financial products and services or financial inclusion has increased from 67.8 percent in 2016 to 76.19 percent in 2019.

Based on interviews, data and confirmations compiled by Kompas until Sunday (25/10/2020), the government’s social assistance that was channeled through banks, among others, was through the Family Hope Program.

Deputy Finance Minister Suahasil Nazara said financial inclusion was linked to economic development and recovery. "Financial inclusion will increase along with the updated data on the recipients of social assistance," he said.

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According to him, the involvement of banks in channeling the social assistance has accelerated budget absorption. The realization of social assistance as of 14 October 2020 was Rp 167.08 trillion or 81.9 percent of the budget ceiling.

Suahasil added, in addition to the social assistance, the banking sector also helped distribute the productive assistance to micro, small and medium enterprises (MSMEs), as well as the assistance for workers with salaries below Rp 5 million per month.

The government also plans to involve financial technology (fintech) companies in loan disbursement.

Deputy for the Coordination of Macroeconomics and Finance at the Office of the Coordinating Economic Affairs Minister, Iskandar Simorangkir, said that increasing financial inclusion cannot be separated from the use of information technology. The government also plans to involve financial technology (fintech) companies in loan disbursement.

Currently, several banks that channel the microloan people\'s business credit (KUR) have partnered with fintech. Expanding (people’s) access to financing will accelerate economic recovery.

Life saver

For Ni Komang Ririn Marliani, the owner of a soybean drink and processed agricultural products SME, the microcredit was like a life saver in the midst of the Covid-19 pandemic. Ririn joined the microcredit program by applying for loans of Rp 250 million to lender BPD Bali. Ririn was in need of additional capital to survive because her sales had dropped by 50 percent during the pandemic.

KOMPAS/BAHANA PATRIA GUPTA

A man shows his personal identity card and Rp 100,000 banknotes he received as cash assistance on 7 Oct. 2020 at a post office in Surabaya, East Java. Social Affairs Minister Juliari P. Batubara visited the post office to inspect the distribution of cash assistance, which has been distributed to 1.19 million out of 1.2 million eligible families in East Java, and161,000 out of 162,000 eligible families in Surabaya.

Separately, chairman of the Association of State-Owned Banks (Himbara), Sunarso, stated that the collaboration between banks and fintech operators has a role to play in increasing financial inclusion. One form is the channeling or disbursement process.

"In the financial ecosystem, fintech and banking work together to increase financial inclusion," he said.

Sunarso, who is also the president director of state lender Bank Rakyat Indonesia (BRI), gave an example. BRI, which focuses on financing MSMEs, needs to assess the creditworthiness of MSME actors. However, the Covid-19 pandemic has limited physical meetings. Fintech helps this issue so that the distribution of the microcredit is faster.

Chairperson of the Indonesian Fintech Lenders Association (AFPI), Adrian Gunadi, said that the fintech lender which took part in channeling the national economic recovery funds in July-September 2020 was Investree. Through the channeling mechanism, state lender Bank Mandiri acts as the entity that determines the feasibility of MSMEs to receive economic recovery funds. Furthermore, the fund is channeled through the Investree platform.

Fintech lender, added Adrian, has a modern creditworthiness assessment and is no less accurate than the (conventional) bank’s credit assessments. Fintech also helps banks map out potential MSMEs that have not been able to get working capital loans from banks. "The fintech’s effort in providing MSMEs with easy and fast access to finance means also striving for financial inclusion," said Adrian.

Benefits

According to the Financial Inclusion Insight (FII) survey by Kantar on 6,695 respondents related to the National Strategy for Financial Inclusion in 2018, 70.3 percent of adults in Indonesia have used the services of formal financial institutions. However, only 55.7 percent of adults in Indonesia have bank accounts.

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Research director of the Center of Reform on Economics (Core) Indonesia, Piter Abdullah Redjalam, was of the opinion that the distribution of social assistance through banking services helps increase national financial inclusion. "However, the increase in inclusion has the potential to be temporary if it is not followed by an increase in financial literacy," he said.

KOMPAS/ALIF ICHWAN

Minister of Finance Sri Mulyani (right) chats with Deputy Minister of Finance Suahazil Nazara (left), during a working meeting in the DPR Commission XI meeting room, Parliament complex, Jakarta, Monday (2/12/2019).

A similar sentiment was conveyed by the head of the Department of MSME Development and Consumer Protection at Bank Indonesia, Budi Hanoto. According to him, the effectiveness of the social assistance distribution needs to be reviewed so that it will have impacts on the expansion of the financial inclusion. "The distribution of social assistance opens public access to financial services. However, the use of their accounts is still not optimal because most of them are still passive account users,” said Budi.

The bank accounts were only used to withdraw the funds. Nearly 85 percent of the aid recipients did not understand the features of the bank accounts for savings, transfers and payments.

Budi said a research by Women’s World Banking (WWB) shows that nearly 90.9 percent of the recipients of the Family Hope Program assistance are passive users of savings accounts. The bank accounts were only used to withdraw the funds. Nearly 85 percent of the aid recipients did not understand the features of the bank accounts for savings, transfers and payments.

A member of the Board of Commissioners of the Financial Services Authority for Consumer Education and Protection, Tirta Segara, said that the efforts to encourage financial inclusion are in line with the process of national economic recovery. "A country with a high level of financial inclusion will easily map out people who need assistance and channel it to the accounts of every eligible citizen," said Tirta. (KRN/DIM/JUD/COK)