Indonesia – the name flashes beautiful beaches of Bali in our minds. Indonesia is an amazing country with more than 17,000+ islands, <360 ethnic groups speaking 719 languages. It is connected with 10 countries via Land and Sea borders. This gives us a glance of the country and also reveals some challenges which are directly concerned with many aspects – in this note the limelight would be on Financial Services.

Indonesia has <260 million population which makes it stand 4th in most populous countries. As per investigation carried by big 4, close to 75% population doesn’t have bank account and access to formal banking system, quite large population is financially excluded. Indonesia has 120+ commercial banks, 1700+ BPRs/BPDs (Rural banks) and more than half a million MFIs active across the country still unable to make a wide impact of Financial Inclusion. I am sure anyone who has visited Jakarta or Surabaya would be amazed with no of Banks and ATMs across the city which is great for the urban population.

Above image depicts that a large chunk of population is earning very negligible amount which makes even harder for commercial banks to serve them considering the cost of service to the customer. Rural banks and MFIs have been pretty active serving them but with or without any formal system in place, most of the rural financial institutes operates manually without any technology in place which makes the people at the bottom of pyramid invisible without any credible financial history.

Key Challenges observed:

  • Geographical: 17,000+ islands raises connectivity and access concern for Banks as well as local people. Locals have to spend sizeable amount of money to access the financial services which decreases usage ratio. On the other end, Banks have to spend large amount to setup formal branch to serve small segment which is financially not viable.
  • Lack of 5 C’s of credit: Large chunk, almost 75% population doesn’t have access to formal banking system which makes them undesirable for formal lending in absence of credible data and collaterals. Informal institutes’ serves this segment with higher interest but it doesn’t help to build any credit history.
  • Conventional Approach: Most of the FIs are still processing the loan application with paper led model which incurs longer TAT, need more human resources and cost of operations is much higher. Lending Institutes lacks with real-time data and analysis which leads toward NPL and bad debt due to improper risk profiling of applicants.
  • Technology: Most of the institutes are having multiple technology platforms and adding more without proper planning which increases complexity, connecting systems are difficult and long development cycle affecting the projects and overall digital strategy of institutes.
  • Operational: At times, coordination with multiple departments within an institute raises challenges like dependency, communication gaps and remote processing etc. which ultimately hampers the outcome. If robust digital platforms are placed, some of the concerns can be addressed to increase the productivity.

I am sure there are more challenges on ground then highlighted here but I have tried to note the basic ones based on our ground experiences and observations.

Despite of all these challenges, Bank of Indonesia is firm to establish a robust inclusive financial system. New government bodies are formed which are fast pace and make regulations comforting for financial inclusion. It’s great to see that some of the banks are improvising and brining some innovative solutions into the market, Jenius by BTPN and Tymedigital by Commonwealth Bank are good case studies. These are good examples of Technology but it lacks vision and planning in some senses.

Way Forward:

Morgan Stanley economists expect GDP growth to improve to 5.3 percent in 2019 from 5.2 percent in 2018 and 5.1 percent in 2017, a promising statistic but it needs base of robust planning and execution. Most of the banks are aspiring to be digital leader in Indonesia and investing heavily into technology and resources but lacks in vision and planning in many cases. From bird view, Banks mainly have two products – assets and liability. It’s a known fact that large population is earning less and into remote areas, Bank’s vision should be aligned towards this and should build product and penetrate wisely.

  • On-boarding unbanked population quickly to financial system
  • Encourage customer to use financial services hence creating credible data/history
  • Innovative lending model which reduces the risk, offers flexible collection (Partnership with Telcos, Wallets, FSPs etc.)
  • Creating an ecosystem to offer various products & benefits to customer (Tax payments, Government subsidiaries, other benefits and services)   

Technology would play a major part for this financial inclusion mission, selecting a technology which offers agility, quick GTM and flexibility to address the challenges would make a big impact. Reach me @ or on WA @ +91-9687680569 to know more about our solutions and services or just catching up over a cup of Kopi.

Also, checkout Decimal Technologies ( profile over LinkedIn and follow to know about our Innovations and offerings to bring Digitization into BFSI sector.

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