Cash society: A soccer jersey vendor tidies up his makeshift stall at a sidewalk in Bogor, West Java. Most of micro businesses in Indonesia have no access to banking services, highlighting the importance of innovations to push toward financial inclusion. (Antara/Yulius Satria Wijaya)
There are currently more than 2 billion people around the world categorized as unbanked, with most of them living in Asia and Africa, according to the World Bank’s 2014 Global Findex Report.
The Asian Development Bank’s September 2015 report entitled, “Financial Inclusion in Asia: An Overview”, meanwhile, noted that 78 percent of the 255 million people in Indonesia are still considered unbanked, with the majority of them residing in the lowest levels of the socio-economic pyramid. The proportion is far higher than the global median for unbanked people, which is 38 percent.
Empowering the unbanked
Unbanked people are those who do not have traditional bank accounts or access to banking services. Generally, they have lower levels of education and therefore work in informal sectors of the economy and live in a state of financial limitedness. They face difficulties fulfilling the prerequisites to open bank accounts and are generally skeptical of the banking system. Some other factors preventing these people from accessing banking services include limitations in banking infrastructure and service coverage.
On the other hand, communities with lower levels of education tend to work in informal sectors, preventing them from easily accessing financial services.
The International Finance Corporation reported in 2013 that Indonesia has 55 million micro businesses, the majority of which do not have access to financial services despite their contribution of providing jobs to more than 90 percent of Indonesia’s total workforce. This problems occurs because micro businesses usually cannot provide loan guarantees, rely largely on seasonal incomes and have no standardized systems of accounting. The lack of access to financial services turns out to be a major factor behind the low productivity of small and medium sized businesses in Indonesia.
Such a problem, for instance, is being faced by Atinah, who makes rice bowls made of rattan to make ends meet. The 42-year-old woman, who lives in Bogor regency, West Java, belongs to one of the 196,000 families living on the edge of poverty that have no banking access in the region, which is located to the south of Jakarta.
There has been an increasing awareness among financial technology (fintech) industry players in Indonesia about the need to assist the economic capacity development of unbanked communities and the latter’s efforts to tap into a wider market.
The introduction of fintech allows players to make a risk assessment of the unbanked community through the analysis of an individual, rather than by mining business data, which is difficult to measure.
Amartha, which provides people-to-people (P2P) lending, for instance, is able to reach out to unbanked communities by developing psychometric approaches and credit scoring technologies that allow clients like Atinah to become credit-worthy loan recipients. Clients will also have received a credit rating and credit history, which they can use to apply for future financing.
Such initiatives will create economic democracy and open up opportunities for economic participation by those who would otherwise be denied access by banks. This is the real meaning of financial inclusion.
Integration with local wisdom
The character and strength of the Indonesian community is drawn from its determination, politeness, respect, ethics and simplicity. Thus, reaching out to rural communities throughout the Indonesian archipelago to promote financial inclusion would require more than just technology. Fintech startups have found creative ways to integrate technology with the spirit of mutual cooperation.
Amartha, for example, has developed a network of field officers in rural areas to help micro business players gain online access to apply for funds. Field officers have an important role in developing a platform among the unbanked community that relies on cash transactions. The mutual cooperation spirit will help avoid bad debts as members of the community are expected to look out for each other.
Other fintech startups promoting similar efforts are KitaBisa, which connects community members to provide donations for relief efforts after natural disasters, and Ruma, which recruits community leaders as its agents who are connected via technology. Another startup, Kudo, which operates in assisted e-commerce, also takes advantage of technology by having their agents help community members, who have limited access to the internet, to make online purchases.
The creation of economic justice is a long journey with many complex challenges. Thus, stakeholders need to collaborate to overcome those challenges. Fintech services for micro businesses have emerged as possible solutions to eradicate poverty, empower those in the informal sectors and increase financial inclusion among Indonesians for the creation of social justice.