Bali, 11 May 2022 – Financial inclusion is one of the main focus of Indonesia’s G20 Presidency. To accelerate global financial inclusion, the Ministry of Finance and Bank Indonesia conducted an international seminar entitled “Digital Transformation for Financial Inclusion of Women, Youth, and MSMEs to Promote Inclusive Growth” which was held as a hybrid event in Bali, Indonesia as one of the side events of the 2nd Global Partnership for Financial Inclusion (GPFI) Plenary Meeting under the G20 Indonesia Presidency, this seminar aims to promote stakeholder discussions regarding policy options, programs, as well as financial products and services to accelerate financial inclusion for women, youth, micro and small-medium enterprises (MSMEs), and recipients of social assistance through technological developments and other innovative approaches, which are evidently relevant and important to recover from the COVID-19 pandemic.
According to Global Findex 2017, 69% of adults worldwide owns an account in a financial institution, an increase from 62% in 2014. Nonetheless, there are still 30% of the global population or approximately 1.7 billion people who still lack access to financial products and services where the majority are women, youth, and MSMEs. The COVID-19 pandemic had an impact by widening economic gap, especially to these vulnerable groups.
Therefore, MSMEs play an important role in absorbing labor, investment, and economic development. In Indonesia, MSMEs have a significant contribution to the economy by providing 97% of employment, generating more than 60% of GDP, and more than 60% of investment. Unfortunately, the development of MSMEs still faces several challenges, including access to financing. There are still gaps in access to financing for MSMEs, for example, the portion of MSME loans to total bank credit has been relatively stagnant at around 18% since 2014, far below some peer countries which reached around 30% to 80%. The current pandemic has impacted MSMEs by increasing its vulnerability, especially those managed by women due to the loss of income and with limited access to finance.
Meanwhile, women also play an important role in economic development. “We acknowledge that providing women’s access to formal financial services will not only secure their family well-being through better management of their finance and savings for basic needs, such as health and education, while also empowering themselves in business activities such as MSMEs”, said the Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati during her opening remarks. A study from McKinsey Global Institute shows that $12 trillion or 11% of global GDP could be added to global GDP by 2025 by advancing women’s equality. Furthermore, women who are involved in the economy and labor market, have the potential to contribute USD28 trillion or 26% of world GDP by 2025. However, women often has more barriers to access financial services as they do not have official identification
documents or assets in their name, so they do not possess a bankable guarantee. In addition, many women do not have adequate knowledge on formal financial services, as well as management skills.
On the other hand, youth – who make up 16% of the global population – are essential to the country’s future as they will soon enter the work force and contribute to the economy. However, many of them are financially excluded due to a lack of official identity documents or requiring the approval of a legal guardian to open a bank account, or even stereotypes that associate them with higher risk due to irregular incomes and small deposits. As a result, they are often overlooked as potential customers and there are no adequate or accessible financial products to meet their specific needs.
In the midst of challenges during the pandemic situation, the rise of commodity prices, and the global financial recovery that is still uncertain and disrupted due to the geopolitical situation, the transformation towards digital technology needs to continue to ensure that people, especially the most vulnerable and underserved groups, can continue to work in a sustainable manner, which is very productive and helps boost economic recovery efforts.
For MSMEs, the use of digitalization through financial technology (fintech) needs to be encouraged. Fintech supports MSMEs by helping them find more efficient financing options and supporting government efforts to reduce the spread of the virus and maintain safety. Fintech enables people to transact, buy, sell and consume, with minimal physical contact, using QR code payments.
For women, the main challenge in digitalization process comes from low digital literacy skills and low financial literacy, especially those who work in the informal sector. “Without financial literacy and education, it will be difficult for women to open a bank account and obtain positive benefits for them. Thus, it is important to increase digital and financial literacy for women to help them gain access to a digital-based financial system,” added the Minister. Women entrepreneurs with a good level of financial literacy can manage their personal or household finances better and reap the benefits of financial products to grow their business and build a financially secure future according to their needs.
Meanwhile, for youth, it is necessary to encourage this group to increase access to formal financial services that will enable them to invest in their education to improve their skills and professional perspective in the future. Access to formal financial services also allows young people to gain autonomy in society and actively become socio-economic actors in their country. In addition, accessing financial services and products provides opportunities for them to build entrepreneurial initiatives and contribute to job creation.
In addition to encouraging the use of fintech, supervision of the digital financial services sector is also needed to protect consumers. Many financial services offer access to finance but then it becomes a problem for many people who borrow money with excessive and high interest rates (online loans) so that many people cannot afford to pay it back. “Technology is changing the financial system. Therefore, we as policy makers need to ensure that this change is safe and inclusive and that no one is left behind,” continued the Minister of Finance.
This seminar was attended by various speakers from countries and international organizations who shared their experiences and expertise in digital financial inclusion. “I believe this event will surely be beneficial for all of us and our strategy in achieving the target of financial inclusion also in promoting access to responsible financial services to the most vulnerable and undeserved group. I do hope that the discussion will not only end here, but we
can continue in other events, as well as in our respective countries and institutions,” concluded the Minister of Finance.
During the seminar, the Government Investment Center (PIP) of Indonesia shared various experiences in promoting financial inclusion in the non-bankable community, especially for women. Starting in 2007, the Government has been having financing program for MSMEs called People’s Business Credit or KUR, which is channeled mainly by banks. Based on data from the Credit Program Information System (SIKP) in 2016, the average loan size for Micro KUR is around Rp. 14 million, while many Ultra Micro businesses require less than Rp. 10 million in financing.
Furthermore, the Ministry of Finance launched the UMi Program in 2017, which is managed by a Public Service Agency called the Government Investment Center. The program is designed to provide micro-loans that can be easily and quickly accessed through Non-Bank Financial Institutions. This program is expected to be a solution for micro-enterprises, including women, youth, and micro-start-ups, to obtain financial support so that they can be involved in economic activities of the society.
From 2017 to the end of 2021, the UMi Program has reached more than 5 million Ultra Micro businesses with a loan value of more than IDR 18 trillion or more than 1.2 billion USD. Through 55 non-bank partners, UMi has reached 508 out of 514 districts and cities throughout Indonesia. Data shows that 95% of UMi recipients are women, 91% take UMi micro loans under IDR 5 million rupiah, and 96% of the business sector is the small retail sector.
Another interesting fact from the 5-year data is that there is an increase in the number of younger debtors. The proportion of debtors under the age of 30 has increased from only 8% in 2017 to 18% in 2021. For 2022, PIP is targeted to add 2 million new debtors, which is expected to increase financial inclusion in the context of national economic recovery.