Bank Indonesia Hopes ‘Branchless Banking’ Boosts Participation
Dion Bisara & Tito Summa Siahaan
Indonesia’s central bank has called on the country’s commercial lenders to improve access to banking by introducing so-called branchless banking.
Bank Indonesia governor Darmin Nasution said on Wednesday that better access to the banking system would alleviate poverty, accelerate economic growth and reduce income gap.
In the World Bank’s Global Financial Inclusion Study 2012, it is estimated that only 20 percent of Indonesian adults — defined as age 15 or above — had saving accounts in any formal financial institutions, while only 9 percent went to banks or other financial firms to get loans. According to 2010 government data, the country had around 170 million people age 15 or older, or about 70 percent of the country.
The World Bank study showed that most Indonesians relied on extended family for loans. For saving, they turn to community-based fund pooling, known as arisan , which generally operates by pooling the weekly deposits of members and disbursing the entire amount to a different member each week.
The World Bank pointed out while such practices had advantages, they also were prone to fraud and collapse. In addition, the cyclical nature of fund pooling disbursements “can be too rigid for some people and out of sync with their needs to deposit surplus income or quickly withdraw funds for an emergency,” its report said.
“In today’s economic situation, growth will be determined largely on how to bring the next half of Indonesians into banking. It’s a matter of survival,” Darmin said.
Neighboring countries such as Malaysia and Thailand have fared better than Indonesia in accumulating wealth in the banking system and channeling it to the economy, with their banking sector contributing more than 100 percent of their GDP. Meanwhile, Indonesia’s banking loans account for less than 30 percent of GDP.
The central bank has been promoting Tabunganku, or My Savings, which requires only a small deposit and charges no administrative fees. With the program, it hopes that more people, especially the poor, will be registered in the banking system and accumulate assets to be eligible for bank loans. Darmin said that through the end of May, Tabunganku had amassed Rp 2.7 trillion ($286 million) in savings, with 2.5 million accounts registered.
He said the central bank needed to accelerate this inclusion process by introducing branchless banking in Indonesia.
“The central bank will soon issue a new regulation, so that the development of branchless banking is in line with prudential consideration,” Darmin said. He did not elaborate.
Indonesia wants to emulate the success of Kenya, which launched a mobile money service in 2007. Within less than a year, a million Kenyans signed up for the service. Its penetration soared from 25 percent in 2007 to 75 percent of the 37 million population in 2010. Kenyans have used mobile money to buy groceries, withdraw cash from ATMs and start building savings.
Sigit Pramono, chairman of the Indonesian Banking Association (Perbanas), said lenders were committed to financial inclusion and would back the central bank as the policy would help the banking industry.
Indonesia has 120 commercial banks with a total of 3,338 branches across the country, according to data from Bank Indonesia in April this year. That is compared with 3,222 branches from the same period last year.