Getting Financial Inclusion on the Agenda in Indonesia
Last week, President Susilo Bambang Yudhoyono received a courtesy visit by Princess Maxima of the Netherlands, who is the UN secretary general’s special advocate for inclusive finance for development and also the honorary patron of the G-20 Global Partnership for Financial Inclusion. Her mission was to observe Indonesia’s success and potential in empowering the poor with increased access to financial services and micro-credit schemes.
Princess Maxima noted the leadership role of Indonesia in promoting micro finance and fostering equality of growth. She spoke particularly highly of the People’s Enterprise Credit (KUR) scheme, which has reached $7.4 billion since 2007 and has been disbursed to more than 5.56 million small and medium enterprises. She also praised Yudhoyono for his leadership in promoting financial inclusion for the poor at the local but also at the global level.
Based on reports of the Ministry of Cooperatives and Small and Medium Enterprises, the number of SMEs in Indonesia reached 53.2 million in 2011, creating 91 million jobs. During the Asian financial crisis of 1998, when many major creditors defaulted, SMEs served as the backbone of the Indonesian economy. Today, such enterprises continue to thrive, with only 2 percent unable to pay off loans.
Indonesia has always been a proponent for inclusive financing and micro credit. In September 2010, in Bali, Yudhoyono officially opened the Alliance for Financial Inclusion’s Global Policy Forum, to which Princess Maxima contributed through a video conference.
Although Indonesia was hailed for its prudent policies, the princess also said Indonesia, like many developing countries, should do more to increase financial literacy. Efforts, she said, should include greater access to mobile banking, bearing in mind the widespread availability of mobile phones and the rapid development of the country’s communications infrastructure. The president agreed, but one problem is that many Indonesians prefer to stash their money at home, a habit still practiced in many places worldwide.
For this reason, Princess Maxima welcomed the finalization of Indonesia’s National Strategy for Financial Inclusion, which is expected to be launched later this year. The initiative should further increase access to financial services for all layers of the population, identifying best practices in providing access to KUR and micro-scheme loans.
But Indonesia has also been looking beyond its own borders. Last year, as chair of the Association of Southeast Asian Nations, Indonesia promoted a regional economic framework that reflects the G-20 Principles for Innovative Financial Inclusion. With the adoption of an Asean Framework for Equitable Economic Development, member countries can foster regional economic integration to help alleviate poverty and narrow the development gap within the bloc.
But the issue of financial inclusion is not yet as high on the G-20 agenda as it should be. Since 2010, therefore, Indonesia has been a strong advocate of addressing the practical needs of the developing world and the poor in general. Yet despite continued emphasis by the emerging G-20 economies like Indonesia, the global instability caused by the 2008 subprime mortgage crisis and now the euro-zone trouble have dominated discussions at the G-20.
Yudhoyono has underlined that the issue of financial inclusion is just as important as financial regulatory reform, and for good reason. Promoting the economic participation of the poor is one of the solutions to escape the current global economic crisis.
More entrepreneurs should be encouraged to contribute, and our experiences during the crisis of 1998 demonstrate that all economic actors can play an equally important role in safeguarding the national economy from global economic shocks. Indonesia’s sizable market and strong domestic consumption have not only boosted the growth of the economy but also buffered the country from external shocks, maintaining a growth rate of 6 to 7 percent even since the 2008 global crisis.
As a developing country, Indonesia faces challenges of ensuring balanced growth, eradicating poverty, creating jobs, fighting corruption and promoting good governance. The country doesn’t have the same capacity as developed nations, but Indonesians share a strong spirit for progress, for democracy, for equality and of course for stability and prosperity.
That is why the political motivations of some TV broadcasters and the unhealthy practice of political scapegoating by some parties that have already set their minds on the elections scheduled for 2014 have not distracted investors and the wider business world from recognizing Indonesia’s growth potential. Indonesia is still chosen as the most favored place for investment of all Asean member states, a survey found last week.
In the meantime, both Yudhoyono and Princess Maxima have committed to continue working together in promoting financial inclusion and micro-financing nationally as well as internationally. Both agreed to continue to promote the issue at the upcoming G-20 Summit in Los Cabos, Mexico, in June. Yudhoyono has also vowed to continue the momentum by promoting inclusive economic growth and financial inclusion during his chairmanship of the Asia-Pacific Economic Cooperation forum in 2013 in Bali.
Wherever the global economy turns, policy makers at all levels should be reminded that everyone — even the less well-off — can contribute to growth and prosperity. And this is something Indonesia, under any administration, will continue to do.
Dipo Alam is cabinet secretary of the Second United Indonesia Cabinet. The views expressed are his own.