Bill & Melinda Gates Foundation

A new dawn for financial inclusion in Indonesia?

September 21, 2018

Indonesia’s financial inclusion efforts are being re-energized by political will, the pervasiveness of digital ID, digital payments and a world-class fintech ecosystem. Millions of unbanked people in the country could be included in the next few years.

Last April, the World Bank announced that over 500 million people globally obtained a bank account over the last 3 years, and 1.2 billion people over the past 6 years. Indonesia is not left out from the movement. Over the past three years, Indonesia has made the most progress across East Asia and the Pacific region, enabling millions of people to get on the financial grid.

The Global findex survey results show that:

·    Indonesia had the biggest account ownership increase in the region from 20 percent in 2011 to 36 percent in 2014 to 49 percent in 2017.

·    It also had the strongest savings behavior of all other emerging economies: usage of accounts for saving registers at 10 percentage points higher than the developing world average.

·    Indonesia is one of the few countries globally to have a negative gender gap -- women are five percentage points more likely than men to have an account (51 percent of women vs 46 percent of men) and women and men are equally likely to have an active account.

How did Indonesia go from 36 percent to 50 percent account ownership in just three years?

The fact the president prioritized financial inclusion, set an aggressive goal of 75 percent of people banked to be reached by 2019, and appointed and empowered a strong policy team to lead the charge made the biggest difference. Three key pieces of this effort were:

1) Strong political will at the very top of the Government: Back in August 2016, my team at the Gates foundation sponsored a trip by Her Majesty Queen Máxima of the Netherlands whom has served as the UN Secretary-General's Special Advocate for Inclusive Finance for Development. Following her visit and efficient advocacy, President Jokowi announced his will to prioritize financial inclusion as a tool to alleviate poverty in the country and launched a new ambitious financial inclusion target of 75% included by 2019 (inclusion was 36 percent at the time). He also launched a secretariat for financial inclusion in charge of leading the country towards that target.

2) A willful and impatient head of the Financial Inclusion Secretariat, understanding of the digital opportunity: The President appointed a prominent Ministry, the Coordinating Ministry of Economic Affairs (CMEA), to deliver on his financial inclusion promise by creating a National Secretariat for Financial Inclusion that was driven to make change and open to new ways of thinking. Very soon, under the Secretariat’s leadership, the Gates foundation, Microsave and Women’s World Banking hosted an Indonesian delegation of policymakers and stakeholders from key Ministries to India to better understand their experience promoting a digital India.  

Soon after the visit, the Secretariat set up a roadmap that had many similarities to the Indian system including:

  • Linking Indonesia’s national biometric ID (which already covers 90 percent of the adult population) to the payment system. As India experienced, leveraging someone’s digital ID to authenticate them during the account opening process, instead of relying on a paper ID, could drastically reduce the amount of time and cost of opening an account, and increase security. For instance, in remote areas it currently takes between 3 and 5 days to open an account in Indonesia.  Enabling a provider to authenticate a customer, by matching their biometrics with the national database would reduce this process to just 5 minutes; and the cost from from USD 5-8 to USD 0.4 (as happened in India).

  • Unleashing the power of various types of providers to deliver financial services: for instance, Indonesia has not only a vivid banking industry, but also wide-reaching mobile network operators, and a plethora of innovative fintech companies aiming to reach rural places. If Indonesia wants to reach its target it will have to leverage every player to reach the most remote places, in a country where the population is spread across thousands of islands.

  • Powering financial inclusion efforts with the digitization of G2P programs, which will allow for welfare recipients to get payments directly onto their digital accounts, as opposed to receiving them in cash (which would reduce long lines, embezzlement, security issues, and would help the state significantly reduce the cost of distributing benefits).

The Secretariat also understands the digital opportunity that mobile phones represent: in 2014, out of 119 million excluded adults, 100 million owned or had access to a mobile phone. Smartphone penetration is skyrocketing and expected to reach over 60 percent by 2022, which will open new avenues and business models for reaching low-income people.

3) The critical pieces of infrastructure and regulations are already in place: For digital financial services (DFS) to expand, key elements of infrastructure and regulations need to be in place. In Indonesia, some of these critical components exist but need to be organized in a more coherent fashion:

Requirements for DFS to expand

Indonesia has...


Wide-reaching and quality mobile and internet connectivity

  • High cell phone penetration close to 80%,

  • Signal covers over 90 percent of the territory.

  • Rapid increase in smartphone penetration.


A pervasive digital ID system

  • A biometric ID system (e-KTP) covering between 80% and 90% of the adult population – but still needs to allow for use in e-KYC.


Enabling Regulations allowing various player types to open accounts

  • Progressive e-money regulations allowing non-banks like telcos to be e-money issuers

  • However, non-bank providers are not yet allowed to use informal agents (for instance, small mom-and-pop shops in rural areas, are considered too informal to serve as agents).
    => this leads to a serious lack of profitable agents to serve the needs of the country, and a missed opportunity to leverage existing telco networks that for the most part extend to very rural neighborhoods.

Infrastructure and Regulations

A robust and interoperable Payments Infrastructure

  • In the near future, Bank Indonesia has announced that the National Payment Gateway should interconnect all e-money providers, banks and non-banks.


Products meeting the needs of the people

  • A world-class fintech and app ecosystem is developing in Jakarta with some key players like super platform Go-Jek developing viral infrastructure,, expanding fast, but not yet reaching down-market to lower income families..

The way forward - what’s Indonesia’s model to bank the poor?

Indonesia presents clear similarities with where China and India were standing a few years ago, pertaining to financial inclusion. Indonesia is quickly making good progress developing its own system while adopting some lessons from China and India’s experience.

In fact, just like China in the 2010’s, Indonesia’s super platform apps (like Go-Jek or Grab) are moving into digital payments. Their intent to reach down market could very well be a game changer for financial inclusion, as Stephen Deng analyses in this blogpost. 

And, just like India in 2014, Indonesia benefits from the pervasiveness of a digital ID system, and intentional government-backed G2P digitization efforts, which will be leveraged to financially include people en masse.

Just like them, Indonesia has the key elements to succeed: strong political will, a dedicated team, the right infrastructure investments, the willingness to experiment and not be overly conservative, along with strong engagement from private sector and fintech players. 

It is clear that today Indonesia is on the right path. Of course, some hurdles remain, but for now, the International community of funders and experts needs to continue supporting Indonesia in defining its own model and accelerating the pace of change to reach and (who knows!) outdo the 75 percent target.

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