The emerging financial inclusion drive in Indonesia is set out to expand the potential of the domestic market, hence creating resilience against commodity shocks by enabling the economy to diversify away from traditional export channels (oil, natural gas and palm oil industries). Indeed, in a very general sense, despite its risks and pitfalls, the benefits of financial inclusion are widely accepted. Many country-level analyses and reports point out to a clear correlation of widened financial access and economic growth, reduced poverty and inequality levels.
A lack of financial inclusion has been an obvious reason for Indonesians’ low savings. Data from the World Bank show that Indonesia’s total savings to gross domestic product (GDP) a ratio is around 30% percent as of 2016, compared to 47% percent of Singapore and 49% of China. Over the longer run, higher saving rates have important benefits for developing countries such as Indonesia. Saving more provides more funding for investment (hence growth and employment opportunities). In addition, households that save more will attain a more secure financial position, enabling them to face crises that are all too common in commodity-pegged economies like Indonesia.
The financial inclusion push in Indonesia is also a part of a drive to prop up the levels of fiscal record-keeping and a more secure financial network. As such, Bank Indonesia has been consistently promoting the use of e-payments, which it deems as much more secure, due to its traceable nature. The promotion of cashless transactions hence assists governmental efforts in eradicating corruption, money laundering, the circulation of counterfeit currencies, as well as the funding of terrorist activities. Usage of cashless transactions is also desirable for state institutions as it reduces the government expenditure of printing the currencies and the enabling of circulation of the currency.
Indeed, many international companies such as Facebook and Paypal seem to be aiming to be a part of the cashless financial inclusion drive in Indonesia with their Gojek-led expansion into Southeast Asia. As an observer in the field, I strongly believe in the power of the smartphone and QR codes to democratise the process of buying and selling and the power of tech to make financial transactions available and legible to everyone. Therefore, it is a positive development to see the private sector’s vision is in line with that of the Indonesian government in an exciting and burgeoning industry.
