Unrealized Potential in Indonesia’s Growing FinTech industry

Unrealized Potential in Indonesia’s Growing FinTech industry

Unrealized Potential in Indonesia’s Growing FinTech industry

The FINANCIAL -- Jakarta, Indonesia, July 31, 2018 — With the right regulations, Indonesia’s dynamic Fintech industry could help deliver much needed finance to micro, small and medium sized enterprises and support the government of Indonesia’s goals for financial inclusion, according to one of the leaders of the world’s development institution devoted to the private sector.

The comments by IFC’s CEO Philippe Le Houérou were made at the Indonesia FinTech Financial Inclusion Forum in Jakarta, which was hosted by the Indonesian FinTech Association and IFC as part of the Voyage to Indonesia event series.

Indonesia’s small and medium-sized enterprises “remain significantly credit constrained,” Le Houérou said. In 2017, the finance gap for these businesses was estimated at $166 billion or 19 percent of GDP. There are 58 million micro, small and medium sized enterprises in Indonesia. They employ 89 percent of the private sector workforce, and contribute to 60 percent of the country’s GDP.

Overall, Le Houérou said that Indonesia has taken several important steps to expand financial inclusion.

“Indonesia has made great progress in financial inclusion, but more needs to be done to bridge the financial access gap,” he said. “With the right regulatory and supervisory frameworks in place, FinTech can give customers access to payment services, savings, investment, credit and insurance."

The Indonesian FinTech Association says there’s now 235 FinTech companies operating in Indonesia, with over half of those founded in the last two years. Digital payments by FinTechs have reached a total transaction value of US$21 million in Indonesia.

“Only 49% of adults in Indonesia have access to formal financial services, according to the 2017 Findex. The Fintech Association is committed to help drive the Government of Indonesia's strategic goal of including 75% of Indonesians in the formal financial system by 2019. Over 69% of the unbanked population own personal mobile phones. We firmly believe that Fintechs can collaborate with existing financial institutions to extend their reach and significantly improve product-market fit. The fintech industry is already scaling rapidly, and has more than 30+ million users, 3+ million agents, covering 350 counties/cities. We are extremely thankful to the financial services industry and the government for the outstanding support for Fintechs to collaborate. We are proud to be able to contribute towards making a large social impact for Indonesia through driving financial inclusion.” Niki Luhur, the Chairman of Indonesia Fintech Association said.

The forum was also told only 39 percent of adults in Indonesia have a transaction account with a formal financial institution. In a bid to promote financial inclusion as a key development strategy, the government of Indonesia has implemented the National Strategy for Financial Inclusion with the goal of including 75 percent of Indonesians in the formal financial system by 2019.

IFC is committed to offering viable investment and advisory solutions to sustainably grow Indonesia’s FinTech sector and promote financial inclusion.

The event was held as part of series of activities, with the theme, “Voyage to Indonesia” in which the Indonesian authorities, the IMF and the World Bank Group lay the groundwork for the IMF-World Bank Group Annual Meetings in Bali in October 2018.