Low Financial Literacy Is a Major Challenge Keeping Rural Area Residents in Indonesia from Accessing Modern Fintech Services

Industry professionals in Indonesia are calling on Fintech firms to expand their operations outside of Java and partner up with the nation’s government in order to cater to the requirements of the unbanked population.

Only 23% of Fintech firms in the country have a reach beyond the island of Java, meanwhile, just 41% maintain operations in Greater Jakarta, according to a recent survey conducted by the Indonesian Fintech Association or Aftech, which includes responses or feedback from its members.

As first reported by the Jakarta Post, over half or 50% of survey respondents noted that they had been planning to focus on the unbanked and rural population of the country as a potential target market.

Djauhari Sitorus, the Indonesia National Council for Financial Inclusion project management head, stated during a recent online discussion:

“The current development in Fintech is still concentrated in urban and [suburban] areas. We want to see more financial services made available for people living outside of Java.”

Sitorus added that it’s difficult to offer services to people living in rural areas because many of them don’t know how to effectively use digital financial services.

More than 50% of the Fintech companies responding to the survey claimed that low levels of financial literacy were the main challenge when it comes to providing services to Indonesia’s rural market. Like in other nearby countries such as India, the economy of Indonesia is growing fast, but there are still many basic infrastructure problems that must be addressed, such as the lack of Internet access in rural areas and limited financial resources.

Indonesia had scored only 38% on the financial literacy index and 76% on the financial inclusion index (both relatively low), which was published in the form of a survey by the Financial Services Authority (OJK) in 2019. The Indonesian government has been trying to promote initiatives that would enable financial inclusion in the Asian country. It plans to help the nation achieve a 90% score on the financial inclusion index within the next 5 years.

Fintech solutions are increasingly being adopted in Indonesia because many of these platforms offer more accessible financial services to the nation’s 93 million underbanked residents, according to the e-Conomy SEA report released in 2019 by Google, Temasek and Bain & Company.

Mirza Adityaswara, the president director at the Indonesian Banking Development Institute (LPPI), remarked:

“Fintech involvement in the government’s social aid distribution and funds disbursed to SMEs is still limited and low. There is also much room for improvement for fintech to develop linkage with the banking industry.” 

Triyono Gani, the OJK’s head of digital financial innovation and micro-finance development, stated:

 “I think now it is very timely for the government to trust Fintech more, for example, in disbursing micro credit (KUR).”

As reported recently, Indonesia’s Fintech Lenders Association had offered to assist with disbursing funds allocated to the COVID-19 related national economic recovery program.

Tokopedia has introduced a P2P lending platform, as the Indonesian government investigates how millions of the digital commerce marketplace’s customer data records were compromised.

Indonesia’s rapidly expanding Fintech sector may also create new opportunities for Switzerland based businesses, according to a new report. Over 240 Fintech firms are now operating in Indonesia, which is quickly turning into a leading Southeast Asian and global economy.



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