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Study on Financial Inclusion and Inclusive Growth in Indonesia


Central Bureau of Statistics (BPS) data shows that the percentage and number of poor people in Indonesia has decreased from 11.47% (28 million people) in September 2013 to 10.70% (27 million people) in September 2016. However, the level of inequality in Indonesia has increased. The ratio of Gini of Indonesia increased consistently from 0.33 in 2002 to 0.40 in 2016. Therefore, there should be efforts to improve the equality of economic growth. Increased access to financial services is one way to achieve inclusive growth. One of the pillars of inclusive growth is financial inclusion (World Economic Forum, 2017).

Inclusive growth can be defined as economic growth that gives equal access for all parties to participate in economic development (Ali and Son, 2007). Meanwhile, financial inclusion can be defined as the provision of financial services to wider society and to low-income households (Leeladhar, 2005). Financial inclusion is also defined as the elimination of various barriers in accessing financial services (World Bank, 2008).

The Government of Indonesia (GoI) has set various policies to improve financial inclusion in Indonesia. Through Presidential Regulation No. 82 of 2016, the GoI had set financial inclusion target, i.e. 75% by 2019. As an institution that in charge in coordinating and formulating the national development plans and its policies, BAPPENAS initiated the “Study of Financial Inclusion and Inclusive Growth in Indonesia”, in cooperation with the Coordinating Ministry for Economic Affairs, KOMPAK and DEFINIT.

The study was conducted in 3 provinces, i.e. North Sumatera, Central Java, and West Nusa Tenggara. This study used Mixed Method Research (MMR) methodology, which is combining quantitative and qualitative methods. The scope activities in this study included 1) literature study of the relationship between financial inclusion and inclusive growth, 2) Focus Group Discussion (FGD), and 3) household surveys.

The results of the literature study show that financial inclusion has positive impact to inclusive growth. In Bangladesh, financial inclusion contributes to GDP of 22.50% and creates 40% of new employment (Rahman, 2015). A study in Indonesia also shows that there is a positive relationship between financial inclusion and inclusive growth. Increasing in financial inclusion promotes inclusive and sustainable growth (Sanjaya and Nursechafia, 2012).

Using panel data from 211 countries (1999 to 2015), this study shows that financial inclusion has a positive impact on inclusive growth. The econometrics analysis using panel data regression shows that globally, financial inclusion has a negative impact to poverty level and has a positive effect on employment and education level. Particularly in Indonesia, if financial inclusion indicators, i.e. the number of savings accounts, the number of loan accounts, the value of (Rp) the savings, and the value (Rp) of loan in Indonesia increased by 10%, it will reduce the poverty rate of 1.1%, 1%, 0.7%, and 0.5%.

The result of the household survey shows that the overall rate of financial inclusion (voluntary and involuntary) is 76.37%. Percentage of household that had access to financial services voluntarily is 60.37%, while 16.01% of households access financial services involuntarily. Using a narrow definition of financial inclusion, i.e. access to bank financial institutions, there only 46.49% of households can access the financial services.

Based on this level of financial inclusion, using data of financial inclusion that voluntarily accessed, to achieve the 75% financial inclusion target by 2019 the financial inclusion should increase by 7.32% per year. Meanwhile, using a narrow definition of financial inclusion, to achieve the financial inclusion target, the financial inclusion should increase by 14.26% per year.

The study also shows several main reasons of households who do not access any financial services, i.e. do not have excess money, afraid of not being able to pay installments, and do not have money to pay insurance premiums. Nevertheless, in fact, households have multiple sources of income, but have no money to save. This can be caused by culture of saving in society is as residue or residual, not as a target. Therefore, people actually need education about financial management. The study also provides recommendations several alternative strategies to achieve the 75 percent financial inclusion target by 2019 that addressed to the team of SNKI or Kelompok Kerja (Pokja) SNKI.

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