Communication and data integration in the Government of Indonesia's Financial Inclusion Policy

Financial inclusion is substantially lower in rapidly developing and newly industrialised countries like Indonesia than in developed countries such as the UK. This article argues for better communication and broader data integration in measures of financial inclusion. 

Providing accessible financial products and services is vital for financial inclusion, but McKay, S., Rowlingson, K., and Atkinson, A. (2022) also argue that financial inclusion requires three crucial components: a secure income that meets a minimum standard, access to appropriate and well-regulated financial services, and access to free and appropriate advice and education. 

This article draws on two theories: a) Social Presence Theory (SPT), which argues that the effectiveness of communication technologies in establishing social ties depends on their level of social presence and b) Social Networks Theory (SNT) concerning the social structures and relationships that impact individual behaviour. Specifically, it argues for better communication and broader data integration in measures of financial inclusion. 

Communication

A strong social presence through communication platforms, such as video conferencing or chat support, can assist individuals in feeling more connected to financial institutions and increase their trust in financial services. In the context of financial inclusion, SNT can be developed to determine social networks and influencers who can promote financial literacy and encourage individuals to access financial services. 

Technology and information systems play a crucial role in communication and collaboration for individuals and businesses in the digital age, particularly in the financial services industry. The Social Information System (SIS) facilitates social interactions and decision-making using information and communication technology. SIS can communicate information about financial services, educate individuals on financial literacy, and connect them to financial institutions for financial inclusion. 

Data integration

In Indonesia, the Government is driving financial inclusion policy via the Central Bank of Indonesia (BI) and the Financial Services Authority (OJK).  BI has launched various programmes to encourage electronic payments, which can support the expansion of financial inclusion by offering an affordable and accessible alternative to traditional banking services. OJK regulates and supervises the financial services industry, including banking, insurance, and capital markets. Regarding financial inclusion, the OJK has conducted various efforts to expand the availability of financial products and services for underserved and unbanked communities in Indonesia. 

Progress is assessed using the Financial Inclusion Index (FII), a composite statistic that measures a country’s financial inclusion level, which consists of the accessibility, utilization, and quality of financial services. The key factors used to determine financial inclusion in Indonesia are the number of bank branches, the number of ATMs, the proportion of the population with a bank account, the ratio of the people with a mobile money account, and the balance of the population with access to credit. Credit availability may be weighed more heavily than the number of bank branches in this approach. Recent years have seen this Index increase from 76,19% in 2019 to 85,10% in 2022. 

Since access to affordable credit is a key component of financial inclusion, OJK uses the Financial Information Services System (SLIK) as an integrated data framework to oversee the credibility of borrowers and avoid financial fraud and crimes. In addition, banking and financial institutions operate the SLIK to analyze borrowers’ creditworthiness and make prudent loan decisions. Accordingly, it can reduce the risk of loan default and enhance risk management approaches.  

Bank accounts from international banking, state-owned banking, and private banking are all included in the SLIK databases. However, providers such as cooperatives, microcredit, and peer-to-peer lending (P2P Lending) can choose whether to include customers into the SLIK databases. These cooperative businesses are governed by the Ministry of Cooperatives and Small and Medium-Sized Enterprises, but  the licensing, regulation, and supervision of cooperative enterprises that provide financial services such as microfinance, microcredit, and insurance remains with OJK. 

It is clear, then, that there remains a data gap;  integrating cooperative data with SLIK may increase Indonesia’s financial inclusion index. As is well documented, traditional cooperative businesses provide services to unbanked customers, especially in rural communities, but these traditional cooperative firms, which are governed by the Ministry of Cooperatives and Small and Medium-Sized Enterprises, are not obligated to connect their databases to SLIK. 

Another consequence of unmerging information systems into SLIK is that it may increase the risk of consumer over-indebtedness in Indonesia. It is related to the large base of customer consumption and credit offering accessibility. Hence, the interconnected data system could prevent prospective financial issues and crimes. 

Summary

In conclusion, using a combination of SIS, SPT, and SNT, Indonesia’s financial inclusion context could form a more comprehensive strategy. Then, the Government could transform unbankable communities by shifting collective cognition and knowledge to a new financial inclusion balance. Simultaneously, they could make communities with experiential values broaden their motivation, commitment, and engagement in financial inclusion. Finally, from the policy perspective, the Government, as well as state-owned and private banks, could better control overindebtedness.