Mr. Nachiket Mor, National Director (India) – Bill & Melinda Gates Foundation addressing the delegation

In April, Women’s World Banking convened policymakers from around the world—including Indonesia—at Oxford University for a leadership program for regulators focused on the development and promotion of policy initiatives for women and supporting banks in creating a pipeline of women leaders internally. This is not the first time that Women’s World Banking has partnered with regulators in Indonesia to encourage financial inclusion.

Gates Foundation and Women’s World Banking, along with the global consulting firm MicroSave, previously facilitated a government-to-government exchange between Indonesia and India. The goal was for an Indonesian delegation to learn about India’s success in promoting national financial inclusion. The findings and decisions that came out of that exchange have helped set the course for Women’s World Banking’s broader, long-term Indonesia country strategy and laid the groundwork for its participation in the Leadership Program for Regulators.

Indonesia’s Move Toward Financial Inclusion

Even though Indonesia established a National Financial Inclusion Strategy framework in 2012, just 36 percent of its total adult population (177 million people) in Indonesia was financially included in 2014. In 2016, President Joko Widodo officially launched the National Financial Inclusion Strategy, a plan to increase financial inclusion from 36 percent to 75 percent by 2019.

Closing a 50 million gap in two years is no small feat, but it’s not impossible. India increased financial inclusion from 35% in 2011 to 80% in 2017. Could Indonesia learn from India’s experience in financial inclusion to adopt effective technological innovations and policies to accelerate its own financial inclusion agenda?

That was the question when, during the one-week exchange, the Indonesian delegation met with over 14 government ministries, experts, and private institutions in Delhi, Mumbai, and Bangalore to understand how the country dramatically shrunk the country’s financial inclusion gap.

India’s Example

There are a few key similarities between India and Indonesia that made them a compatible match for the exchange.

First: Both countries have a large and diverse population. With a total of 1.2 billion population belonging to 6 major religions, India is the second most populous country in the world. Indonesia, similarly with 17,000 islands and 5 national religions, is the 4th most populous country in the world.

Second: Both have a strong, centralized government driving the country’s financial inclusion agenda.

Third: Both countries aim to use digital financial services to drive financial inclusion.

At the end of the weeklong exchange, three clear actions emerged:

  • Utilize Digital ID and enable e-KYC to scale account opening and enable a diverse set of solutions: Aadhaar, India’s biometric-based unique identity number system, solved the critical problem of identification that had hampered numerous government programs. In just five years, 1.6 billion people in India (90 percent of the population) have received an Aadhaar, making it the biggest civil service project in the world. It has allowed millions of citizens to start using formal financial services. Through the Aadhaar Payment Bridge and Aadhaar Enabled Payment System, the open-API platform has enabled a wide number of public and private institutions to provide G2P subsidies, e-sign, Unified Payment Interface, e-Sign, e-KYC to allow consumers make fast financial transactions and access service
  • Leverage a wide range of non-bank institutions and their existing distribution networks for last-mile connectivity: Since 2015, the Reserve Bank of India (RBI) awarded 12 different entities with a payment bank license. This enabled entry of new participants into the banking space which can better serve unbanked customers with their wide distribution networks.
  • Create a viable regulatory framework that support financial inclusion activities: RBI has taken a central role in making policies and strategy interventions, including mandatory priority sector lending (40% of a bank’s portfolio earmarked for the low-income segment), relaxed KYC and e-KYC, expansion of bank branches and outlets to rural areas, and Banking Correspondents to provide a robust network of cash-in/cash-out outlets.

The example of India and Indonesia’s exchange showcases the potential for government to catalyze broader efforts of financial service firms, telecommunication operators, retailers, credit bureaus, FinTech firms, and NGOs to help ensure stronger adoption, usage, and sustainability with financial inclusion services.

Armed with learnings from the peer exchange trip, the Indonesia delegation must now assess which ideas will work best within the Indonesian context to take the first step in transformational change. In particular, the issues around balancing the demands of democratization of data identity to promote access with data security may serve as good lessons for Indonesian policymakers promote financial inclusion in its own country. But Indonesia won’t be alone on this journey.

Indonesian regulators, along with regulators from other countries, attended a Leadership Program for Regulators at Oxford University’s Saïd Business School to discuss a number of issues relevant to financial inclusion. With funding from both the Australian Department of Foreign Affairs and Trade (DFAT) and the Gates Foundation, Women’s World Banking will be with the Indonesian Secretariat every step of the way in its mission of implementing the National Financial Inclusion Strategy.