Interview: Wimboh Santoso
How can technology help enhance efficiency and improve banking penetration?
WIMBOH SANTOSO: We see the digitalisation of the financial services industry, including the banking, insurance and capital markets segments, as a method of ensuring its sustainability. It is also a tool to increase local and international competition. Digitalisation increases ease of access for institutional and retail clients. We are working on enhancing digital capacity as a frontline policy – particularly with banks. The physical presence of bank branches is a major constraint in an archipelago of over 17,000 islands. With current technologies, clients no longer need physical bank branches. We have a high level of mobile phone penetration, thus there is a lot of room for growth in this space. The branchless platform is optimising the role of local, mobile agents. Instead of operating entire branches, we are empowering local residents in towns and villages throughout Indonesia to act as agents of our banks. This is also designed to further support micro-, small and medium-sized enterprises in rural areas – specifically micro-enterprises. The potential in this area is immense.
Another example of how technology is already being practically applied in the segment is the system of mandatory digital savings accounts for secondary students in schools throughout Indonesia. By working with schools, local governments, and the Ministry of Education and Culture, we are using this strategy to create a digital savings culture and ensure financial inclusion. Through these and other approaches, we were able to ensure financial inclusion of up to 75% of the Indonesian population by the end of 2019.
Where do you believe sharia-compliant banks should focus their efforts?
SANTOSO: As a country where 90% of the population is Muslim, there is real opportunity to offer credit products that appeal to people searching for financial solutions in line with their beliefs – particularly in rural areas where financial inclusion is lower.
Within the space of microfinancing, there is true scope for sharia-compliant products. We already have enough supply in terms of banks and insurance companies that offer these products; however, currently there is a lack of clientele interested in them. The challenge is to create a market within this space and to effectively generate clients, especially for lending. There is still only a small economy of scale and attracting clients is proving difficult. I believe that the sharia industries would do well to increase their focus on microlending.
What more can be done to increase credit demand, given that banks’ loan growth only increased by 6.5% year-on-year in October 2019?
SANTOSO: A shift in momentum has taken place in Indonesia, specifically in terms of development and infrastructure projects. The highest growth – therefore the greatest opportunity for lending – exists outside of the capital. Banks need to create an environment that allows players easier access to financing solutions in the more rural areas of our country. Furthermore, a wealth of potential exists in untapped industries, and banks need to find ways to creatively target these sectors. For example, proper financing can enable the development of downstream smelting plants.
The same applies within the agriculture industry. We are a country with many resources, but the commercial potential of our agriculture is not being fully tapped. One measure that should aid the industry is the Rp194trn ($13.7bn) allocation for the development of small and medium-sized enterprises. However, it can be very difficult to disburse this financing. Meanwhile, there is also a great need for investment and financing to strengthen the range of supply chains needed for agriculture processors.
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