The Role of Innovative Financial Inclusion in Post Pandemic Economic Recovery - Ahmed Saeed

Speech | 25 November 2020

Closing remarks by Ahmed M. Saeed, ADB Vice-President, Operations 2, at Pekan Fintech Nasional 2020 (Indonesia National Fintech Weeks) on 25 November 2020

Key points:

  1. As of Q3 2020, Indonesia has officially entered an economic recession. Financial inclusion will help mitigate the impacts of COVID-19 pandemic, foster recovery and rebuilding of livelihoods, and prepare for future economic shocks.  
  2. The rapid digitization of financial services including fintech adoption, and innovative approaches to financial inclusion helps to accelerate recovery process. 
  3. ADB has long supported Indonesia’s efforts in finance sector and is shifting to a dedicated support for financial inclusion. Areas where ADB can help to promote innovative financial inclusion for recovery are in: (a) strengthening the regulatory framework and institutional capacity for fintech; (b) promoting collaborations with fintech sector to expand consumer access to digital financial services, especially the underserved and MSMEs; and (c) promoting financial and digital financial literacy for responsible financial inclusion. 

Good morning Ladies and Gentlemen! Selamat Pagi!

Before anything else, I would like to congratulate AFTECH, OJK, BI and all the Pekan Fintech Nasional 2020 supporters and participants on their efforts and successful organization of this two week long fintech tour de force. It is an honor to speak in this session, and I applaud you for insightful remarks on how digitization and financial innovations have the potential to boost the national recovery from the COVID-19 pandemic.  

This event has brought together many financial inclusion stakeholders and focused our attention on the shared goal:  moving forward towards recovery from COVID-19.    

Impact of COVID-19 

Assessing the full impact of the pandemic is quite a challenge, given the many remaining  unknowns around COVID19 – how long it will take to overcome the pandemic; what will be the impact in the short, medium, and longer term on the Indonesian, the regional, and the global economy; the impact on people, their livelihoods, and their behaviors; and indeed on the financial sector and financial services.    

Like most all other countries around the globe, Indonesia has experienced GDP contractions in recent quarters and is expecting a recession for 2020. We are also seeing increases in poverty, inequality, and unemployment.  

Sectors that have been heavily affected are transportation and hospitality industries, including hotels and restaurants. These sectors consist of thousands of micro and small businesses owned by women and men who are not only providing essential services to the economy, but who are also struggling to support their families and livelihoods. 

Increased importance of innovative financial inclusion 

On a positive note, the dynamic nature of financial technology provides a potentially powerful tool to drive financial sector innovation. It has already shown a positive contribution to the financial inclusion process. For example, e-KYC has facilitated on-boarding of large numbers of previously unbanked population into the formal financial system.

Indonesia has made great progress in financial inclusion. While in 2018 some 56% of the adult population owned a bank account, the percentage of the adult population using bank accounts went up to 76% in 2019. Indonesia needs to ensure that these gains are not lost in the recession that it is going through. The silver lining is that COVID-19 has encouraged greater digitalization by businesses and consumers alike. I am happy to see the government’s support for the rapid digitization of financial services, including fintech adoption, to promote financial inclusion through innovative approaches and to accelerate the economic recovery process. 

We have seen the impressive potential of financial technology to modify human and business behavior. For example, we understand from the Coordinating Ministry of Economic Affairs that in Indonesia, more than 300,000 SMEs have digitized operations in response to COVID-19. That digitization may, in fact, have been critical to the survival of many of these MSMEs. The government’s efforts to digitize social assistance programs began in 2017 to improve delivery efficiency; and these early efforts have boded well for the effectiveness of the government’s National Economic Recovery Program, which has been doing very well in terms of delivering social assistance to those most affected by the pandemic.

The digital based financial services offer low costs, ease of use, and faster services for the consumers. Financial technology can be used not only to increase access for underserved populations, but also as a means to provide digital financial education programs, and to increase financial consumer protection. Access to finance along with financial literacy and consumer protection are key to responsible financial and digital financial inclusion. This, in turn, enables the use of various financial services by the underserved and opens up opportunities for economic recovery.

How ADB can help promote innovative financial inclusion for recovery 

The Asian Development Bank recognizes the need to push for more digital technology driven development and innovation in Southeast Asia as a means to solve challenges facing countries during and beyond the pandemic. ADB will work with countries to address regional disparities and ensure more equitable access to technology.

As you may be aware, the ADB has a longstanding partnership with the Government of Indonesia and OJK, in supporting financial inclusion for development.

Our shared vision involves increasing access for underserved population segments to financial services through financial sector innovations such as fintech. We also share the view that enhanced financial and digital financial literacy, and financial consumer protection are critical ingredients to responsible financial and digital financial inclusion.

In this context, we are very pleased to see the solid progress that the Government of Indonesia has made toward its financial inclusion goals, despite - or indeed because of - the challenging times. The progress was also in part due to the close collaboration with the private sector, including the AFTECH. We at the ADB are proud to be associated with these efforts and early successes.  

ADB stands committed to continue to support these efforts. I am very pleased to share with you that ADB expects to approve the Promoting Innovative Financial Inclusion Program, which is dedicated to financial inclusion. This program aims to support policy and technology enablers to foster innovations to accelerate and enhance financial inclusion. It will support tools and infrastructure for financial inclusion, and seeks to increase access to finance for MSMEs as well as marginalized groups including women and youth. The program will support strengthening the regulatory framework for digital financial services, data privacy, consumer protection, and financial and digital financial literacy.    

I’d like to share three messages on the role of financial inclusion and fintech for Indonesia’s economic recovery, and I will include some examples of ADB’s initiatives in these areas:   

First, we can help Indonesia establish a robust regulatory environment and strengthen institutional capacity to promote digital finance innovations. Regulators will need to both foster technological innovations as well as ensure responsible industry conduct. ADB has been privileged to provide extensive support to OJK’s, Digital Finance Innovation Group in its role as (i) industry accelerator, (ii) incubator, and (iii) regulator of the fintech sector. In line with the Digital Finance Innovation Roadmap and Action Plan 2020-2025, ADB has provided assistance in the Regulatory Sandbox, digital finance regulations, regulatory technology (Regtech)1 and supervisory technology (Suptech)2 frameworks. In addition, ADB has provided knowledge support on accelerating financial inclusion in Southeast Asia through digital finance, including Indonesia.  

Second, we can promote collaboration with the fintech sector as a means of expanding financial services to MSMEs and the underserved, such as women and youth. Leveraging on fintech, there is a significant opportunity to incubate and develop MSMEs recover in the short term and become more efficient in the medium-to long term. Together with OJK, ADB is supporting the Eastern Indonesia Financial Innovation Lab (EIFIL). This initiative supports regional development banks to use innovative technology solutions in partnership with fintech sector to expand financial services to MSMEs in Eastern Indonesia. ADB also supported the recently launched Lokasiku, a geospatial financial services mobile application by OJK which enables one to locate branchless banking agents and other financial services, thus, facilitating financial inclusion. ADB, together with Mastercard, is likewise leveraging on private sector partnerships to support Indonesia through a pilot project in Bandung that connects Warungs, 70% of which are owned by women, with distributors and consumer packed goods companies using a fintech platform. ADB’s private sector operations will expand its Microfinance Risk Participation and Guarantee Program to include more Indonesian microfinance institutions. In addition, through ADB Ventures, we are investing in fintech companies that are providing services such as credit scoring, know your customer, payment and collection to online lenders of MSMEs.  

Third, we can support promoting both financial literacy and digital financial literacy in Indonesia. We have been extensively working with OJK [ O J car], to produce financial literacy, and digital financial education and consumer protection materials. ADB supported Indonesia’s participation in the Program for International Student Assessment (PISA), including on financial literacy. It further supported OJK [ O J car], to develop and launch e-modules based financial literacy materials for elementary and high school students. More recently, ADB supported OJK’s [ O J car],  financial literacy materials for early childhood, and digital financial literacy materials as part of Smart Digital Indonesia Series. ADB’s interventions in this area also include innovative programs such as Y-Bank program which piloted in 2019 as an experiential financial education and career exploration program for Indonesian youth.  

Ladies and gentlemen,

Certainly, COVID-19 has provided us with significant related challenges. However, I firmly believe that economic recovery and financial inclusion can be achieved through collaborative effort of industry players, Fintech providers and sectoral regulators, such as OJK, BI, and the Ministry of Communication and Information Technology. I likewise believe that striving for increased innovation for financial inclusion can have a decisive and positive impact on the nation and its citizens’ economic recovery from the pandemic.

And, the Asian Development Bank will be there to support and enable Indonesia’s recovery and inclusive growth as best we are able.

Congratulations to the Pekan Fintech Nasional 2020 organizers and all who played a role in making this a successful event.

Thank you for giving me the opportunity to participate in this fruitful forum and we look forward to the new ideas that will be generated as a result of this event.