5. Financial Inclusion in Indonesia: Moving Towards a Digital Payment System

The benefit of financial inclusion in economic development is widely recognised not only to help low-income people manage risk and absorb financial shocks, but also to establish a foundation for stable and inclusive economic growth by boosting job creation and increasing investment in education. The low-income class are underserved because they assume that because they have no money, they do not need and do not benefit from financial services. However, this belief is incorrect because in the long run economic growth will reach all segments of society, including the poor and vulnerable. Serving the poor and vulnerable is financially feasible, and this group comprises a significant part of the population. Framed in this manner, products can be developed to meet the needs of these people. As their income grows, the low-income and poor population will enter the middle-income population, and they will need more sophisticated products. In Indonesia, like other developing countries, financial inclusion is critical in lifting up the poor and vulnerable, which account for roughly 40 % of the population, to a higher standard of living. Access to financial services in Indonesia is considered low compared to other Asian countries; the number of the Indonesian adult population with access to formal financial services is only 36.1 % in 2014, compared to 80.7 % in Malaysia, 78.1 % in Thailand, and the average in East Asia and Pacific at 69 %. The number of commercial bank branches in Indonesia is also low at roughly 9.8 % in 2014 compared to the Philippines with 18.3 % and Thailand with 12.9 % (World Bank 2014b).