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A book vendor in Jakarta uses her mobile phone while waiting for customers. Indonesia has one of the fastest growing internet penetration rates in the region. Photo: AFP
Opinion
Eye on Asia
by Indra Utoyo
Eye on Asia
by Indra Utoyo

How to bring Indonesia’s great unbanked masses into the fold of financial inclusion

  • When getting to the nearest bank branch can be a perilous journey, and where more people have smartphones than bank accounts, digital banking is clearly the solution. But rural customers also want the human touch. Enter agent banking
Indra Utoyo
Indra Utoyo
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The Indonesian archipelago, made up of more than 17,000 islands, is notoriously difficult to wrestle into modernity, leaving many rural residents with painfully limited access to banking and financial services. But following the lightning quick rise in internet penetration and mobile phone adoption in recent years, banks have been able to bring previously unbanked people into their fold using creative, hi-tech methods, such as agent banking.

The concept is simple. Banks and microfinance institutions arm individuals with training and mobile technology to become the informal bankers of their villages. It is a means of reaching rural, remote and underbanked populations far away from a physical bank branch.

It allows, for example, a fish farmer in remote Madura, an island off the northeastern coast of Java, who wants to apply for a loan, to avoid a treacherous journey by motorbike 50km to to the closest bank, and instead, visit his neighbour, a registered bank agent. The agent could make the loan application in minutes using a smartphone.

In 2018, 63.1 per cent of Indonesia’s rural residents were aware of banking agents in their region, a staggering increase from 19.4 per cent in 2016, official data show. These agents are key access points for unbanked residents in hard-to-reach spots and are far more valuable to rural residents than to urban ones.

The model has seen success in other parts of the world. In Kenya, nine out of 10 people are banked – financially included – largely thanks to Vodafone’s M-Pesa agent banking service, which is estimated to be worth as much as US$1.5 billion. In the emerging market banking industry, M-Pesa is a shining beacon of proof that financial inclusion via agents is a profitable venture that benefits banks, small and medium enterprises, and the population at large.
An M-Pesa shop in downtown Nairobi, Kenya. M-Pesa allows phone users who do not have bank accounts to send each other money. Photo: Reuters
In Indonesia, where nearly two-thirds of the 264 million people own at least a mobile phone, there are more Indonesians with smartphones than bank accounts. This creates a gap ready to be filled by digital banking solutions. But for now, in Southeast Asia, the human touch is still required.
Several start-ups pioneering the agent banking model are beginning to fill the void. Although not explicitly serving the banking sector, e-commerce platform Kudo taps into the offline, unbanked population, and introduces access points that allow rural residents to shop online. It was acquired by Grab in 2017 in a deal reportedly worth US$100 million.
Another example is Payfazz. Backed by American start-up accelerator Y Combinator, Payfazz is not a bank, but it recruits individuals and coordinates with banks to create a network of human touchpoints for unbanked people to access financial services for the first time.
Indonesian bank tellers count rupiah notes. Fewer than half of the country’s adult population have access to banking. Photo: AFP

All the case studies make one thing clear. It is crucial and valuable for banks to take an interest in unbanked populations in emerging markets. This means going to them, not forcing them to come to you.

In Indonesia, a little fewer than half of all adults still do not have access to banking. For the most part, these are working-class people who live on a few dollars per day or less. But to ignore this group would be unwise. Banks can definitely serve more in the rural areas if the agent model is more widely adopted.

Any bank in emerging Southeast Asia that claims to care about financial inclusion needs to get on board with the agent banking model

Rural residents have shown they are more than ready to open bank accounts. They are ready to begin saving money and interacting with other financial services too. They should be empowered to open an account in under 10 minutes, without having to locate a branch that may be overcrowded or geographically inaccessible.

The more we can bring Indonesia’s remote, rural and unbanked consumers into the fold via agents, the better the nation’s economy can thrive. But we must also be open to taking a high-touch approach to achieve this. This means committing to training programmes and communicating with agents.

Any bank or institution in emerging Southeast Asia that claims to care about financial inclusion needs to get on board with the agent banking model, or be left behind in 2020.

Indra Utoyo is the director of digital technology and operations at Bank BRI, the largest microfinance institution in the world and Indonesia’s first digital bank

This article appeared in the South China Morning Post print edition as: Bringing banking to Indonesia’s heartland
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