The FINANCIAL — The Asian Development Bank (ADB) has approved a $400 million policy-based loan to continue supporting the Government of Indonesia’s reforms to develop a more inclusive financial sector.
ADB also approved a technical assistance grant of $800,000 to help promote increased access to finance, broadened financial literacy, and enhance consumer protection.
“Indonesia’s growth and development momentum can benefit from a far-reaching, sustainable, and efficient financial sector,” said Mohd Sani Ismail, an ADB Senior Financial Sector Specialist. “ADB remains committed to supporting the government in improving its financial sector to make it more inclusive through the National Council for Financial Inclusion.”
Indonesia is facing the twin problems of insufficient growth and rising household income inequality. Growth in 2017 is expected to remain only slightly above 5%, which may not be sufficient to provide jobs for the 3 million additional people reaching working age each year. Against this backdrop, the government is finding it difficult to reverse the trend of rising income inequality, according to ADB.
Related to this is lack of financial inclusion, which deprives the poor of opportunities to raise incomes through savings and pensions, or weather economic shocks or natural disasters. For example, only 36% of the Indonesia adult population has a formal bank account, compared with more than 75% in Malaysia and Thailand. Access to formal credit is also relatively low in the country. A developed and stable financial system will help safeguard inclusiveness of the financial system and have a positive effect on reducing inequality and poverty.
Maintaining financial stability is a joint responsibility between the Financial Services Authority (OJK), Bank Indonesia, the Ministry of Finance, and the Deposit Insurance Commission.
ADB’s program loan is the second loan under the Financial Market Development and Inclusion Program — which includes three subprograms — bringing the total ADB financing to $800 million since September 2015.
The project’s first subprogram supported the government in establishing OJK as a unified and independent financial services regulator. ADB also supported OJK to set up the International Center for Microfinance and Financial Inclusion (PROKSI) to provide capacity building to the industry. Subprogram 2 focuses on support to the consolidated finance sector master plan and advancing OJK’s fiscal independence.