Financial Inclusion Target Group

5 Low-Income Poor: This category includes those with very limited access or without any access to all types of financial services. This category refers to extremely poor group of people who may receive social assistance and lower segment of poor category as parts of community empowerment program. The Working Poor: This category includes poor people having their own jobs, including small and marginal farmers, fishermen, artists and craftsmen, small traders, and micro businesspeople in informal sector in urban and rural areas. Lack of resources limits their ability to expand production or improve productivity and income. Non-Poor: This category includes all people who do not meet criteria to fit in the lowest income poor people and working poor people. Domestic and International Migrant Workers: Indonesia is the third largest remittance recipients in Asia Pacific region. Around 80 percent of migrant workers, or also known as Indonesian Migrant Workers, are women and more than 85 percent of them work in informal sectors. Migrant workers are usually untouched by financial sector or have limited access to financial services. They primarily need facilities to remit money in a secure and quick manner and at a low cost from their workplaces to their houses, which are frequently located in remote and disadvantaged areas. Migrant workers generally come from poor farmer households in rural areas with low income. They have a very limited access to formal financial products or services to support them in migration phase process i.e. pre-migration, during migration, and post-migration. Women: In many developing countries, a huge difference is frequently observed between men and women in terms of their accesses, needs, and preferences for financial services; therefore, in improving access to financial services, it is important to recognize such difference. In Indonesia, men and women have an equal opportunity to have savings account. However, the main motivation of men to open savings accounts is mostly to obtain credit, while women save for future needs. In terms of insurance ownership, women more frequently buy education insurance, while men elect life insurance, and at a certain level, they also have insurance for their assets. People in remote areas: Around 52 percent of Indonesian people live in rural areas and around 60 percent of them do not have access to formal financial services. Out of 12.49 percent of people living below the poverty line, around 64 percent live in rural areas.These 6 figures and geographical distribution condition of Indonesian archipelago indicate the importance of the National Strategy for Financial Inclusion to pay special attention to people in remote areas. Gap in access to financial services for this category may partly be addressed by the use of information and communication technology e.g. mobile money to facilitate transfer and payment transactions between islands and between rural and urban areas.

b. National Financial Inclusion Framework

The World Bank 2010 revealed that at least there are four types of financial services considered vital to people’s life, namely fund deposit, credit, payment system, and insurance, including pension fund. These four aspects are the fundamental requirements for people to live a better life. Increase of public access to financial institutions is a complex issue, which needs cross-sectoral coordination involving bank authorities, non-bank financial services, ministries, or other institutions focusing on poverty reduction, and therefore, a comprehensive and holistic policy is needed in a National Strategy for Financial Inclusion. Figure 1. Six Pillars of Financial Inclusion Strategy 7 The general framework of financial inclusion is built on the following six pillars: Pillar 1 Financial Education. It aims to increase public knowledge and awareness on financial products and services that available in the formal financial market, consumer protection aspect, and understanding on risk management. The scope of this financial education includes: a knowledge and awareness on the various types of financial products and services, b knowledge and awareness on risks related to financial products, c consumer protection, d financial management skill. Pillar 2 Public Financial Facility. The strategy for this pillar refers to the government’s ability and role in providing direct or conditional public financial funding to boost community’s economic empowerment.Several initiatives in this pillar include: a subsidy and social assistance, b community empowerment, c SME empowerment. Pillar 3 Mapping of Financial Information.It aims to build the public capacity, primarily those categorized not eligible to become eligible or unbankable to become bankable by normal financial institutions, particularly productive poor people and micro and small businesses. Initiatives made in this pillar include :a capacity building through training and technical assistance, b alternative of gurantee system simpler but still considering their relevant risks, c provision of simpler credit services, d identification of potential customers. Pillar 4: Supporting PoliciesRegulations. Implementation of an inclusive financial program requires policy support from the government and Bank Indonesia to improve access to financial services. Initiatives made to support this pillar include: a Policy to promote dissemination of financial service products matching to public needs, b prepare product schemes which met the public needs, c encourage change of provisions by observing the principle of prudence in a proportional manner, d make regulations on assistance fund disbursement mechanism through banks, e strengthen legal grounds to improve consumer protection in financial services, f make studies related to financial inclusion to determine policy direction in a sustainable manner. Pillar 5 Intermediary Facilities and Distribution Channels. It aims to increase the awareness of financial institutions on the existence of potential segments in the community and expand the outreach of financial institution services by using alternative distribution channels. Several aspects in this pillar include: a intermediary forum facilities to allow