Improving access to financial services in Indonesia (Vol. 1 of 2) : Executive summary

52032 v1 Improving Access to Financial Services in Indonesia THE WORLD BANK OFFICE JAKARTA Indonesia Stock Exchange Building, Tower II/12-13th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910 Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 THE WORLD BANK The World Bank 1818 H Street N.W. Washington, D.C. 20433 USA Tel: (202) 458-1876 Fax: (202) 522-1557/1560 Email : feedback@worldbank.org Website : www.worldbank.org Printed in December 2009 Improving Access to Financial Services in Indonesia is a product of staff of the World Bank with the Financial Support from the Dutch Government, The findings, interpretation and conclusion expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the government they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries. This executive summary is for discussion during the conference "Enhancing Access to Formal Financial Services in Indonesia", 9-10 December 2009 in Jakarta, Indonesia. Do not cite without expressed permission of the World Bank.  Executive Summary Access to formal financial services is by now widely recognized as critically important to alleviating poverty around the world. An impressive literature has developed supporting the proposition that increased access to financial services has a significant impact on poverty. Financial inclusion is high on the policy agenda of several developing countries worldwide1 where banking and financial systems are usually underdeveloped, and often cater only to large firms and/or high-income individuals. This skewed distribution of finance hinders the growth and development of smaller firms and poorer households. There is a growing recognition that increasing access to formal financial services has both private and social benefits. Extending the breadth of financial service availability fosters economic growth and can improve income distribution. Providing access to financial services means mainstreaming people in many dimensions, fostering economic inclusion, and providing financial institutions with new and expanding markets. Improving access requires actions on both the supply and demand side, by both the public and private sectors as well as changes in the institutional environment. Recent experiences in several countries show that with the right information on who lacks access and for what reasons, policies can be adjusted and products can be designed to scale up access, especially with new technology. The Government of Indonesia has also placed high importance on this issue acknowledging the significance of access to financial services as a constraint to development, and the authorities are initiating policies aimed at increasing access. One of the key constraints to concrete policy action in improving access to financial services, in particular at the household level, is concrete data and analysis on what exactly the demand-side view of the constraints is i.e. what do consumers and the currently un-banked population think of financial services, what access do they have and what products and services do they need. Such information would provide a solid basis that can inform policy and product development by the market to achieve the desired outcomes. While a significant amount of data and analysis is available on the issue of access to credit by Small and Medium Enterprises (SMEs) 2, there is a dearth of such work in the area of access to broader financial services. The objective of this report