$500 Million ADB Loan to Expand Financial Inclusion in Indonesia

The Asian Development Bank (ADB) has approved a $500 million policy-based loan to support the Government of Indonesia’s efforts to expand financial access among micro, small, and medium-sized enterprises and marginalized groups such as women and youth.

The Promoting Innovative Financial Inclusion Program will help the government better target and track financial inclusion, improve the payments infrastructure, and strengthen the regulatory framework for digital financial services, data privacy, consumer protection, and financial literacy. The program will help build a more inclusive financial services sector, which will reduce poverty and inequality and support Indonesia’s long-term sustainable development.

“The program’s reforms support policy and technology enablers to foster innovations and boost financial inclusion by providing access to formal financial products and services, improving their quality, and increasing their use by financially underserved populations,” said ADB Financial Sector Specialist for Southeast Asia Poornima Jayawardana. “Financial inclusion will play an important role in Indonesia’s recovery from the coronavirus disease (COVID-19) pandemic. More equitable, efficient access to financial products and services will support government measures to mitigate the pandemic’s economic and social impacts, rebuild livelihoods, and prepare for future economic shocks.”

The Financial Inclusion Insights Survey by the Indonesian National Council for Financial Inclusion shows the percentage of Indonesian adults with a bank account rose from 35% in 2016 to 56% in 2018. Despite the progress, Indonesia still lags behind neighbors such as Malaysia and Thailand.

Providing financial services to all is challenging in a country as geographically and culturally diverse as Indonesia, and significant disparities remain in access to a range of financial products among regions and population groups. Further, financial vulnerabilities are worsened by the COVID-19 pandemic, as those without access to financial services also tend to lack savings or credit to weather the economic downturn.

ADB’s program supports the government’s goal of increasing the number of Indonesians using financial products or services offered by formal financial institutions to 90% by 2022, up from 76% in 2019.

ADB has been supporting financial inclusion in Indonesia through lending and technical assistance since 2002, when it helped develop the microfinance sector to expand access to finance for micro, small, and medium-sized enterprises.