Can FinTech help to achieve financial inclusion in Indonesia?
    Category: Smart Investing 2016 By : Will Ongkowidjaja Read : 1303 Date : Monday, June 20, 2016 - 03:01:37

    The question of whether financial technology (FinTech) is a solution to help financial inclusion has been a hot topic globally, and the inaugural Indonesia FinTech Conference 2016 organized by Oliver Wyman and Modalku may provide some insights into this question. The event was opened by Dr. Muliaman Hadad, chairman of Otoritas Jasa Keuangan (OJK), Indonesia’s financial regulator. Other guests and speakers included senior OJK team members, industry leaders from financial institutions and key stakeholders of the FinTech industry.

    At the conference, I moderated a panel on the topic: “What role should regulators play in supporting the growth of FinTech in Indonesia and abroad?” The panel included Dr. Hendrikus Passagi, senior executive reseacher of OJK. As an Indonesian national, technology investor, and believer in FinTech’s potential, I am encouraged by the ways in which the regulator is thinking about FinTech. Here are their three key insights:

    (1) First, Muliaman states that it is important to “do the right things” to support FinTech companies, as FinTech can play a key role in helping Indonesia achieve financial inclusion. In Indonesia, financial inclusion is still a major issue since only 36% of the population has a bank account versus 69% for developing East Asia and Pacific countries.

    Thus, a fresh approach is necessary to address this problem. FinTech can be a digital paradigm shift in the way of doing business in the financial services sector. For example, Modalku, Indonesia’s pioneer peer-to-peer lending company, focuses on small and medium enterprises (SMEs) that are “feasible but not yet bankable,” and currently provides a solution for these SMEs.

    (2) The second insight is that regulation for FinTech companies will come, but it needs to be pas (“just right” in Bahasa Indonesia). Muliaman shared OJK’s ongoing dialogue with regulators in different markets, such as Singapore, China and Australia, to learn about the various approaches those markets take and to determine what might be pas for Indonesia. Muliaman highlighted that regulation needs to allow for innovation, yet simultaneously create the right environment to manage risk, a view with which I agree. There have been case studies where different regulators take different approaches to regulating FinTech companies, ranging on a scale from rather relaxed (case study: China) to very firm (case study: Germany), with different outcomes.

    It is necessary to put regulations in place to ensure that end consumers be protected, be it as lenders or borrowers, by preventing unqualified players or those with ill intentions from setting up a FinTech company—there have been unfortunate cases of Ponzi schemes in other markets. Thus, it is important that appropriate regulations be implemented to prevent such problems. The OJK has identified 51 FinTech companies in Indonesia today, and has been getting FinTech companies’ input as to their needs and challenges.