Report from the field: Promoting Savings in Indonesia
By Andrew McCarthy
The developing world wrestles with how to promote a savings culture and develop a system of widespread delivery, and Indonesia is no exception to this conundrum. With roughly 60% of Indonesians saving through informal channels or not saving at all, the question revolves around how to deliver a formalized savings product to an archipelago of over 17,000 islands in a cost-efficient manner.
A team of four Finnovators explored this issue with representatives from Mercy Corps and Maxis, over two days in Jakarta through a combination of meetings with the CEO and regional director, a visit to the field, and concluded with a presentation given by the Finnovators on other savings methodologies from around the world.
Through our research, we broke savings innovations into four primary buckets: Product, Process, Promotion, and Policy (a.k.a. the four P’s). Product innovations split into deposit-side and withdrawal-side tools to promote greater savings. Process innovations revolve around system design and enhancement of the delivery of savings products. Promotion revolves around supporting education and awareness. Policy innovations in savings are through government intervention to change the regulatory framework.
Our takeaways:
- Savings in Indonesia is usually tied with a loan. Part of the loan terms dictate that a certain percentage of the loan be put into a savings account or accrued over the course of the loan. At one particular BPR (rural bank), this type of forced “savings” accounted for ~90% of all deposit accounts.
- Mobile banking is not a panacea. Bank Indonesia (BI), the regulatory body, is very conservative and restrictions currently prohibit rollout en-mass of mobile banking with the same level of services as other countries (for example: KYC restrictions are greater, P2P transfers require a license, agent network cannot deliver banking services, etc.)
- Education is critical. The developing world has typically experienced shocks to their financial system, causing distrust among citizens of banks and formal institutions outside their immediate control. It should be the goal to educate citizens of the benefits of not only savings, but also savings through formal institutions.
- There is hope. Savings rates are ever increasing and with the continued work of people on the ground to educate and innovate savings methods, they will continue to increase.
On behalf of our Finnovation team, we would like to express our deep gratitude to the Mercy Corps / Maxis team for their time and support. This project has been an invaluable learning experience for our team to understand savings in the developing world. We all look forward to watching the fruits of your labor turn into increased savings rates and the alleviation of poverty in Indonesia.
The Finnovation Team: Andrew McCarthy, Lisa Frist, Mercedes Politi, Irvin Sha
