The low level of financial inclusion in Indonesia is not good for the economy. The central bank of Indonesia (Bank Indonesia) said it could encourage further growth of the shadow economy. This could then jeopardize Indonesia's financial system stability. Being unrecorded, the shadow economy could trigger sudden shocks within the economy.
Financial inclusion (or inclusive financing) is defined as the availability of financial services at affordable costs to all sections of society.
Referring to World Bank research released in 2014, Bank Indonesia Deputy Governor Sugeng said Indonesia's financial inclusion is currently only 36 percent. Sugeng emphasized that this means only 36 percent of the adult population in Indonesia has an account at a formal financial institution, such as a bank.
Bank Indonesia and the central government of Indonesia target to raise the financial inclusion figure to 75 percent by 2019. This target is set in the National Strategy for Inclusive Finance (in Indonesian: Strategi Nasional Keuangan Inklusif, or SNKI).
According to Sugeng, the low level of financial inclusion in Indonesia cause three negative effects for the economy. Firstly, in terms of financial system stability, low financial inclusion leads to exclusivity. Thus, only a small percentage of people will understand - and have access to - financial products and services.
With such exclusivity, third party funds in the financial industry of Indonesia will not grow to the maximum. This will cause the intermediary function of the financial industry to stagnate and it undermines its role as cushion in the event of a recession.
Financial stability is also disrupted due to the heightened risk of illegal activities in the "shadow economy", such as money laundering and financing of terrorism.
The existence of a big shadow economy - implying a high degree of unrecorded economic activity - makes it problematic for the government or regulators to calculate the scale of activities as well as to estimate the potential state losses due to non-transparent activities.
Secondly, from the side of society, financial exclusivity will also hamper the development of people's awareness to save money and cultivate assets in order to have funds available in the future for various expenses.
Meanwhile, a large number of people who are not familiar with financial products and services will also lead to inefficiencies in payment transactions, Sugeng added.
Thirdly, exclusivity in financial products and services will further widen the level of economic inequality in Indonesia. If the level of financial inclusion remains low, then Indonesia's economic growth may be high but it will have high quality.
Income distribution inequality in Indonesia is at an alarming level according to a recent report released by Oxfam, a global aid and development charity, shows that the four wealthiest Indonesians (combined) have more assets compared to the 100 million poorest Indonesians (combined). Indonesia's top four billionaires are worth USD $25 billion, which is approximately the same combined amount owned by the bottom 40 percent of the Indonesian population.