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State of Indonesians’ financial independence in the lead up to Hari Kemerdekaan RI

Dino Setiawan has worked in a number of large banks covering, treasury risk management, commercial lending, investment banking, and more recently headed a Silicon Valley based fintech lender providing access to finance for the US underbanked. He blogs to democratize institutional lending issues for mainstream discussion. Afterall, if you knew what went into your bakso, you’d improve your eating habits. Same goes for loans, you become a healthier borrower.



I’ve spoken to a number of bankers while obtaining bank funds for lending to the majority of Indonesians not able to access bank credit, similar to the funding that banks provide to multi finance companies. The dilemma for banks is they need to maintain low gross NPLs (refer to my May 3, 2017 post , which means they can only lend to the safest borrowers. But, they can’t ignore the much larger unbanked population where their processes aren’t well suited to manage the risk of borrowers not paying back.


Some banks provide funds to multi finance companies which is then loaned to the mass market that the banks themselves are unable to serve. Multi finance operations are better tailored to manage borrower risk among the unbanked population. But as with any middle man, the cost or interest rate on the loans go up as the multi finance company takes their cut.


So why can’t banks do what multi finance companies do to give more Indonesians access to bank financial services? Charge a bit more for the loans, and use the money to put in place more risk management processes or set money aside to cover losses and service more of the unbanked population? After all, access to affordable bank loans will free the millions of Indonesians currently trapped by “tengulaks” and “rentiners”, otherwise known as loan sharks who charge in excess of 2,000% on an annualised basis.


I recently came across an interesting response from a banker about this road block to financial independence for unbanked Indonesians. It is a problem of verifying identity. There is no reliable single identity system in Indonesia – until the much awaited eKTP national ID program is fully implemented.


With the past environment allowing for multiple fake KTPs, a lending philosophy of increasing loan cost or interest to be able to serve a riskier borrower base means enabling mass fraud which increases the cost of borrowing for everyone, and if left unchecked can destabilize the banking system. So the philosophy of banks only lending to the safest borrowers took hold.


It’s soon to be 72 years since 17 August 1945, and financial independence for all Indonesians could be within sight. The combination of high mobile / internet penetration, with a growing national ID database means technology can play a significant role in reducing borrower risk. A borrower’s work or home location can be verified via their mobile devices, a borrower’s identity matched to their national ID via a selfie, a borrower’s income estimated by the online transactions they make. I’m excited to be part of the fintech effort in Indonesia and hope to contribute our piece to solving the unbanked puzzle here.