With most of its 261 million people not in conventional financial systems and without access to basic financial services, Indonesia stands at the top of the Asia Pacific region in terms of its unbanked population. Even most Indonesian micro-SMEs, about 88%, are not able to provide a suitable statement of accounts, according to a KPMG study. Given the situation, the most crucial of the many pitfalls for any financial institution, NGO or lending group in the country is perhaps how to assess the creditworthiness of customers with little to no formal credit history.
In his article for a peer-to-peer microfinance lender, Amartha.com, Kiki Ahmadi describes three ways that are being used to assess repayment capabilities. One is data aggregation: collecting various non-financial data such as mobile phone usage, social media and utility bills as a proxy for household revenue. The data is then used to determine both the ability and willingness to pay back a loan.
Another method used to evaluate a credit score for the millions without one in Indonesia is psychometric evaluation. This method involves questionnaires to measure behavioural and psychological traits associated with the inclination to repay. The test, pioneered by Entrepreneurial Finance Lab (EFL), is delivered directly using a manual form, by SMS/text message or through a mobile app.
Bank Tabungan Pensiunan Nasional (BTPN), one of Indonesia’s largest banks, uses psychometric evaluation for their group-lending products targeting unbanked micro entrepreneurs and has already partnered directly with EFL to assess the creditworthiness of 100,000 potential borrowers across 600 branches throughout the country.
Dealing with cash is a challenge from a logistics and risk perspective, but last-mile payment services such as Kudo or Storeking are being used to collect, record, store and deposit large sums of cash in many locations throughout the Indonesian archipelago. Several conventional banks including BNI, Mandiri and Danamon also pick up cash, count it on site and deposit it in customer accounts. Insurance is included in the cost of service during transport.
For FinTech companies in Indonesia, mobile apps are central for delivering services to customers and supporting daily operations. However, another pitfall of serving the country’s unbanked populations in rural areas is the risk of intermittent 4G or even 3G coverage. In his article, Kiki Ahmad also suggests one way to meet this challenge is to use application programming interfaces (APIs) such as Telerivet or Twilio, which can reach even the most connectivity-remote areas. The Offline-First app is another solution as it is designed to first work offline. After an agent is finished canvassing a customer base, they can then seamlessly upload the data of potential customers once back online.
“The most popular use of this concept is the progressive web application (PWA) that enables websites to be available offline and treated as mobile apps. This concept has been evangelised by Google and is currently gaining traction among web developers,” says Ahmad.
Despite the many difficulties for microfinancers in Indonesia, there is much potential for banks, entrepreneurs and startups. The country is currently experiencing rapid FinTech expansion with more than 150 start-ups and record-high investment. The time is now to get involved.
Almost by definition, serving unbanked populations means dealing with cash. Non-cash methods only account for 10% of transactions in Indonesia. In rural areas, the lack of financial infrastructure means cash is not only king, it is the whole royal family.
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