Accelerating Indonesian microfinance with high tech and high touch

Economic inclusion can seem like a faraway goal for many, if not most, countries around the world. Achieving it would mean being able to lift people out of poverty, create equality between genders and socio-economic backgrounds, and build socially inclusive futures for our children.

According to the World Economic Forum’s Inclusive Development Index 2018, the top-ranking countries for economic inclusion are Scandinavian, Nordic, and European countries like Norway, Iceland, Luxembourg, Switzerland, and Denmark. These are small countries, with populations of 8.57 million people or less—there are only 362,860 people in Iceland.

In comparison, countries with far more dense populations find it harder to foster economic inclusion. For example, Greece is at the bottom of the index in terms of ‘Advanced Economies,’ and it has a population of over 10 million people.

Indonesia sits at 36th place on the index under ‘Emerging Economies’—below fellow Southeast Asian countries Malaysia, Thailand, and Vietnam, but above the Philippines and Laos. However, this position is nothing to get too wound up about, because despite Indonesia’s incredibly dense population of 264 million and an archipelago terrain, we are still considered a slowly advancing economy.

The report notes that Indonesia lacks progress on inclusion indicators such as income and wealth inequality. In order to combat this, the country needs to take big leaps forward in terms of technology and financial inclusion. But to do this, it is imperative that plenty of attention, effort, and investment be paid to developing people, streamlining the training process, and deploying offline assets.

MFIs as agents of change

To those unfamiliar with industry lingo, ‘agent networks’ involve financial institutions recruiting individuals and equipping them with mobile tech so they can act as the ‘bankers’ of their villages. The model works especially well in rural and remote areas, where banking agents have become key access points for a population that is located far from a physical bank branch.

Modern microfinance institutions (MFIs) are in the best position to help, and by using the agent network model, they can be highly successful in spreading more financial inclusion and literacy to more Indonesians. 

But we must take a more strategic approach than we have in the past if we are to achieve the desired results. We need to form strong ‘air attack’ plans in the form of new technology, but we also need to deploy large regiments of well-trained ‘boots on the ground’ agents in order to win the battle.

In this manner, high-tech and innovative systems must be well-synced with high-touch and well-trained manpower to run like clockwork. Agents established in rural areas are absolutely crucial to creating touch points needed for the local community to get educated and involved. These agents need to foster a strong sense of trust between the banks they represent and the people to whom we are trying to give basic financial service access. 

MFIs that use agent networks are largely successful in expanding whilst keeping costs down, according to the International Finance Corporation. Those with mature agent networks are also usually able to significantly increase their outreach within three years—and when agent quality and client offerings are improved, they can go even further. We can do this by empowering agents with the mobile software they need to increase productivity and reduce fraud.

Agents and loan officers in rural and remote areas should be armed with effective AI-powered mobile tools to run borrower credit checks on the spot and disperse loans.

As a case study, Baobab Madagascar (formerly Microcred Banque Madagascar) equipped its agents with a nano-loan product based on automated credit scoring. By 2017, agents accounted for more than half of the bank’s business, leading to a restructuring exercise to make agents its primary consumer channel. Madagascar’s case study proves that focusing on empowering agents with better tools to provide more services is deeply rewarding.

But this is not to say that keeping agents up-to-date on all their mobile tech is an easy task. In a country where internet penetration is inconsistent at best in the rural areas, it’s far from easy to keep every agent’s mobile software current, especially those in truly hard-to-reach places. For this reason, modern MFIs should look into using satellites as a way of instantly keeping their agents’ apps relevant, functioning, and up-to-date.

Bank BRI is the only bank in the world to have its own satellite currently in orbit for the precise purpose. We launched that thing back in 2016 and some stakeholders contend that in the context of bringing internet access to remote areas, it’s actually more efficient and reliable than building out fiber-optic telecoms infrastructure.

In other words, the Goldeneye-like satellite beams wifi access straight down from space—no cellular towers needed. For us, it acts as a practical backbone for network stability. This, in turn, creates a financial ecosystem that connects and unites the entire country. It’s a big reason why we’ve been able to make progress in recent years. In 2019, our agent network known as BRILink produced a transaction volume of approximately $44.8b.

The importance of thinking outside the vault

Simple, yet innovative thinking is also key for MFIs to meet their target customers wherever they are. Another example from our own bag of tricks is the first-ever ‘floating bank’ initiative, aimed at reaching people in the coastal areas and remote islands in Indonesia (with more than 17,000 islands, there are a lot of these areas afoot). A floating bank is exactly what it sounds like: a Bank BRI-owned ship that acts as a fully functioning bank branch at sea. To date, we have four of them on the water.

These came about because we noticed it was actually easier to reach certain far-flung populations each day via the water, rather than by land or air vehicles. These are people who otherwise would never make it into a bank branch. So what to do? We could either write them off as unbankable villagers lost in the void, or we could bring access to them.

Starting collaborations and partnerships with companies that are making efforts to improve agent network models can also be a great way to strive for impact. There are a number of global high-tech players making waves within their industries. Outside of Indonesia’s own Payfazz (which creates distributed networks of bank agents who can operate from anywhere) and Kudo (a startup that enables online shopping through its agent network), other examples such as Africa’s Optimetriks and India’s Artoo are notable on the global stage.

By putting emphasis on creating a system in which high tech and high touch approaches work hand-in-hand, Indonesia can start to make significantly bigger leaps toward economic inclusion through financial literacy. Whilst Indonesia has already reached 75% financial inclusion, OJK surveys show that only 38% of Indonesians are financially literate. This means there is still much work to be done.

MFIs will do well to recognize that agent networks coupled with open-API initiatives are some of the most important tools we have to double, or even triple, that literacy percentage within the decade.

The industry and the population are ripe and ready to do these things, but none of it will happen at a meaningful scale unless we can be more creative tomorrow than we are today.