Indonesia is projected to be a global hub of economic activity by 2030. Indonesia’s young and industrious generations will be the foundation of one of the fastest growing economies in the world. ASEAN’s seventh package of commitments on financial services, ratified by Indonesia in 2020 through Law No. 13/2020, will allow for independent negotiations between member states to expand and establish their banking branches in the ASEAN region. This will substantially liberalize the banking industry and promote trade and security within Asia. Indonesia must prepare itself for the tide of global interest and investment by establishing an accessible, tech savvy and transparent banking industry that its citizens can trust with their assets.
Imagine a globally recognised, modern and dynamic Indonesian bank complete with trading branches established in every ASEAN country by 2040. The liberalization of the financial sector amongst ASEAN nations has created such opportunities for competitive financial developments between regional neighbours, namely Malaysia and Singapore. The qualified ASEAN banks agreed upon by employing the seventh protocol will be able to enter Indonesia with unrestricted market access and no discriminatory treatment by local central banks. Likewise, Indonesian banks will be able to expand in a reciprocal nature. Currently, the vast majority of stakeholder power within the Indonesian banking/financial services industry is held by foreign investors with over 90% share of the bank. The effects of the Asian Financial crises of 1997 are still felt today as the value of the Indonesian Rupiah is relatively low compared to the strength of other ASEAN currencies. However, there is good reason to expect that foreign and domestic investment into the Indonesian economy will balance more equitably in the future as Indonesia prospers.
As Indonesia is projected to be the world’s fifth largest economy by the mid-century, there is a huge opportunity to create life-long relationships with Indonesian households and manage their wealth. The scale of economic activity as young, middle income, Indonesian families prosper will mirror India’s recent boom. If the Indonesian government were to promote public trust in its domestic banks with sound security and transparent practices, lifelong banking relationships could be established. Tech savvy and wealthy Indonesians will be attracted to banking services that allow seamless access and transfers across the ASEAN region. When domestic security and capital has been assured, it will become like that ASEAN member states would have the confidence to open accounts with major Indonesian banks and conduct business efficiently anywhere in the region. Indonesia’s stable financial sector will attract ASEAN member states to invest in its burgeoning insurance markets.
The growth of Indonesia’s cities is exciting however there are substantial challenges that will need to be overcome. People’s literacy on financial access especially in banking sector in one of the challenges although confidentiality level of Indonesian people to bank industry is still high. Unfortunately, corruption in Indonesia has regressed significantly according to a recent study produced by Transparency International and, if linked to banking in practice, in some cases, bank officers use their access to commit crimes worthy of corruption against customer’s saving account, for example misuse of customer saving funds.
It is important to note that domestic banking regulations are some of the strictest in the country. Industries which relate to capital markets, insurances, pension funds and multi finance are protected by an independent watchdog, the Financial Services Authority (OJK). ASEAN member states must be confident their agreements will be honoured in good faith and that the delivery of financial services be protected by practical laws. Currently digital banking regulations are less formalised and practical than traditional banking policy. The management of the ASEAN Protocol will depend on the stringency of the ASEAN Banking Integration Framework. Indonesia’s banking and financial services authority must consult with banking industry professionals in order to bolster the legal regulations which will ensure seamless and secure transactions. A contemporary Indonesian bank that can meet the potential of Indonesians growth must be free from corruption to alleviate the anxieties of its investors.
Indonesia will need to invest heavily in the professional development of the future banking and financial service staff. Of the 270 million citizens of Indonesia, roughly 60% are of a productive age. Millennials are especially adept at adapting to technological advancements. Digital literacy will be fundamental to the uptake and engagement of money management in Indonesia. COVID-19 has exposed the necessity of information technology and virtual experiences to connect with our colleagues and industry professionals. While we are physically confined to our communities, the economy is not. If Indonesia is to keep up and compete with its ASEAN neighbours, banking professionals must be able to connect online with their clients to discuss opportunities and conduct daily business. Low levels of digital literacy will hinder the accessibility to banking services.
The silver lining of the worldwide COVID-19 experience is that virtual vocational programs are available so that aspiring students may upskill their financial literacy. It is possible that there is some opportunity for social mobility should underrepresented persons have access to these virtual courses. The need to advocate for digital literacy in Indonesia amongst is imperative to the long-term success of Indonesians banking industry.
Only after successfully managing domestic accounts, Indonesian banks should focus on attracting external ASEAN customers. It is likely that regional, specialised banks will struggle to compete with international banks based within Indonesia which offer favourable rates and loans. This may lead to community branches closing and banking customers being taken advantage of by poorly understood terms and conditions. It is important that the banking and financial services authority protects and stabilises the rates of major Indonesian banks, especially those which specialise in agricultural and also micro-small medium enterprises (MSMEs) loans to protect farming communities as well as MSMEs. Indonesia’s economy has pulled tens of millions of people out of poverty in the past twenty years and will continue to do so the century progresses. There is enormous opportunity mirrored with significant challenges. These issues can be met by endorsing digital literacy and the education of young financial professionals.
Penulis Pia Dunlop, mahasiswa J.D. University of New South Wales dalam program Kerjasama magang PSHK dengan ACICIS.