Interview: Muliaman Hadad
What role can financial services play in accelerating the country’s growth?
MULIAMAN HADAD: The credit-to-GDP ratio for Indonesia is the lowest in the ASEAN region. This means there is a lot of room for expansion in credit, which will facilitate growth. Other metrics such as market capitalisation to GDP and insurance penetration to GDP are all low compared to our neighbours, which means there is considerable room for growth. We can do this through developing these new sources of funding, as well as putting more focus on the development of microfinance. We drive small and medium-sized enterprises (SMEs) growth by introducing regulation that provides incentives to lend to SMEs. We are providing a lower risk-weighted asset for those loans which are going to SMEs, because this lending is very profitable with a low amount of non-performing loans. We are convinced that we can reduce the risk-weighted asset capital to support the SMEs. The second way is by supporting the banks, and allowing them to have a higher percentage of SME loans in their portfolio.
We have also created a credit bureau, which is quite important for collecting information about credit quality. The government has also begun providing subsidies for those who will work with SMEs. At the regional level, we have fostered more coordination by asking the provincial governments to work with local financial institutions to identify SMEs for lending through the Financial Access Acceleration Team.
How can foreign participation and expertise contribute towards expansion of the financial sector?
HADAD: Indonesia is already quite open. The bottom line is that we very much welcome foreign investors. We cannot afford to be closed, as there is still a substantial savings gap. We are discussing how to realise foreign investment that creates value for both the investor and the domestic economy. This is why we are creating policies that incentivise the creation of value locally. We are very grateful for people coming in who bring expertise in areas that Indonesia does not already have. We have not seen any issues with changing the regulations, and we have kept them static for the last several years.
What are the regulatory priorities in 2016 compared to five years ago?
HADAD: The first priority is improving our supervisory capacity, in particular by conducting the supervision in a more integrated way. This is important because we are overseeing more than just banks, and in Indonesia banks are often related to other financial institutions through ownership or some other means. So we are trying to conduct our supervision in a consolidated way. The second general priority is that we are a newly established institution, so we are trying to develop our competency and our capacities by bringing in all the best experts. We are faced with economic dynamics both international and domestic. The OJK is responsible for overseeing the stability of the financial system, and for supporting institutions to help with their economic development.
Our focus is on maintaining the stability of the system and making it resilient to the shifting dynamics of the economy. Crises come and go without invitation, so resilience is important. We have to make sure the financial institutions implement good governance, use all the best practices and conduct their operations professionally so that they stay in good financial health. The financial industry should contribute to economic development, and we want to provide regulations to support this while maintaining stability. This requires a balance between stability and room for growth in the industry through new products and extending services to east Indonesia. Increased ICT is also important. The third priority is to make these institutions and their services accessible to all people through a process of greater financial inclusion.
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