Banking
From The Report: Indonesia 2024
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Indonesia’s banking sector is large, complex and profitable, driven by a population of nearly 280m people, the fourth largest in the world. However, a significant portion of the population remains unbanked or underbanked, creating socio-economic challenges. The lack of digital infrastructure, particularly in rural and remote areas, exacerbated these issues during the Covid-19 pandemic. In response, the Indonesian government has introduced a comprehensive reform package aimed at modernising and consolidating the financial services sector. Banks and lenders are increasingly leveraging the country’s thriving financial technology ecosystem to expand services, particularly in rural areas, where financial inclusion remains low. The development of rural banking is seen as essential for boosting financial inclusion and stimulating economic growth.

Despite the rise in digital solutions, only 28% of rural banks were cooperating with financial technology firms (fintechs) and commercial banks as of August 2023, highlighting a gap that needs to be addressed. Continued innovation and collaboration between traditional banks, fintechs and rural banking institutions are expected to create more financial options for underserved populations and micro, small and medium enterprises. These reforms are strengthening Indonesia’s banking sector, positioning it to serve its diverse population and to be more resilient to internal and external economic shocks. This also presents attractive opportunities for private investors.

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Overview

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Indonesia has a large, complex and profitable banking sector. At close to 280m, Indonesia’s population is the fourth largest in the world, and the percentage of the population that are unbanked and underbanked is amongst the highest globally. This has caused significant socio-economic challenges, and a lack of digital infrastructure in the country’s more remote areas exacerbated the issue during the Covid-19 pandemic. In response, the government has unveiled a major reform package designed to modernise and consolidate the financial services sector. Meanwhile, banks and lenders are working to harness Indonesia’s vibrant financial technology…

Analysis

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