Pushing financial literacy after inclusion

As financial inclusion efforts are underway, the EV-DCI survey has identified that what comes next is financial literacy

Financial inclusion is crucial for any nation to accelerate economic growth by improving equal financial access and support for doing business, such as transactions, payments, savings, credit and insurance. Financial inclusion will foster entrepreneurship and scalability, which will lead to reducing poverty and economic inequality in the long term. In business, startups and corporations rely on financial inclusion and literacy to support their business operations and transactions. However, companies evaluated that offline and online financial access points are still relatively low in the perception survey of East Ventures – Digital Competitiveness Index (EV-DCI) 2022. 

The survey was participated by 71 Indonesian companies, from early-stage startups to medium and large companies. Respondents found the number of online and offline financial access points are still inadequate.

The respondents believe that the main avenue to further increase financial inclusion is to educate people about financial products and financial management. In Indonesia, the lack of financial literacy is considered one of the main barriers to accessing credit. Hence, financial education to improve financial literacy will also further enhance financial inclusion.

According to David Fernando Audy, Operating Partner at East Ventures, “Financial inclusion due to digital acceleration has to be immediately followed by financial literacy to ensure continuous reinforcing support that will further improve both inclusion and literacy as well as safeguarding users against fast-rising financial risks due to mass online adoption.”

The current obstacles that Indonesia faces in increasing the literacy rates and financial inclusion are:

• Varying education levels.
• Lack of willingness to learn about financial products.
• Paradigm concerning the legitimacy of financial products.
• Uneven distribution of supporting infrastructure, and other factors.

Based on Indonesia’s Financial Services Authority (OJK) survey, the country’s financial inclusion and literacy rates were at 76.19% and 38.03%, respectively, in 2019. Out of every 100 residents, 76 have accessed financial institutions, products, and financial services, but only 38 have a good understanding of financial institutions, products, and services. Despite the literacy index improving from 29.7% in 2016, the level of financial literacy, in fact, was still relatively low.

The gap between financial inclusion and literacy should be fixed so that consumers do not make poor financial decisions, incur too much debt, or get caught up in fraud or deceptions. In the long run, these problems can reduce consumer confidence in financial services and hinder the growth of the financial sector.

Collaboration for a faster advancement of financial literacy

The urgency to improve financial literacy in Indonesia already exists. However, a collaboration between stakeholders is needed, including the government, the community, financial institutions, and fintech players. Many of East Ventures’ fintech portfolios want to improve digital financial literacy so that people better understand financial products and services and quickly adopt digital payments.

“Financial literacy efforts need to be carried out along with financial inclusion for sustainable progress. To achieve this, we need collaboration with all stakeholders,” said David.

The government has attempted to optimize the utilization of multi-channel delivery to give information and become the reference at the national level. For instance, the OJK has been utilizing digital media by creating and posting informative videos and infographics on platforms such as YouTube and Instagram. Moreover, the OJK has published the finance literacy book series, which provides financial education at different stages. 

Financial literacy education also has been introduced as part of the educational curriculum starting in high school in 2016 and all levels of education in 2021. However, since the introduction is still new, the government needs to ensure that the curriculum remains relevant to cope with the rapid changes in the financial sector. 

The leading wealth management and trading platform, Bibit and Stockbit, for instance, have initiated Bibit Academy and Stockbit Academy programs. The program has provided over 100 free educational sessions for the public since 2021 to increase public understanding of investment products and their potential risks and benefits, both in urban and rural areas. Therefore, Bibit and Stockbit provide access to investment products in the capital market by leveraging technology and lowering the minimum capital requirements. 

“We help customers understand the investment and the features on our app, thus helping them make the decision to invest with Bibit and Stockbit. We have also continued to collaborate with various organizations such as educational institutions, industry players in the financial services sector, mass media, professional and niche hobby communities, and non-profit organizations this year to push financial literacy,” Sigit Kouwagam, CEO and Co-Founder of Bibit, said.

Against the same backdrop, ALAMI, Indonesia’s largest Sharia-compliant financial technology company, recently launched Fajr Academy, a training and apprenticeship program created to equip the younger generation with the knowledge and skills to meet the needs of the Islamic financial industry in Indonesia.

​​Meanwhile, the P2P lending company, KoinWorks, promotes financial literacy by creating educational and social media content and working with strategic partners to host webinars on financial literacy and new industry regulations.

“KoinWorks University is our financial literacy initiative, developed in partnership with edtech companies for its curriculum. In late September 2022, Koinworks will launch KoinLearn, a free video learning platform developed for MSMEs to learn business, finance, and marketing strategies and maximize their potential,” said Benedicto Haryono, CEO and Co-Founder at KoinWorks. 

In working towards financial inclusion, KoinWorks provides various products, including P2P lending and KoinWorks NEO, to empower MSMEs with access to financing and business and financial management knowledge. KoinWorks recorded a growth of up to 2 million app users. Its MSMEs saw an increase in sales following its financial education sessions, proving that financial literacy can increase financial inclusion.

Xendit, the fintech firm that provides payment solutions and simplifies payment processes, has held XenTalks, a series of host discussions on Indonesia’s technology sector. The topics include common barriers to accessing financial services, such as cybersecurity, choosing fintech services, and illegal loans.

Xendit also has a seller community called “XensClub,” a free learning media for merchants. Thirdly, Xendit held a roadshow with the Ministry of Cooperatives and SMEs to educate MSMEs in different cities, aiming to increase financial digitalization literacy. As a result of these accumulated financial literacy efforts, Xendit has assisted over 3,000 MSMEs in digitizing their payment systems in the past year. 

Meanwhile, the P2P lending Komunal, which recently won the 1st Top Winner of Favourite Votes in the Financial Inclusivity in G20 Digital Innovation Network 2022, is actively increasing the financial literacy of users in various events, both offline and online. The firm has collaborated with several institutions and communities. For instance, it collaborates with a wealth management app and Surabaya University to optimize implementing a government learning program – Merdeka Belajar-Kampus Merdeka (MBKM). Besides, Komunal also collaborated with the Surabaya government to provide initial capital loans for Micro, Small, and Medium Enterprises (MSMEs) and low-income societies in the form of goods ready to sell.

In conclusion, EV-DCI 2022 stated three key approaches to the effective and innovative provision of financial education, which are: 

1. Stakeholders need to facilitate access to information and advice through multi-channel delivery. 
2. The government should harness existing learning environments and networks. 
3. Stakeholders should provide financial education to the public, which can come in the form of handbooks and programs to further accelerate the development of financial literacy. 

Moreover, financial literacy is one of the main drivers of fintech adoption. This is supported by a report published by the Asian Development Bank in 2020, which indicates that higher financial literacy is positively associated with a higher likelihood of using fintech services.

Download the full report of EV-DCI 2022 here.