Bank Access for the Poor, 25 Percent Receive Savings Assistance

06 November 2014

On 3 November 2014, the government launched direct subsidies through the Family Welfare Deposits Programme and three cards: the Family Welfare Card (KKS), Smart Indonesia Card (KIP), and Healthy Indonesia Card (KIS). Beneficiaries consist of Indonesia’s poorest, or roughly 25 percent of the population.

The Family Welfare Deposit is a non-cash transfer from the government to the savings account of targeted household using Digital Financial Services (LKD) and mobile phone numbers. The necessary infrastructure was prepared by banks and mobile phone operators.

Through the programme, targeted households receive free SIM cards that are active for five years. Activation and registration are conducted by mobile phone operators and banks. Mobile phone numbers also act as savings account numbers, which have been registered using beneficiary data.

Mobile phones use is already very widespread across Indonesia with around 240 million users in 2013, or almost equal to the population of Indonesia. Through this system, the government transfers non-cash assistance directly to the accounts of targeted households.

This assistance may be withdrawn at any time at a local bank branch or designated agent. TNP2K Executive Secretary Bambang Widianto said the value of the Family Welfare Deposit is Rp 200,000 per month per family. In November-December, Rp 6.2 trillion will be given to 15.5 million targeted households.

In its initial stage (i.e. November-December 2014), Family Welfare Deposits will be given only to 1 million targeted poor households, according to Widianto, due to the complex infrastructure and time needed to initiate LKD. The remaining 14.5 million households will still receive the assistance, but by using the old “giro pos” system. In 2015, the LKD system will be expanded gradually so that all targeted households can benefit from it by the end of 2015.

Ruddy Gobel, TNP2K’s Head of Communication, said that through this integral system, ministries only need to perform their own duties and functions. By using an integrated and connected system, there will no longer be a need differences in data between ministries and agencies.

In addition, with LKD the general public will no longer be limited to the existence of banks or automated teller machines (ATM). They will be able to send money through their mobile phones and withdraw cash through designated agents. "Social Assistance Cards are to be exchanged with four cards, namely the KKS, the SIM card containing e-money, KIP and KIS at post offices or authorised banking agent once the recipient's identity is matched”.

“There, the card will be activated and the recipient will receive a text message on their cell phone detailing their savings amount balance. Afterwards, money can be withdrawn, either in part or the whole balance," Gobel said.

KIP distribution is conducted by the schools of the 157,943 school-aged children from the 1 million disadvantaged families. As for KIS, people can apply directly to the Social Assistance for Health Agency (BPJS).

The use of LKD is expected to boost general interest in saving money. Through non-cash assistance, LKD opens access of the poor to banking. In its initial stages, 542 poor households in Jakarta will receive assistance, with funds set aside for 25 percent of people. This system could be development into productive credit access. “There are those that leave Rp 200,000, while other leaves Rp 100,000. In essence, there is a tendency to save. This is great," said Mandiri Bank Group Head of E-Banking Rahmat B Triaji.

Gradually, this programme will reach 15.5 million poor households by the end of 2015. If implemented completely, it will be the world's largest assistance programme, beating the Bolsa Familia programme in Brazil. Bolsa Familia has reached 12 million families since 2003, and helped reduce the nation’s poverty rate to 28.8 percent from 42.7 percent in five years.

Bank Indonesia’s Executive Director of SME and Financial Access Development, Eni V. Panggabean, in a joint press release with the National Team for the Acceleration of Poverty Reduction (TNP2K) in Jakarta on Tuesday (4/11) said the use of digital financial services developed by the government to delivery aid was a breakthrough. It is a multipurpose system.

Firstly, LKD makes it easier for people to receive help. Mitigating risk is also guaranteed. In addition, this system provides a door for poor people to access formal banking and credit, while encouraging people to save. In microfinance, savings are a basic requirement for the provision of credit. These loans can be used for productive enterprises.

"This is important because a Bank Indonesia survey in cooperation with the Institute of Demography, University of Indonesia showed that financial literacy among Indonesians in 2012 was low. Only 35.51 percent of the adult population in Indonesia have savings," said Panggabean.

Source: Kompas