Financial development is an area that IBC are concerned about due to its significance to economic growth and equity. Financial development is defined broadly by a set of indicators like depth, access, and efficiency of financial institutions and markets. When optimal, financial development will be well positioned to accommodate business needs and allocate resources to sectors that increase Indonesia’s business friendliness and competitiveness.
Currently, although there are efforts already by regulators such as omnibus law on financial sector, Indonesia’s financial development is not yet optimal as can be seen in low financial institutions and markets’ depth, access, as well as efficiency compared to peer countries. M2 to GDP was below 50% while China was at 200%, only around 50% business has access to finance while China was at 85%, and credit interest rate at more than 8% while China was at 3%. This placed Indonesia in less favourable positions in terms of achieving its goal as advanced nation in 2045.
IBC have initially identified that some of the challenges hampering Indonesia’s financial development are structural factors. The structural factors are such as (1) export dominance in the middle of absence of innovative products and tax advantages, (2) preference of non-financial savings in the form of land, buildings, and gold, (3) reliance to informal economy, high country risk premium that leads to high policy rate, (4) risk averse behavior in the middle of high credit risk as reflected in Non-Performing Loan (NPL), (7) structure of banks that leads to low competition.
Therefore, IBC conduct a study titled “Financial Development for Strong and Equitable Growth” which will thoroughly examine those distinctive factors hampering Indonesia’s financial development and come up with strategic approach in the form of policy packages that will become reference for policy makers who shares the vision. In this first report, IBC will explore 7 possible policy ideas that can lead to solutions for our financial sector development. It has used literature review, data analysis, as well as expert interview to make sure an effective impact to increasing Indonesia’s financial development level to its optimum level.