Jakarta, May 21, 2025 – Indonesian Business Council (IBC) launch a report from its research on financial sector development as a prerequisite for achieving long-term growth. The report consists of eight papers and policy recommendations to deepen the financial sector, expand access to financial products, and increase efficiency to lower interest rates.
IBC Chief Executive Officer Sofyan Djalil said that Indonesia needs a more liquid, efficient financial system that is also responsive to real needs for the economy to grow rapidly. However, Indonesia currently has low level of liquidity, while costs of funding are high, cross-institutional coordination are rare, and development of long-term instruments are limited.
“IBC sees the need for institutional reform to ensure that financial institutions have the mandate to develop the financial sector and improve its governance,” Sofyan stated at the launching event of “Financial Sector Development for Strong and Equitable Growth” report at the Shangri-la Hotel Jakarta.
In its recommendations, IBC proposes to give the Ministry of Finance a stronger role in developing the financial sector. The Ministry of Finance should also lead the coordinating effort to strengthen the financial sector together with the Financial Services Authority (OJK), the Deposit Insurance Corporation (LPS), and Bank Indonesia.
But first, the government needs to develop a single cross-institutional roadmap involving the Ministry of Finance, OJK, LPS and BI to have an effective and focused efforts to strengthen the financial sector.
A good financial sector ideally has good depth, where enough capitals circulate in the market and the financial system is liquid. In a good system, anyone can access financial products, especially for financing. While efficiency in the financial sector bring fair competitiveness, thus lead to lower interest rates.
IBC Appreciates the Establishment of the Directorate General of Financial Sector Stability and Development
IBC welcomes the recent establishment of the Directorate General of Financial Sector Stability and Development under the Ministry of Finance. “This is a first and important step in providing leadership and encouraging harmonization of national financial policies,” Sofyan said.
IBC’s Director of Policy and Program Prayoga Wiradisuria explained that the establishment of an institution with focus on developing the financial sector will hopefully trigger and develop innovations in financial instruments. For examples, project finance bonds for funding infrastructure projects, Real Estate Investment Trusts (REITs) to encourage investment in housing and residential projects, municipal bonds for financing regional infrastructure facilities, and others.
“At the same time, this effort can open up wider investment space for pension funds and insurance. These various financial instruments will increase the liquidity and depth of the financial sector,” he said.
In its research, IBC discussed eight issues that needs improvement and recommendations to create a strong financial sector. Those issues are reflected in the paper:
- Financial Product Innovation to Enhance Financing Option
- Increasing MSME Access to Credit through Collateral Assets and Credit Information System
- Enhancing Financial Efficiency through Banking Consolidation
- Navigating the Road to Improve Sovereign Credit Rating
- Levelling Taxation Playing Field between Financial and Non-financial Sectors
- Managing Non-Performing Loan (NPL) through Asset Management Companies
- Expanding Financial Coverage through Non-Bank Financial Institutions
- Leveraging the Financial of Green Financing
Additionally, IBC also issued a consolidated report titled ‘Institutional Reform and Policy Direction for Indonesia’ which is a synthesis of the previous eight report.
Increasing the Mandatory Savings Rate to Strengthen the Financial Sector
Head of Center for Financial Sector Policy at the Ministry of Finance Adi Budiarso said that Indonesia’s financial sector is not only shallow and inefficient, but also unable to reach the Indonesia’s non-bankable communities. Since 2000, the saving-investment gap in Indonesia has been worsening. Whereas in fact, the country needs significant funding to achieve economic growth of 8%.
Limited domestic financing will hamper Indonesia’s effort to economic growth and increase dependence on foreign financing. He stated the strategy to achieve depth of the financial sector would be by increasing level of savings, insurance and pension funds.
“The level of savings of the Indonesian people is still low. If we can increase this together with insurance and pension funds, we can capitalize it to encourage growth. And now is the right time to adopt mandatory savings. But at the same time, we must strengthen trust and stability in the capital market,” said Adi.
Improving Liquidity of the Financial Sector
Senior Advisor at Prospera Kahlil Rowter explained the lack of depth in Indonesia’s financial sector is partly due to the high level of informal sector, which is more than half of the economy. Furthermore, the absence of derivative instruments makes the Indonesian capital market less attractive. This is in addition to the fact that has the highest interest rates in ASEAN.
To strengthen Indonesia’s financial sector, Kahlil said, it is necessary to add more financial instruments. “Some of what we propose are project finance bonds, Real Estate Investment Trusts (REITs), municipal bonds. Then add the derivatives. Bank Indonesia can launch derivative trading and derivative interest rates,” said Kahlil.
Strengthening Pension Funds and Insurance (Non-Bank Financial Institutions) to Boost the Economy
Deputy Commissioner for Supervision of Insurance, Guarantee, and Pension Fund at OJK Iwan Pasila shared the government needs to encourage the utilization of pension funds, insurance, and guarantees to strengthen the financial sector.
“The insurance, guarantee, and pension fund (PPDP) sector have an important and strategic role in the national economy, especially in terms of reducing the protection gap,” said Iwan.
He further explained the role of insurance and guarantees as protection mechanisms against risk. However, at the same time, these instruments act as institutional investors that can boost the national economy by providing long-term financing sources. Likewise, pension funds are a financial solution to break the circle of sandwich generation. And on the other hand, they can provide financing access for MSMEs.
Developing Alternative Financial Instruments for Financing Investment
Head of the OJK Capital Market Regulation and Development Eddy Manindo added that source of funding from government and SOEs are very limited to meet 2025-2029 investment needs and encourage growth. Therefore, the country very much needs private sectors’ and communities’ sources of financing.
The sources of private financing include bank loans, stock issuance, and bonds. However, there are only a few types of financial products that match what the people’s needs. This is also the condition which hamper the development of the financial sector.
“The current structure of funding still relies heavily on the banking industry. But the capital market can play a bigger role in providing alternative funding. It can also act as means to attract foreign investors as potential financiers for national strategic projects,” he said.
For this purpose, OJK has developed the 2023-2027 Indonesian Capital Market Roadmap. In this roadmap, market capitalization is targeted to reach IDR 15,000 trillion or around 70% of the GDP, which is equivalent to IDR 25 trillion in daily transactions. Meanwhile, the number of investors is targeted to reach more than 20 million.
Deepening of the Domestic Capital Market
Indonesia Stock Exchange’s Business Development Advisor Poltak Hotradero compared the M2 to GDP level for Indonesia is only 40%, which is among the lowest in ASEAN. This indicates the lower amount of circulating capital that can be utilized to boost the economy.
Thus, the Indonesian capital market still has big room to grow in terms of issuance of fixed income investment instruments (Debt Securities). He also mentioned other instruments with great potential, such as Real Estate Investment Trust (REIT/DIRE). This instrument can create efficiency and better risk management for property as traditional assets.
“Increasing and deepening the financial sector is critical to create a more sustainable economic growth in the future,” he said.
Click here to download the press release: Press Release_IBC Launch Report and Recommendation on Financial Sector Development-EN