Responsible Finance: Is It Matter ? Mohamad Nazirwan Senior - - PowerPoint PPT Presentation

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Responsible Finance: Is It Matter ? Mohamad Nazirwan Senior - - PowerPoint PPT Presentation

Sep 04, 2022 463 likes •598 views

Responsible Finance: Is It Matter ? Mohamad Nazirwan Senior Financial Sector Specialist WBG Finance and Markets Financial Inclusion World Bank Perspective Financial inclusion: Access to a broad range of financial services delivered in a

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Mohamad Nazirwan Senior Financial Sector Specialist WBG Finance and Markets

Responsible Finance: Is It Matter?

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Financial Inclusion World Bank Perspective

Financial inclusion: Access to a broad range of financial services delivered in a responsible and sustainable way, including savings and transaction accounts, but also insurance, credit, longer-term savings plans and other financial services to build wealth. Transaction accounts provide an entry point, or gateway, to financial inclusion. Financial inclusion dimension:

  • Access to financial services and products
  • Usage of financial services and products
  • Quality of financial services and products
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Universal Financial Access (UFA)

Goal: By 2020, adults globally have access to a transaction account

  • r electronic instrument to store money, send and receive payments

as the basic building block to manage their financial lives In 2015: still 2 billion adults to reach. WBG Target: to contribute to 1 billion new accountholders by 2020

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Indonesia …

Sumatra Bank adults: 15.2 Bank km2: 12.2

Bank Branches: 28,935 # ATM: 99,286 # LKD agents: 69,548 # Laku Pandai agents: 60,802

Jawa Bank adults: 15.9 Bank km2: 133.1 Kalimantan Bank adults: 18.3 Bank km2: 3.7 Bali & Nusa Tenggara Bank adults: 13.9 Bank km2: 18.7 Maluku & Papua Bank adults: 14.6 Bank km2: 1.4 Sulawesi Bank adults: 13.6 Bank km2: 9.6

Bank adults: Bank Branches per 100,000 adults Bank km2: Bank Branches per 1000 KM Square

Source: BI (2015) and OJK (2015)

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Flash Data Update

Opportunity

(potential new accountholders):

113 million

% of adults with financial access: 2011 2014

20% 36%

# of Unbanked

2011 2014

116M 138M

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Gradual Loss of Client Focus – Current trend

  • Impact of Financial Crisis

– FIs find themselves in a low interest environment where returns on investments have not returned to pre-crisis levels. This leads FIs to cut costs to maintain profitability and pay less attention to the fair treatment of clients

  • Trend in Many Countries, including Indonesia

– Perception of the pursuit of financial objectives - profit and volume alone, losing sight of development objectives -- Double Bottom Lines? – Lack of transparency, limited efforts to reduce transaction costs; regulatory arbitrage – A mono-product mindset with little regard for real customer needs, slow- moving and non-innovative products – Rising NPL and clients over-indebtedness

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Gradual Loss of Client Focus – Over-indebtedness Study

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Microfinance* Market – Growing Rapidly

  • Microfinance providers

have been growing rapidly over the past few years in Indonesia.

**Data From: MBK, BAV, Komida, BTPN Syariah and DMS

Average growth for last 4 years (y-o-y): Gross loan portfolio: 59.10% Number of clients: 48.60% 465 1,499 2,518 3,255 401 653 1,062 1,557

  • 200

400 600 800 1,000 1,200 1,400 1,600 1,800

  • 500

1,000 1,500 2,000 2,500 3,000 3,500 2012 2013 2014 2015

Gross Portfolio Outstanding (IDR Million)

  • No. Clients (000)

Major MFIs' Performance in Indonesia

Number of Clients Outstanding Portfolio

5 major MFIs have 6.1 MFI branches per 100,000 poor population in West Java which is almost 3 times the number of branches in Central Java & Yogyakarta Provinces and 2 times when compared to East Java

Source: Microsave

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The findings imply…

There are emerging signs of stress due to high concentration of MFIs!

MFI Customers’ Behavior

  • Giving multiple loans in spite
  • f prior knowledge,
  • Aggressive growth targets
  • Indulging in unhealthy

competition

  • Taking multiple loans due to

easy availability of loans

  • Growing dislike for the joint

liability system,

  • Utilising loans for non-

productive purposes

Gradual Loss of Client Focus – Over-indebtedness Study

Source: Microsave

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IFC/WBG Perspective

Key Drivers of Crisis

  • Low appreciation of risks

by investors and lenders

  • Rapid expansion of credit

in concentrated markets + breakdown of credit discipline

  • Growth vs internal

controls

  • Credit only approach

Source: CGAP

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Responsible Finance Principle

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The aim to facilitate sustainable and responsible Microfinance (MF) growth in Indonesia through supporting the adoption of good practices in Responsible Finance (RF) by Indonesia microfinance providers.

 A broadest meaning as finance with guiding principles for how financial services should be delivered to live up to the challenge of promoting sustainable development.  It should incorporate social, developmental, and environmental dimensions.  The critical dimension of financial sector responsibility is fair treatment of and education for clients and acting in ways that protect clients' social and economic welfare.

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IFC/WBG’s Role in Responsible Finance

Consumer Protection Regulation Financial Institutions Self-regulation

Customer protection regulation, client data privacy, financial education and awareness programs Building capacity of end clients through financial awareness and financial education programs Embedding RF practices in, customer acquisition and relationship management, product design and delivery, risk management, and

  • peration.

Financial Education Three Pillars

IFC co-founded the sector-wide Responsible Finance Forum (RFF). IFC’s plays a global convening role and coordinates participants from the financial sector, bilateral and multilateral donors and broader international community for Financial Inclusion. Indonesia – IFC/WBG in partnership with SECO develops Indonesia Responsible Access to Finance Platform and supports adoption of RF Principles by wider MF sector IFC’s Responsible Finance diagnostic tool supports institutions in operationalizing responsible finance interventions within their business. The tool provides analysis and recommendations for institutions seeking to adopt responsible finance practices.

IFC/WBG’s Global and Country Convening Role Responsible Finance Diagnostic

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IFC/WBG Priority and Agenda

IFC PRIORITY AREAS SECTORAL INTERVENTIONS INSTITUTIONAL INTERVENTIONS INDIVIDUAL LEVEL INTERVENTIONS Adoption of good practices in RF

  • Started RF initiatives in

2015

  • Design the RF program

inline with Financial Inclusion

  • Convening stakeholders: RF

Platform

  • Common Code of Conducts

for the MF sector

  • Designing Monitoring

systems for CoC/RF charter implementation by SROs

  • Capacity Building
  • Assisting MFIs to adopt

best practices (SMART Campaign) Address Over Indebtedness

  • Study on over-

indebtedness

  • Collaboration with

private Credit Bureaus

  • Initiate and support

collaboration MF sector with credit bureaus to include client data reporting

  • Readiness analysis, to

identify gaps in processes, systems and data fields of MFIs

  • Implementation

support to client awareness program

  • n over-indebtedness

and credit bureau to borrowers Build capacity of borrowers for customer protection

  • Design module and pilot

training for financial education and awareness raising

  • Build capacity of

management and staff

  • f MFIs deliver

financial education module

  • Implementation

support to client awareness program