Micro merchants — the small shop owners, street food vendors, and many others like them — make up the backbone of Indonesia’s economy, yet many of them are often excluded from financial services. Can financial technology accelerate their financial inclusion?
With the support of the Department of Foreign Affairs and Trade (DFAT) Australia and in collaboration with the Indonesia Fintech Association (AFTECH), Pulse Lab Jakarta launched a research project to promote resilience and growth within Indonesia’s unbanked micro business sector. While previous studies have focused on understanding why most low-income communities remain unbanked, this research built on the work of some pioneering fintech companies in Indonesia that are reaching micro merchants to learn from their experiences.
According to the Ministry of SMEs and Cooperatives, roughly 99 per cent of all businesses in Indonesia are micro enterprises — the small shop owners, street food vendors, and merchants who earn a maximum of IDR300million per year. Despite their crucial role in the economy, micro enterprises remain vulnerable to shocks and are unable to grow due to a lack of access to formal financial services.
In line with the Government of Indonesia’s financial inclusion agenda, the growing fintech industry has acknowledged the importance of catering to the financial needs of micro enterprises to accelerate financial inclusion. However, the Indonesia Fintech Association (AFTECH) also acknowledged that unbanked micro enterprises are a challenging segment, given that they are harder to reach than small or medium enterprises.
Despite this challenge, a number of digital financial service providers in Indonesia have already started to reach previously unbanked micro enterprises. The main research question of the project conducted by Pulse Lab Jakarta therefore was: Why, and how, despite the same obstacles and behavioural barriers, have some micro enterprises made the leap and began to use these services?
Pulse Lab Jakarta conducted field research and employed a human-centred design process to answer this question. As part of the research 116 micro merchants across Jakarta, Bekasi, Sukabumi, Ciseeng, and Banyumas where interviewed to uncover: the mental barriers hampering them from accessing financial services, their fintech adoption journey, and the enabling factors that help them to actively use and benefit from fintech.
Beyond understanding the users’ realities, the research also showed that, for micro merchants, the way in which fintech services are introduced and implemented is more influential than details of the technology itself .
Therefore, rather than recommending product or service ideas, a set of design principles (see paper below) were identified that embody the finance and technology-related attitudes and behaviours of micro merchants, particularly the enabling factors that equip them to adopt digital financial services.These principles can be applied by fintech companies as design directives in developing and testing a variety of solutions for micro enterprises in Indonesia.
Microenterprise Fintech Innovation Challenge
At the end of the project, Pulse Lab Jakarta teamed up with the United Nations Capital Development Fund (UNCDF) to launch a Challenge Fund to promote and accelerate usage of fintech for the financial inclusion of microenterprises.
Details of the Challenge Fund are available here and applications are open until October 1st, 2018.
