Indonesia’s Financial Services Authority (OJK) is preparing to launch new rules governing financial technology (fintech) companies by the end of the year. The regulations are expected to help set a healthy ecosystem in which fintech startups could grow and collaborate with traditional banks.
Chairman of Board of Commissioners of the Financial Services Authority Muliaman Hadad said the regulator will consult authorities from other countries in the region to get an idea of the industry ecosystem in the regional level.
“We will start consulting our peers in China, Australia, Singapore, and Malaysia. I want to see their responses and suggestions first. However, we will try our best to finalise it this year,” said Hadad, Tuesday.
Hadad admits that the government must give more room for fintech startups to innovate and expand. But at the same time, he added, regulators must also identify vulnerabilities that may arise from it, especially in the existing financial system.
Currently, fintech startups do not clearly fall under the purview of any single authority. While technology startups are regulated by the communication ministry, those engaged in financial services are governed by the OJK.
Hence, the sector needs a new regulation that is being worked out by both departments. Indonesia has seen a wave of fintech startups and crowd funding sites that are tapping the growing tech-savvy population of souteast Asia’s largest economies.
The emergence of fintech companies has alarmed some players in the traditional banking industry on the back of fear that these new digital-based startups would eventually take over.
But more experts and industry players agree that it should be seen as complementing mainstream banking and not as a threat. The fintech industry can play an important role in financial inclusion in the country by helping the “missing middle” – the unbankable small and medium enterprises and unbankable individuals.
Indonesia’s “missing middle” consists of enterprises with a monthly revenue between Rp 10 million to Rp 100 million that lack access to finance, thus stunting their growth.
A recent report by Oliver Wyman and Modalku reveals that Indonesia will see a $54 billion small and medium enterprises financing gap by 2020, with more than 57 million potentially bankable micro business.
It also projects mass affluent return see Jason Ekberg, Oliver Wyman Head of Indonesia, said there is a huge opportunity for fintech firms to create real economic impact.
Emerging markets such as China has provided a good example of how transformative the industry can be, but it will need strong coordination across the private and public sector, as well as clear support from regulators.
“Fintech has the opportunity to contribute to financial inclusion, which is a theme that has been discussed for years. Fintech is a new lever the government and regulators can use to further accelerate efforts,” said Jason.