Aligning Regulations to Enhance Digital Financial Inclusion in Indonesia

Indonesia's government has been accelerating its efforts in financial inclusion for the past several years. In most countries, the regulator for the banking and financial service sector, usually the central bank, develops and executes policies related to financial inclusion. However, Indonesia has taken another approach. Regulatory supervision of banking and financial services is under two regulatory bodies, Bank Indonesia (BI) and the more recently established, Financial Service Authority (Otoritas Jasa Keuangan or OJK). Both institutions have defined regulatory roles and a specific charter of duties. While OJK is the regulator for branchless or agent banking, popularly known as the Laku Pandai program, BI is the regulator of e-money initiatives also known as the Layanan Keuangan Digital (LKD) program.

This policy brief presents a broad framework and strategic considerations to align the two digital financial service (DFS) programs in a bid to enhance digital financial inclusion. The brief is not a critique of the regulations but is designed to provide inputs for stakeholders to further strengthen the DFS regulatory environment in Indonesia. This exercise looks at synergies in regulations for e-money and branchless banking to unleash the full potential of digital financial services in Indonesia and to bring about greater financial inclusion.