Promoting digital transformation of BPR/BPRS for improved financial access to support MSMEs developments

Introduction

The MSMEs play an important role in the Indonesian economy where this sector absorbs over 90% of the national workforce and accounts for over 60% of GPD growth annually. However, these enterprises still face several challenges which often prevent MSMEs to grow and expand more rapidly. One of these challenges is lack of adequate access to formal financial services. A rapid development of digital technology in recent years provide opportunity for much easier and broader access to financial services which could benefit the MSMEs such as faster approval of credits, more convenient ways in making payments to customers and suppliers, and lower financial transactions cost in general.

In this context, the Bank Perekonomian Rakyat (Rural Bank) has a distinct position as a community bank that contribute to the regional economic development by providing financial services mostly credits to their clients, particularly the micro and small enterprises in their operation areas. BPR can also gain the benefits that digital technology brings to the banking sector. The Otoritas Jasa Keuangan (OJK) as the regulatory and supervisory agency of BPR has taken this view as reflected in its strategic documents: "Digital Transformation Blueprint for Banking" and the "Roadmap for BPR and BPRS Development 2021-2025".

At the request of the OJK, the Promise II Impact project has commissioned a study to mapping the existing digital financial services of BPR in Indonesia. The study has the following elements:

• The development trend of digital financial services in banking sector.
• The current situation of digitalisation in BPR including the opportunities, gaps and challenges.
• Digital financial services used by financial institutions, including the vendors and features of the digital financial services. This should also include the front end and back-end system used.
• Recommendation on what kind of digital financial services could be adaptable for BPRs and BPDs clients.

The methodology used in this study is a Mixed Method Research (MMR), which consists of three main activities: 1) Desk research, 2) Focus Group Discussion (FGD), and 3) Survey of BPR/BPRS and BPD. The total sample size in this study is 956 banks consists of 14 BPD and 942 BPR/BPRs.

The study has been completed and as a follow-up, the ILO and OJK will organize a dissemination event to share the study results. Several speakers from government institutions, FSP practitioners, SMEs association, and academia will be invited to this event.

In addition, at the request the OJK, the dissemination event will be followed by a technical discussion to explore potential intervention by the Promise II Impact project to a selected MSME’s value chain ecosystem in the province of Aceh. A field visit the team of OJK and Promise II Impact project will be also conducted as an integral part of the exploration undertaking.

Activities and Objectives

There are three related activities to conducted with this Terms of Reference and each of them has specific objective as listed below:

1. The dissemination of BPR DFS Mapping study. The objective of this activity is to facility discussion on the results of the study of BPR Digital Financial Services (DFS) Mapping and the recommendations. The discussion will try to capture perspectives of different stakeholders of BPR and reach common understanding on how to accelerate the digital transformation of BPRs in Indonesia in the context of improving access to finance for MSMEs development.
2. The exploration of potential support to MSMEs’ value chain. The objective of this activity is to identify potential ecosystem that would receive intervention from the Promise II Impact project.
3. The field visitation. The objective is to allow for the team of OJK and Promise II Impact to visit the location of the potential ecosystems.

Date, Time, and Target Participants

Day 1 – Dissemination Event

Date: Thursday, 10 August, 2023
Time: 9.00 WIB to 17.00 WIB
Place: OJK Regional Office, Banda Aceh

Target Participants for Day 1

This dissemination targets approximately 70 participants, with the main participants from BPR Directors, particularly those located in the event's implementation areas. Other target participants include representatives from the central Financial Services Authority (OJK), representatives from the Ministry of Economic Affairs, representatives from Bank Indonesia, SME associations, Regional Development Banks (BPD), academics, and development partners. Day 2 – Field visit to SME Value Chain Ecosystem

Date: Friday, 11 August 2023
Time: 9.00 WIB to 16.00 WIB
Place: SME locations in Banda Aceh

Agenda

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