CONSUMER PROTECTION AND FINANCIAL EDUCATION IN INDONESIA: Challenges and Opportunities t Halim Alamsyah Deputy Governor Bank Indonesia OECD-ADBI 12 th Roundtable on Capital Market Reform in Asia Tokyo, 8 February 2012 1 Common Terms on Customer Protection Definition Customer Protection in Banking: Laws and/or regulation which ensure fair interaction between consumers (bank customer) and producers (banks) Sources of unfair interaction Asymmetries information Power imbalances in the markets Coverage of customer protection ti framework 1. Transperancy of Products 2. Promotion of Competition 3. Elimination of Unfair Practices 4. of Customers (Ardic; Ibrahim; Mylenko: 2011) 1
2 What should Financial Institutions Provide??* REDRESS providing inexpensive and speedy mechanisms to address complaints and resolve Disputes CHOICE ensuing fair, non-coercive and reasonable practices in the selling and advertising of financial products and services, and collection of payments. TRANSPERANCY FINANCIAL INSTITUTIONS PRIVACY providing full, plain, adequate and comparable information about the prices, terms and conditions (and inherent risks) of financial products and services ensuring control over collection and access to personal financial information *(Rutledge: 2010) 3 Greater Significancy of Customer Protection New business model and financial channels Financial Product become more complex Greater number of people p rely on financial services Lack of financial literacy Complementary aspect of Customer Protection* Laws and Regulations Ensuring Fairness, Transperancy and recourse rights Effective Enforcement Mechanism Including dispute resolution Promotion of Financial Literacy Enhancing capability of customers to acquire knowledge and manage their finances *(Ardic; Ibrahim; Mylenko: 2011) 2
4 Bank Indonesia Strategy: Banking Architecture Framework Consumer protection is part of Pillar 6 Sound, strong, Stabilitas and Sistem efficient Keuangan banking system to create financial system stability for promotion of national economic growth Sound Banking Structure Effective and Independent Supervisory System Adequate Infrastructure Robust Effective Strong Consumer Regulation Banking Protection System Industry Pilar 6 Pilar 1 Pilar 2 Pilar 3 Pilar 4 Pilar 5 Pilar 6 FINANCIAL STABILITY FRAMEWORK 5 Bank Indonesia Focus: Element of Customer Protection Customer Protection Purpose Preventive Redress Measure Type Financial Literacy Financial Capability Resolution Targets Product Transparenc y & Business Conduct & Dispute Mechanism Dispute Resolution Program Financial as part of customer protection program because it will increase financial literacy that makes customers: Able to manage their financial better. Protect from engaging in unfair practices of financial institutions. Self confidence to engage in financial activities. 3
6 Bank Indonesia Focus: We have been doing Banking mediation and Following action of Customer (see Appendix 4) Set up (Dispute Resolution, Market conduct regulation & supervision) Transparency of Product & Business Conduct Improved transparency of information on banking products (see Appendix 1) Formulation of standards for customer complaints mechanism (including monitor and evaluate the compliance to regulations governing customer complaints mechanism) and Dispute Mechanism Promoting public education for customers and encourage banks to educate customers regarding financial products (see Appendix 2) (see Appendix 3) Objective empower customers and improve customer s confidence to the banking sector Appendix 1: Transparency of products Transparency of Product & Business Conduct Establish minimum standards for transparency of product information Characteristic of product that should be disclosed to customer Usage of customer s personal data for comercial purposes. Be part of banks corporate governance 4
6 Bank Indonesia Focus: We have been doing Banking mediation and Following action of Customer (see Appendix 4) Set up (Dispute Resolution, Market conduct regulation & supervision) Transparency of Product & Business Conduct Improved transparency of information on banking products (see Appendix 1) Formulation of standards for customer complaints mechanism (including monitor and evaluate the compliance to regulations governing customer complaints mechanism) and Dispute Mechanism Promoting public education for customers and encourage banks to educate customers regarding financial products (see Appendix 2) (see Appendix 3) Objective empower customers and improve customer s confidence to the banking sector Appendix 2: Financial Encourage banks to educate consumers on financial products and promote intermediary function of a bank Issuance of Blueprint for Public in Banking in 2007 Establishment of working group on public education in banking to implement the blueprint Member of the working group: Bank Indonesia Banks (commercial banks, rural banks, Islamic banks) Banks associations Non bank kfinancial i institution Credit card association BI campaign programs on financial education: Ayo ke Bank (2008), 3P (2009) Launching of Indonesia Saving Movement and basic saving product: TabunganKu (2010) 5
Appendix 2: Financial The Importance of Financial : Financial education is something that can not be ruled out to establish the financial literated community; good understanding in financial institutions, financial products and services, as well as financial management to achieve a better living in the future. Financial education is an effort to change public behavior. Therefore, financial education is a longterm program (more than 5 years). Because of the financial institutions are still dominated by banks, the financial education begins with implementing banking education programs. Bank Indonesia in this regard have been initiated implementing banking education since 2007 and intensified starting in 2008 with the declaration of banking education year. Appendix 2: Financial Goals of Financial : To build people s interest in banking (bank minded and awareness); To increase public awareness in banking products and services as well as awareness of rights and obligations of customers; To increase public awareness in prudential aspects of financial transactions (risk awareness); and To increase awareness of availability of complaints and dispute settlement mechanism to resolve problems with the banks. 6
Appendix 2: Financial Financial program consist of: 1. National Campaign of Banking Programs. a. It Integrated td national campaign channels; h l b. Setting a single theme for the first round of national campaign: Ayo ke Bank (Let s go to the Bank). c. Launch new saving scheme called tabunganku (My Saving) to accommodate the needs of community y to save. 2. National coordination program in Financial s. a. Coordination among Financial Authorities; b. Coordination with Other Agencies; c. Coordination with Financial Institutions. Appendix 2: Financial Integrated National Campaign Channels in Banking Above The Line Below The Line Public Service TV Commercial Radio Art Show Branches Car Signage Brochures News Paper Promotion Ayo ke Bank! (Let s Go to The Bank!) Posters Uniform Public Relation Visits Websites ATM 7
Appendix 2: Financial A comprehensive program is directed to all consumers: Skills to make informed decisions Skills to understand the impact of decisions of individuals, businesses and governments on the lives of others School Those outside formal education Mass media Rural areas Low income Sectoral Special focus on Appendix 2: Financial (Progress) BI campaign programs on financial education: Ayo ke Bank (2008) 2007 Issuance of Blueprint for Public in Banking Establishment of working group on public education in banking to implement the blueprint 2008 Launching of Indonesia Saving Campaign and basic saving product: TabunganKu 2009 2010 2011 BI campaign programs on financial education: Whatever the product, remember 3Ps Ensure Benefits, Understand the risk, Consider Costs Integration of financial education in elementary and junior high school curriculum (pilot project) Student Saving Movement campaign Extension of information access (enhancement of BI s website with consumer education and information) Financial for Migrant worker 8
Appendix 2: Financial (Progress & Work plan) 2007 2008 2009 2010 2011 2012 Task Force Blueprint Distribution of leaflets, booklets, brochures, and comics National Campaign Lets Go to the Bank cars MoU with Ministry of education, Ministry of SME, SIKIB Specific theme of educationa : card edu.day, edu to migrant worker Advertising National Campaign of 3P Indonesia Saving Movement TabunganKu Student Saving Movement Intensive Indonesia Saving Movement and TabunganKu Campaign in 6 pilot project areas MoU with Ministry of Manpower and Transmigration Increasing quality of TabunganKu Web Consumer Information & education Financial Literacy Survey Elementary and Junior high School Curicula High School & University Curicula to migrant worker Appendix 2: The Progress of TABUNGANKU Main features No monthly administration Fee Low initial deposit (only Rp20.000/± 000/± USD18for 1,8 commercial banks and Rp10.000/ /± USD 0.9 for rural banks) Low interest rate TabunganKu Car One of service channel of TabunganKu is TabunganKu Cars. These car operates in some places as center of public crowd such as schools, markets, office buildings, residential areas etc. Services provided by the car mainly to receive TabunganKu account opening. The operation of TabunganKu car is cooperation with banking industry... the need for special savings products for low-income communities and beginner depositors... Achievement of TabunganKu As per Dec 2011 : Numbers of account Value (Rp. Million) 2.176.032 2.446.482 9
Appendix 2: The Next Step of TABUNGANKU Saving Movement Extending saving movement and TabunganKu programs to primary targets ( students, farmers, labour, fisherman, small business, etc) Enhancing the role of regions in education, saving and TabunganKu campaign programs. Increasing numbers of account of TabunganKu TabunganKu would be associated with the requirement to obtain micro credits and other government programs in order to increase public welfare. Future Challenges: TabunganKu Competition between TabunganKu and bank s saving products with similar features to TabunganKu Improvement of TabunganKu features to fulfill consumer s preference, such as: Withdrawal in any office branches ATM services TabunganKu as initial product in introducing consumer to other banking products and services according to the consumer needs. 6 Bank Indonesia Focus: We have been doing Banking mediation and Following action of Customer (see Appendix 4) Set up (Dispute Resolution, Market conduct regulation & supervision) Transparency of Product & Business Conduct Improved transparency of information on banking products (see Appendix 1) Formulation of standards for customer complaints mechanism (including monitor and evaluate the compliance to regulations governing customer complaints mechanism) and Dispute Mechanism Promoting public education for customers and encourage banks to educate customers regarding financial products (see Appendix 2) (see Appendix 3) Objective empower customers and improve customer s confidence to the banking sector 10
Appendix 3: Mechanism and Dispute Mechanism Establish minimum requirements for consumer complaints mechanism. Monitor and evaluate implementation of regulations governing the customer complaint mechanism. Banks are required to report to Bank Indonesia in quarterly basis. 6 Bank Indonesia Focus: We have been doing Banking mediation and Following action of Customer (see Appendix 4) Set up (Dispute Resolution, Market conduct regulation & supervision) Transparency of Product & Business Conduct Improved transparency of information on banking products (see Appendix 1) Formulation of standards for customer complaints mechanism (including monitor and evaluate the compliance to regulations governing customer complaints mechanism) and Dispute Mechanism Promoting public education for customers and encourage banks to educate customers regarding financial products (see Appendix 2) (see Appendix 3) Objective empower customers and improve customer s confidence to the banking sector 11
Appendix 4: Set up. Set up Market Conduct Framework in Consumer Protection Objectives: To support market conduct implementation in banking industry To strengthen of fair treatment for banking customer To increase financial capability To coordinate other financial authority in implementing consumer protection Regulation Supervision and Mediation Formulation of policy and regulation in customer protection (base on audit result, customer complaints, and reports) Surveillance and enforcement Improvement of financial capability Ensuring complaint and mediation process to maintain customer rights and obligations Appendix 4: Set up Set up provide a simple and rapid process of dispute resolution on banking matters at a lower cost. s that are escalated into disputes between customer and bank may be settled using mediation scheme provided by Bank Indonesia There will be an independent banking mediation agency outside of Bank Indonesia in the future to handle banking mediation Dispute with financial demands IDR 500 million. 12
7 Challenges and Next Step: Indonesia Case Challenges: Unbanked people is still high. high. (32% of Indonesian population doesn t have bank account) Rapid development of banking products and services Financial education is never ending effort and it is high cost Next Effort: Continuous program for financial education to increase financial literacy. Continuous program to provide financial access to the people in the bottom of the pyramid g market discipline, p Increasing business conduct and self regulation dealing with customer protection Involvement of many stakeholders as a watchdog Set up (Dispute Resolution, Market conduct regulation & supervision) Dr. Halim Alamsyah Deputy Dep t Governor Go ernor of Bank Indonesia Radius Prawiro Tower, 24th Floor Jl. M.H. Thamrin No. 2 Jakarta 10350 Indonesia Email: halamsyah@bi.go.id 13