If The Banks Are Doing So Well, Why Can’t I Get A Loan? Regulatory Constraints to Financial Inclusion in Indonesia
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CitationRosengard, Jay K., and A. Prasetyantoko. 2011. If The Banks Are Doing So Well, Why Can’t I Get A Loan? Regulatory Constraints to Financial Inclusion in Indonesia. Asian Economic Policy Review, 6(2): 273-296.
AbstractIndonesia’s financial sector has two paradoxes: 1) Indonesia has been a global leader in microfinance for
the past 25 years, but access to microfinance services is declining; and 2) Indonesia’s commercial banks
are liquid, solvent, and profitable, and the Indonesian economy has been doing well over the past decade,
but small and medium enterprises are facing a credit crunch. Although Indonesia is underbanked, most
commercial banks have been unresponsive to unmet effective demand. The behavior of banks has been in
their own short-term best interests, primarily because of the unintended consequences of Indonesia’s
financial sector reregulation after the East Asian crisis and contradictory monetary policies, which have
produced a prudentially sound but inefficient, narrow, and homogenized banking oligopoly. Indonesia
should not respond to financial exclusion by artificially pumping out and administratively allocating more
credit. Instead, it should promulgate smart regulation so that banks maintain their sound risk management
without pursuing non-competitive and non-inclusive business practices.
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