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Toward Higher Financial Inclusion Rate: Service Quality, Costs Of Access, And Awareness

Author

Listed:
  • Chaikal Nuryakin

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Prani Sastiono

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Faradina Alifia Maizar

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Pyan Amin

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Nanda Puspita

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Wahyu Pramono

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

  • Christine Tjen

    () (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia)

Abstract

The inclusion level of DFS and Laku Pandai (inclusion of access or use of services) have reached 28% and 43%. Nevertheless, when we define the inclusion by account ownership (inclusion of banking account), the inclusion rates drop to 5% and 25%. The lack of awareness of DFS and Laku Pandai is still considered as the major obstacle to broaden the access of financial services through agents. Laku Pandai appears more reliable in improving financial service access for the poor and people in remote areas as it may provide a more efficient access (in term of cost, distance, and time of transport) and perceived by users to provide better service quality than other formal financial services they have experienced thus far. On the other hand, DFS services seems to be more attractive toward more educated and higher income segment of society. Nevertheless, the cost of access of DFS is not much different from the cost of access of banks and other formal financial services while the quality is perceived to be less by its users. Furthermore, the efficiency of both DFS and Laku Pandai could be much improved since there is a significant overcharging in their service fees. On the account ownership, there is an indication that DFS is not a preferable financial access for people who are excluded from formal financial services while it is for Laku Pandai. The regression results also show that users of both DFS and Laku Pandai need time to open or to register an account, possibly due to time needed to build in trust in the agents. Another factor that is important in determining whether user is to open an account is the (perceived) cost. Therefore, the aforementioned service fee overcharging should be taken seriously to improve rate of opening or registering account.

Suggested Citation

  • Chaikal Nuryakin & Prani Sastiono & Faradina Alifia Maizar & Pyan Amin & Nanda Puspita & Wahyu Pramono & Christine Tjen, 2018. "Toward Higher Financial Inclusion Rate: Service Quality, Costs Of Access, And Awareness," LPEM FEBUI Working Papers 201821, LPEM, Faculty of Economics and Business, University of Indonesia, revised Jul 2018.
  • Handle: RePEc:lpe:wpaper:201821
    as

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    File URL: http://www.lpem.org/repec/lpe/papers/WP201821.pdf
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Fungáčová, Zuzana & Weill, Laurent, 2015. "Understanding financial inclusion in China," China Economic Review, Elsevier, vol. 34(C), pages 196-206.
    2. Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Martinez Peria, Maria Soledad, 2016. "The foundations of financial inclusion: Understanding ownership and use of formal accounts," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 1-30.
    3. Asli Demirguc-Kunt & Leora Klapper, 2013. "Measuring Financial Inclusion: Explaining Variation in Use of Financial Services across and within Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 279-340.
    4. Asli Demirguc-Kunt & Leora Klapper, 2013. "Measuring Financial Inclusion: Explaining Variation in Use of Financial Services across and within Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 279-340.
    5. Demirguc-Kunt,Asli & Klapper,Leora & Singer,Dorothe & Van Oudheusden,Peter, 2015. "The Global Findex Database 2014 : measuring financial inclusion around the world," Policy Research Working Paper Series 7255, The World Bank.
    6. Swamy, Vighneswara, 2014. "Financial Inclusion, Gender Dimension, and Economic Impact on Poor Households," World Development, Elsevier, vol. 56(C), pages 1-15.
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    Cited by:

    1. Chaikal Nuryakin & Lovina Aisha & Natanael Waraney Gerald Massie, 2019. "Financial Technology in Indonesia: A Fragmented Instrument for Financial Inclusion?," LPEM FEBUI Working Papers 201936, LPEM, Faculty of Economics and Business, University of Indonesia.

    More about this item

    Keywords

    LKD — Laku Pandai — Digital Inclusion;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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