A year-long study of small businesses in Indonesia found that nearly two-thirds had a financial account and more than half had loans. Yet, behind these signs of financial inclusion lies a more complex picture of financial vulnerability.
The Small Firm Diaries study, which followed 162 small firms across four locations in Indonesia, found that only 43 per cent of employees received wages in at least eight of the ten months observed. Half of the firms had no alternative source of income. Meanwhile, 44 per cent of households reported running short of money for food and other necessities, while 16 per cent said that a child had not eaten enough during the previous week.
Most of the businesses were, in the words of Raunak Kapoor of MicroSave Consulting, "financially stressed, not healthy."
The findings highlight a growing challenge for Indonesia as it enters a new phase of financial inclusion: access to financial services does not necessarily translate into financial security. This challenge was at the centre of discussions among around 300 representatives of government, employers' and workers' organizations, financial institutions, development partners, academia and other stakeholders at the Financial Health Pathways Forum.
Organized by the ILO's Promoting Micro and Small Enterprises through Entrepreneurs' Access to Financial Services Phase 2 project, funded by the Swiss State Secretariat for Economic Affairs (SECO), the forum was held in Jakarta on 15 October. It explored how Indonesia can move beyond expanding access to financial services towards ensuring that financial inclusion contributes to greater financial health and resilience for workers, households and enterprises.
With financial inclusion now exceeding 93 per cent, Indonesia has made substantial progress in connecting people to formal financial services. However, financial literacy remains at around 67-70 per cent, while evidence presented at the forum showed that resilience to financial shocks remains a major concern.
For Nancy Widjaja, Senior Advisor at the Office of the UN Secretary-General's Special Advocate for Financial Health, this requires a shift in how policymakers measure progress. A person may use the Quick Response Code Indonesian Standard (QRIS) every day, hold several financial accounts and digital wallets, yet still have no emergency savings or depend on expensive credit to meet unexpected expenses.
"What you don't measure, you can't manage," Nancy said, calling for practical indicators such as emergency savings, debt management and the ability to meet financial obligations. Financial health, she explained, goes beyond access to financial services. It concerns whether people can manage their daily finances, withstand financial shocks, pursue long-term goals and feel confident and in control of their financial lives.
For the ILO, improving financial health is closely linked to the conditions under which people earn their income. "Our financial lives do not start with a loan or a savings account. They start with work," said Yousra Hamed, ILO Senior Financial Inclusion Specialist.
Adequate wages paid on time and in full, together with social protection, provide the foundation workers need to build financial security before financial products can help them strengthen their resilience. "We cannot start talking about financial health unless we have this floor of decent work," Yousra emphasized.
This relationship is particularly important for workers and small enterprises facing irregular cash flows. The study also found that many businesses experienced liquidity constraints because fixed loan repayment schedules did not align with their inventory and supplier payment cycles. Around 70 per cent of the businesses surveyed said their primary aspiration was stability rather than growth.
Indonesia is beginning to respond to this challenge. Erdiriyo of the Coordinating Ministry for Economic Affairs explained that the country's transition towards financial well-being is being developed around four dimensions: meeting daily needs, building resilience against financial shocks, planning for the long term, and using financial services safely and confidently.
He also noted that the Financial Services Authority (OJK) is piloting a financial well-being baseline assessment among poor and extremely poor communities in three villages, while Bank Indonesia has developed financial education approaches targeting low-income groups.
Strengthening collaboration among institutions is equally important. Rosita Dewi of Bank Indonesia stressed that financial well-being cannot be achieved by any single institution alone. Government, regulators, employers, workers' organizations and financial service providers all have a role to play, from improving financial literacy and consumer protection to expanding access to appropriate financial products and social protection.
For Indonesia, the shift from financial inclusion to financial health is therefore more than a change in terminology. The question is whether workers can reach their next payday without falling into harmful debt, whether families can cope with unexpected expenses without sacrificing basic needs and whether small businesses can withstand financial shocks while continuing to pay their workers.
