How DPI is Powering Indonesia’s Working Capital Revolution.

Indonesia is currently Southeast Asia's largest economy. 

The Small and Medium Enterprises (SMEs) are poised to be a critical segment in the country’s future development. 

Currently, SMEs in Indonesia account for 61% of GDP and 97% of nationwide employment. That said, the small business segment grapples with a substantial financing void that is estimated to be US$234 billion. 

In this article, we explore how FinTechs are empowering banks in Indonesia by leveraging Digital Public Infrastructure (DPI) to deliver localised, tailored financial solutions and enhance credit risk assessments for SMEs.

Hurdles in SME financing: Addressing critical challenges

The growth of Indonesia hinges on its SMEs, but a pressing credit gap could limit their potential contributions to the economy. 

What's interesting is that Indonesia's digitalisation is on an upward trajectory with over 202 million internet users. Given how nearly 60% of the population is connected digitally, the country’s rapid digitalisation is expected to spike up the national productivity volumes to $120 billion by 2025. 

To avoid missing this opportunity, Indonesia must prioritise timely credit for its growing SME sector. 

With all this in the backdrop—the country presents a massive white space across multiple financing verticals for FinTechs to augment credit solutions for SMEs. 

Firstly, it is crucial for FinTechs and banks to collectively address key obstacles that limit SMEs’ access to financing, such as:

• Identity verification: Verifying SME identity remains a challenge, especially in underserved regions. 
• Credit and cash flow verification: Assessing creditworthiness and tracking cash flows is difficult for SMEs without established financial histories. 
• Delays in loan processing and longer TAT: Lengthy manual processes result in slower verifications and longer turnaround times, delaying the credit approval process. 

Breakthroughs in digitalisation have been paving the way for SME empowerment in Indonesia. Backed by Banking as a Service (BaaS) tech stacks, FinTechs and NBFIs are embedding financial services into experience-driven, innovative solutions.

Considering how Micro, Small, and Medium Enterprises (MSMEs) received only 19% of bank loans issued in the country last year, they are plagued by a massive credit demand-supply mismatch. 

With the government and regulators pushing for improved digital financial infrastructure, financial institutions will need a targeted strategy to empower SMEs with easily accessible and affordable credit facilities. 

Banks can refine credit decisions by leveraging DPI and alternative data from multiple sources, including digital wallets, payment processing platforms, and government tax portals. These platforms possess a wealth of valuable insights into a business's financial health and creditworthiness based on factors like transaction history, payment behaviour, and other key metrics.

In addition to developing cutting-edge BaaS tech stacks, FinTechs are also leveraging multiple points of data from DPI and alternate ecosystems to ensure data-driven decision-making and enable last-mile financing.

Leveraging DPIs for a global shift in SME financing

FinTechs and banks today are turning to DPI to overcome barriers in SME financing.

Utilising DPI capabilities is imperative for driving end-to-end digitisation in the banking and beyond banking ecosystem.

Digital public infrastructures are tech stacks, comprising individual systems with specific functions and acting as layers that interface with each other. While DPIs have baseline functionality, they shine through with unparalleled use cases. 

Information collected through DPI platforms can then be pulled to automate lending applications, right from the point of underwriting to credit approval processes, enabling quicker disbursements. 

Globally, the usage of DPI has gained momentum for its practical application in streamlining lending processes. 

By integrating layers that communicate with one another—DPI can automate and accelerate underwriting and approval processes, reducing the time it takes for SMEs to access financing. 

To break it down, access to data from DPI: 

• Reduces the need for manual data entry as information like income details and credit scores from verified sources is automatically pulled.  
• Enables lenders to verify borrower information in real-time, eliminating time-consuming document checks. 
• Automates sophisticated risk assessments using algorithms to streamline the underwriting process—ensuring faster, data-driven decisions.

DPI creates a unique ecosystem that enables the FinTech industry to drive financial inclusion on a large scale. By leveraging various data sources, FinTechs can better assess creditworthiness and enhance underwriting processes.

Key DPI data sources include:

• National ID: Utilising eKYC and fraud checks allows FinTechs to authenticate identities, minimising fraud risks and ensuring compliance. 
• Business registry: Accessing Know Your Business (KYB) information helps FinTechs evaluate a company's legitimacy and monitor potential risks. 
• Tax infrastructure: Detailed credit assessments and insights into past sales and purchases allow for a clearer picture of a borrower's financial health and repayment capacity. 
• E-invoicing: Digital validation of invoices provides a record of past transactions, helping assess the reliability of cash flow. 
• Alternate data: Insights from digital wallets and account aggregators shed light on a borrower’s spending behaviour and financial health.   

These diverse data avenues give FinTechs a comprehensive understanding of borrowers. This further enables them to re-imagine their underwriting principles and build differentiated experiences that speed up application review and approval processes—which, in turn, offer borrowers quicker access to credit.

"DPI integration has allowed us to cut back on manual efforts in loan approvals, leading to time and cost efficiency and offering users a faster experience overall."
-Mr. Satyam Agrawal, MD - International Business & Global Head of Products – ASP & ME

Indonesia’s digital infrastructure (digital ID, tax, and credit systems) is paving the way for greater financial access and inclusion. 

• National ID: Dukcapil and AHU enable secure onboarding and trusted transactions with digital IDs and business verification. 
• Digital signatures: Badan Perizin and BKPM's digital signatures ensure secure and validated business transactions. 
• Taxation and invoicing: PKP and Core Tax System improve tax transparency and compliance with automated e-invoices. 
• Business registry: NIB registrations doubled from 5M to 10M, reflecting MSME expansion and easier access to services. 
• Financial data system: SLIK consolidates credit data for better financial inclusion and loan access.

DPIs: A force multiplier for FinTechs

By fostering ecosystem collaboration and driving process innovation, DPI enables FinTechs to offer credit where it’s most needed. 

With these capabilities, lenders can tailor their services to the unique needs of SMEs, streamlining processes and improving access to capital. 

Moreover, collaboration will be the key to ensuring a stable source of financing while also increasing wider use cases of loan portfolios.  

Expanding the coverage of Indonesia's ‘credit invisible’ segment and modernising credit systems require banks in the country to develop API interfaces and co-create digital prototypes with regulators and FinTech firms. 

To tap into opportunities to taper the credit gap, banks need to: 

• Develop the interfaces and API endpoints leveraging DPI and other open sources 
• Establish security protocols around data sharing and interoperability 
• Collaborate with regulators to co-create prototypes and pilot launches of digital initiatives

In a bid to drive the adoption rates, banks should also look to set up incentivisation strategies and programmes along with differential rates and pricing. 

Given the country’s overarching goals to further support the National Financial Inclusion Strategy (NFIS)—Indonesia is fast-tracking the adoption of DPI with a vision to ensure greater data transparency and accessibility. 

FinTechs are leveraging local digital public infrastructure to provide: 

• Data-driven lending: Utilises DPI and alternative credit scoring models to create personalised lending solutions—improving risk assessment and speeding up the approval process. Data from DPI is also used to streamline and speed up KYC checks. 
• Invoice financing: Offers real-time invoice financing, freeing up trapped capital. 
• Credit-on-demand solutions: Develops flexible, pay-as-you-go financing options, allowing SMEs to draw more as they repay and match repayments in line with their cash flow. 
• Risk assessment and continuous monitoring: Unlocks enhanced risk intelligence with DPI, facilitating real-time credit monitoring, automated alerts, and dynamic risk scoring for optimised lending decisions. 

Indonesia is future-proofed for growth

By tapping into local DPI, FinTechs are enabling faster approvals of credit and offering hyper-personalised solutions to address the growing business needs of SMEs. "DPI has driven financial inclusion globally, allowing FinTechs to create detailed borrower profiles that simplify applications and provide faster credit availability."
- Mr. Satyam Agrawal, MD - International Business & Global Head of Products – ASP & ME

The World Bank lauds India for the transformative measures taken in achieving an 80% financial inclusion rate in just six years, a feat that would have otherwise stretched over five decades without a DPI approach. To that effect, DPI has been a key enabler driving 12x growth in India’s digital lending ecosystem. 

The growth trajectories of SMEs in India and Indonesia are nearly identical. Having said that, owing to Indonesia’s gaps in DPI adoption maturity, the country is missing out on tangible results achieved by front-runners like India. 

Though DPI varies from country to country, CredAble is uniquely positioned to plug this gap and enable financial institutions in Indonesia to exponentially increase the speed of underwriting by integrating DPI within credit ecosystems.

By combining our vast experiences in the financial services industry with our tech expertise, we are enabling leading international banks to leverage DPI, tap into multiple data inputs related to creditworthiness, and introduce solutions tailored to the needs of vulnerable segments like SMEs. 

CredAble is empowering financial institutions globally with DPI-enabled low-code Loan Origination System (LOS) and Loan Management System (LMS). With ready-to-use plugins and active connectors, CredAble is enabling end-to-end digitisation—right from the point of onboarding to transaction management and disbursement.

Think Working Capital… Think CredAble!