Financial Inclusion and Inclusive Growth: A Cross-Province Analysis in Indonesia

This paper computes and analyzes the degree of financial inclusion and the inclusive growth in Indonesia. Using provincial data, we calculate the Index of Financial Inclusion (IFI) based on the accessibility, the availability, and the usage of the financial services. On the other hand, the Index of Inclusive Growth (IIG) is developed through the method of social opportunity function by increasing the average level and equity index of opportunities. The result shows that the financial inclusion in Indonesia is largely determined by the accessibility, while the availability and the usage play only small portion. This leads to a conclusion that the group of the poor is limited on using the financial services. Furthermore, we use social opportunity function to measure the inclusive growth, and find a positive correlation with the financial inclusion. These findings call the attention from regulators to push the financial sector to extend their services further beyond their existing market target