FINANCIAL INCLUSION OF HOUSEHOLDS IN INDONESIA

There is extensive attention on financial inclusion and its benefits, recently strategy to stimulate financial inclusion has focused on innovation and technology penetration. This paper analyzes the effect of financial inclusion on a household’s income and the role of cellphone and internet access in household financial inclusion in Indonesia. We develop the financial deprivation of each household to calculate financial exclusion. The Indonesia Family Life Survey year 2014 data are utilized in this paper. Our methodology is Ordinary Least Square (OLS) to examine how the role of financial institutions affects a household’s income. In the second model, we use Probit estimation to determine the likelihood of household financial deprivation due to cellphone and internet access. We also check the robustness of previous models using Propensity Score Matching (PSM) estimation. Our estimation results found that financial exclusion has a highly significant impact on a specifi c group of households. With middle-level income households, the financial exclusion would deprive income of almost 80 percent. This finding explains that middle welfare households benefited more from financial inclusion than households in the poorest and the wealthiest group. Another result found that cellphone and mobile banking significantly impact decreasing financial deprivation, respectively.