Aggressive marketing of financial products is a growing concern in Indonesia. Prospera is helping the authorities to prevent it.

To Dewi, it was an attractive proposition: an insurance policy that would give her family financial security which also came with a high-return savings account. So she started putting aside a small amount of her salary each month.

But when Dewi wanted to withdraw money to pay for an operation for her 10-year-old daughter she was shocked to find that her account contained only a fraction of what she expected. Premiums had eaten away most of her savings and she faced a punitive fee to withdraw what remained.

Aggressive marketing of financial products by agents who do not clearly explain terms and conditions is a growing concern in Indonesia. Dewi is a fictional character but her story is based on fact. Faced with six different complaints agencies, covering separate areas of finance, from banking and insurance, to mortgages and pensions, consumers do not know where to seek redress.

Prospera is working with the Indonesian authorities to strengthen financial markets by consolidating these scattered complaints agencies into a single ombudsman, known as the Dispute Resolution Institution, or LAPS. The new agency will be better placed to handle complaints involving multi-product financial packages.

Tirta Segara, the commissioner responsible for consumer protection at the Financial Services Authority, or OJK, commended Prospera for its support is setting up the joint secretariat that will oversee creation of the new ombudsman.

“Without credible dispute resolution, consumer trust will be difficult to maintain especially in the future,” Mr Tirta said at a launch event on November 15th. “And without trust, the financial services industry will find it difficult to develop.”

Indonesia’s financial services industry is small by global standards. The IMF reckons financial assets are equivalent to around 70% of GDP, compared with more than 1,000% in Britain, 600% in Japan and 400% in Australia. Most financial assets in Indonesia are held at banks (55%). Insurance firms, mutual funds and pension funds account for just 7%, 2.4% and 1.8% of assets, respectively.

Complaints and compensation

Clear complaints channels for consumers to seek compensation would push providers to sell their products responsibly and increase confidence in the financial system. Half of Indonesia’s adults now have a bank account, up from just one-fifth in 2011. Almost a third have a debit card compared with just one in ten in 2011. Yet very few Indonesians use more complex finance products such as insurance.

Nia Nadya, Prospera’s senior adviser for finance, said: “A single financial ombudsman is expected to deliver better services to consumers—operate more professionally, have a greater mandate and enforcement powers, and monitor industry more effectively.”

At workshops organised by the Australian Securities and Investments Commission in Jakarta and Sydney, Indonesian regulators developed a system for collecting complaints and discussed how to manage challenging cases.

LAPS is expected to be in place by 2020. It will take over the work of the six existing agencies and expand their roles to oversee Islamic sharia and financial technology (“fintech”) products.

Mr Tirta said: “A mechanism for resolving disputes is one of the most important pillars of consumer protection in the financial services sector.”