Formal and Informal Finance in Contemporary Indonesia

Abstract

Policy makers have long tried to restrict informal finance by legal prohibition or the provision of subsidised credit and public finance in order to create competition. Only recently did policy makers realise that formal and informal finance may not necessarily be in competition but indeed may complement each other, as both aim at different target groups. The article describes the current financial landscape in Indonesia with regard to both formal and informal finance and their relation. As a second step, the present role of Chinese capital and its involvement in finance is considered. The point in question is whether the Chinese were able to use the wealth and knowledge accumulated from their intermediary function during the colonial period to defend their dominant position in commerce, industry and banking in independent Indonesia.