One of the poorest countries in the Asia-Pacific (APAC) region, East Timor, or Timor-Leste, is trying to foster economic development and growth, albeit while facing a number of challenges. As the country looks to ensure future stability, we ask how big a role fintech can play in making progress.
Located in Southeast Asia on Timor Island, Timor-Leste initially gained independence in 1975 – although Indonesia quickly took control of the territory and absorbed it into the country.
Via a United Nations (UN) supervised referendum in 1999, the people of Timor-Leste voted for independence. After internal struggles through anti-independence Timorese militias that were organised and supported by the Indonesian military, Australian-led peacekeeping troops deployed in the country and eventually saw Timor-Leste recognised as an independent nation.
According to the World Bank, the country has a gross domestic product per capita of around $2,389 – while its economy is reliant on energy resources in the Timor Sea.
Grappling with digital and financial inclusion
According to the United Nations Capital Development Fund (UNCDF), only one in five (20 per cent) of Timorese adults claim ownership of a current account, while only one in ten possess any kind of payment card.
While a first look at smartphone ownership statistics is encouraging (over 70 per cent of Timorese adults have one), this is actually disproportionally distributed: just shy of 90 per cent of adults in the country’s capital have a smartphone device, compared to around 20 per cent of those living in more rural areas.
Furthermore, while Timor-Leste has a high rate of smartphone access, only 35 per cent of adults access the internet daily.
In addition, only 48 per cent of Timorese adults have a bank account or use a digital financial service. While some cultural trends do influence the persistent dominance of cash-based payments, greater levels of financial education and financial literacy could help close this gap.
A lack of financial infrastructure poses a key barrier to making progress regarding financial inclusion, as over half of the Timorese population, needs to travel over 10 kilometres to access a physical bank branch.
Among the commercial banks operating in Timor-Leste are: BNU Timor, from the Grupo Caixa Geral de Depósitos, Australia and New Zealand Bank, Banco Nacional de Comércio de Timor-Leste (BNCTL), Bank Mandiri, and Bank Rakyat Indonesia.
Tackling these challenges
Despite these challenges, the fintech industry could certainly play a role in improving financial inclusion for citizens of Timor-Leste. In fact, some key work has already begun.
In 2014, Banco Nacional Ultramarino (BNU) launched Timor-Leste’s first mobile wallet product, dubbed BNU Mobile, in partnership with Timor Telecom, and with support from the United Nations’ Inclusive Finance for the Under-Served Economy (INFUSE) programme and MicroSave, an international financial inclusion consulting firm. Nonetheless, whilst over 20 per cent have a current account, nearly a quarter use digital, electronic or mobile wallets, according to the UNCDF report.
In 2021, The European Union and UNCDF launched a project to digitise the payment processes of credit unions in Timor-Leste and strengthen the digital financial services ecosystem in the country. This saw UNCDF providing grant funding and technical support to the Secretary of State for Cooperatives, the government body responsible for supervising and regulating cooperatives in Timor-Leste, to carry out these activities. The project aimed to provide credit unions with a digital payment platform to channel savings, loan disbursements, and loan repayments safely and conveniently to its members.
In 2022, the Banco Central do Timor L’este, alongside the central banks of Fiji, Papua New Guinea, Samoa, Seychelles, Solomon Islands, Tonga and Vanuatu, with support from the Alliance Financial Inclusion, announced a launch of the Pacific Regional Regulatory Sandbox.
Positive signs
Timor-Leste has fostered some level of progress in recent history. During 2019 and 2020, the total number of financial services access points jumped from 1,642 to 4,925 – an increase of 200 per cent. The adoption of e-wallet agents across the country drove much of this growth.
In addition, this year, the BNCTL, in partnership with Software Group, a global fintech firm, announced the launch of an agent banking service. This initiative marks a significant milestone in BNCTL’s digital transformation journey, aimed at penetrating accessibility to banking services in Timor-Leste’s remote areas.
The agent banking solution was developed to meet the needs of customers facing challenges accessing traditional bank branches. Via a network of local agents, BNCTL offers essential services such as deposits, withdrawals, and fund transfers directly in local communities, promoting financial inclusion and increasing convenience for its customers.
Despite its challenges, fintech could potentially further close the gap on financial inclusion in Timor-Leste, also supporting further economic development.
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