Indonesia steps up oversight of peer-to-peer lending industry

Sector’s fast growth, lure of easy gains have led to a mushrooming of unlicensed players

- Linda Yulisman

JAKARTA - Indonesia is aiming for more oversight of the fast-growing peer-to-peer (P2P) lending industry, which has benefited many individuals and small businesses seeking modest sums from as low as 500,000 rupiah (S$41).

Since July, financial technology firms in the microfinance sector have been required to submit their financial transactions and file financial reports to the Financial Services Authority (OJK).

The move came about following the recent exit of major P2P lender TaniFund after the OJK revoked its operating licence in May, due to a liquidity crisis that ensued as borrowers defaulted on loans and lenders were not repaid. The industry regulator is conducting investigations into fraud allegations against TaniFund and two others, Investree and iGrow.

There are currently 98 licensed P2P lenders registered with the OJK, compared with 30 in 2017. To date, P2P lenders in Indonesia have given out loans totalling 66.9 trillion rupiah to 131 million borrowers, from 284.2 billion rupiah in December 2016.

P2P apps allow users to transfer and receive money speedily, using digital platforms or mobile applications without going through intermediaries such as banks.

Mr Izzudin Zidan, 43, who runs two food stalls selling fried chicken and tempeh in Jakarta, has borrowed small sums of up to 500,000 rupiah from P2P lenders to buy cooking oil, flour and other ingredients for his business.

"I needed only an app and then applied for the loan with my identity card. I got the money a few hours later. It was so fast," the father of two told The Straits Times.

He was able to repay each loan within a month, incurring hefty monthly interest rates of as much as 40 per cent. Commercial banks would charge lower interest rates of between 7 per cent and 8 per cent a year, Mr Izzudin noted.