Indonesia Eyes Fintech Regulation to Avoid ‘Loan Shark-Like’ Practices
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Indonesia’s financial regulator said it was considering setting a cap on interest rates and the size of loans offered by fintech firms, in a move aimed at minimizing the risk of defaults.
The emergence of these peer-to-peer (P2P) lending platforms, offering loans ranging from as little as a few hundred dollars to several thousands, has so far been welcomed by Indonesia, Southeast Asia’s biggest economy where tens of millions of people have little or no access to bank credit.
More than 300,000 people have borrowed from these firms, with total loan distribution reaching 3 trillion rupiah ($218 million) as of January, versus 247 billion in December 2016, according to data from the Financial Services Authority (OJK).
Meanwhile, annual growth in bank lending has slowed to under 10 percent, from over 20 percent in the commodity boom years.
“We support P2P lending so the people can have an easier access [to financing]. But when the access has been easier, the P2P companies feel the need to offer a high rate,” Eko Ariantoro, the director of the financial inclusion development directorate at the OJK, told reporters on Tuesday (13/03).
“We don’t want these developing fintechs to become loan shark-like businesses,” he said.
Ariantoro said the proposed maximum lending rate was still under discussion.
There are 36 registered fintech firms operating in Indonesia and the OJK said 42 others were in the process to be approved.
The OJK plans to also issue a new regulation for crowdfunding platforms this year as part of efforts to protect customers’ funds, Eko said.
“We are trying to regulate the mechanism to acquire and collect funds. There should be a form of responsibility to the fund owner,” he said.
Questions & Answers
Q.Why is Indonesia's financial regulator considering caps on interest rates and loan sizes for fintech firms?
Why is Indonesia's financial regulator considering caps on interest rates and loan sizes for fintech firms?
The regulator is considering these caps to minimise the risk of defaults among borrowers. They aim to prevent developing fintechs from operating like loan shark businesses once access to financing becomes easier for people.
Q.How many people have borrowed from these peer-to-peer lending platforms in Indonesia?
How many people have borrowed from these peer-to-peer lending platforms in Indonesia?
More than 300,000 people have borrowed from these fintech firms. Total loan distribution reached 3 trillion rupiah ($218 million) as of January, significantly up from December 2016 figures.
Q.What other regulations is the OJK planning to introduce this year in the fintech sector?
What other regulations is the OJK planning to introduce this year in the fintech sector?
The OJK also plans to issue a new regulation for crowdfunding platforms. This effort aims to protect customers' funds by regulating the mechanism for acquiring and collecting funds, ensuring responsibility to fund owners.