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Fintech lending regulation raises concerns among business players
Despite lauding the financial authority’s effort to regulate the rapidly developing financial technology (fintech), fintech players see the regulation’s draft as inflexible in regards to accommodating the dynamic business
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Despite lauding the financial authority’s effort to regulate the rapidly developing financial technology (fintech), fintech players see the regulation’s draft as inflexible in regards to accommodating the dynamic business.
Their concerns revolve around the capital requirement, financial reporting obligation and several other prohibitions.
The draft of the Financial Services Authority (OJK) regulation on fintech peer-to-peer (P2P) lending stipulates that a fintech company is required to have Rp 2 billion (US$148,445) in capital when it registers its business and increase the capital to Rp 5 billion when it applies for a business license. The funds must be kept in a time deposit account.
The proposed provision is understandable as the OJK wishes to use it as a measure to screen committed new fintech firms and differentiate them from uncommitted ones, Amartha Mikro Fintek vice president Aria Widyanto said.
However, he argued that if the regulation’s spirit was to nurture start-ups, it should not hamper new players from getting into the industry.
“Start-ups will not be able to provide Rp 5 billion to Rp 10 billion in capital, for example, at the beginning [of their business],” he told The Jakarta Post recently. Instead, the amount of capital needed should depend on each fintech company’s business and risk model.
The P2P lending firm, Amartha, is currently in discussions with the OJK about the possibility of not locking the required capital in a bank account.
Amartha itself started its business as a micro-lending cooperative in 2010 and was established as a fintech company early this year. It was among several firms invited by the OJK to discuss the draft.
It has disbursed as much as Rp 55 billion in microloans to more than 28,000 low-income women living in rural areas in West Java with zero non-performing loans (NPL) recorded so far.
Sharia fintech startup Alami chief marketing officer Adnan Djani found the capital requirement burdensome as well, especially to new fintech companies.
“It’s not easy for a start-up to get Rp 2 billion in capital, especially if they [the founders] are fresh graduates. Our concern is that good ideas will be hampered by this regulation,” he said recently, adding that several fintech firms might not need as much as Rp 2 billion in capital to start running a business.
About 120 fintech firms, mostly start-ups, are currently running businesses in Indonesia in various segments, such as P2P lending, e-wallets, crowdfunding and financial settlements.
Total transactions within the fintech platforms are forecast to reach $37.15 billion in 2021, up from $15.02 billion forecast in 2016, meaning there will be an annual growth rate of 19.8 percent during this period, according to market statistics portal Statista.
The OJK, however, claimed to have proposed a Rp 1 billion to Rp 2 billion capital requirement. “We have changed [the draft],” said Dumoly Pardede, OJK commissioner for the supervision of non-banking institutions.
The financial authority plans to set up two special offices for fintech. The first office will center on policy and development setting and be the place for fintech players to go to register their businesses. The second office will be dedicated as the supervision and analysis center for start-ups that have begun running businesses.
“Fake start-ups will be screened and excluded [from the system] at the latter,” he said.
Meanwhile, the problems fintech players lie beyond capital. Amartha’s Aria pointed to the regular reporting requirement set by the OJK that merely suggested the need to record information about past activities, when it should be used to gather data to forecast and mitigate risks in the future.
He also highlighted several prohibitions in the draft, such as a prohibition against giving investment advice, that he deemed “too broad”.
The sharia-based Alami is concerned that the regulation may not cover its business type, which is an intermediary between sharia banks and customers, not a P2P lender.
However, not all fintech players are pessimistic about the upcoming regulation. P2P fintech firm Modalku co-founder Reynold Wijaya said the capital requirement was needed to ensure prudence.
“In China, there are about 3,000 platforms, 1,000 of which are problematic, causing the closure of 300 each year. What we need is quality platforms that can help expand the industry.”
