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Holistic effort for P2P fintech: Stop the abuse
The past several years have seen the rise of online-based P2P lending firms in Indonesia. These firms, often called “fintech (financial technology) P2P”, serve a very important niche market: bringing financial services to portions of the population previously considered unbankable.
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P2P lending is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. (Shutterstock/*)
T
he past several years have seen the rise of online-based P2P lending firms in Indonesia. These firms, often called “fintech (financial technology) P2P”, serve a very important niche market: bringing financial services to portions of the population previously considered unbankable — taxi drivers, low-income families, poor inner-city youths and other people that had very little to no access to traditional financial institutions.
Unfortunately, along with the sharp expansion of these services have come ethical concerns about how these firms conduct their business. These concerns mainly revolve around their (often) predatory lending practices and the rude, and sometimes violent, way their debt collectors often do their jobs.
Some of these problems stem from the laser-like focus of these firms on growth. So sharp is this focus that potential customer evaluation and good risk management practices often fall by the wayside.
When these debtors eventually start facing difficulties in repaying their debts, the firms often resort to heavy-handed and unethical methods to collect; methods that often include intimidation, breach of privacy (such as contacting the debtors’ families and employers — often through data obtained from their phonebooks), and even violence.
On the other hand, a lot of P2P lending customers have very little idea about what it is they are getting themselves into. The reason they can get loans at these fintech firms and not banks is that these firms typically have far fewer requirements for loans compared to banks — which typically require more collateral and deeper checks on loan applicants.
This means that these fintech firms are exposed to a lot more risk than their conventional counterparts, which translates to higher interest rates.
This lack of understanding causes a lot of fintech debtors to severely overestimate their capability to pay their debts, which in turn results in a high number of nonperforming loans.
