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Jakarta Post

Financial literacy key

Jokowi ordered state-owned banks to increase their non-guaranteed loans to up to Rp 100 million for micro, small and medium enterprises from a previous limit of Rp 50 million as part of efforts to fight marauding digital loan sharks.

Editorial board (The Jakarta Post)
Jakarta
Fri, October 22, 2021

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Financial literacy key Intimidation tactics: Borrowers often receive intimidating messages and phone calls from debt collectors, causing depression, frustration and mental breakdowns. (Courtesy of Unsplash/Paul Hanaoka). (Unsplash/Courtesy of Paul Hanaoka)

T

he nation's leaders have declared war against illegal pinjaman online (online lending applications), or pinjol, which have allegedly plunged borrowers — many of whom lack financial access — into financial disaster.

President Joko “Jokowi” Widodo himself has ordered the Financial Services Authority (OJK) and the Communications and Information Ministry to stop issuing new licenses to pinjol operators.

According to Communications and Information Minister Johnny G Plate, 107 legal fintech lenders operate under the OJK's auspices and they have a turnaround of some Rp 260 trillion (US$18.39 billion).

The ministry has closed 4,874 pinjol apps since 2018, with 1,856 apps closed in 2021 alone.

Meanwhile, Coordinating Political, Legal and Security Affairs Minister Mahfud MD has told borrowers of illegal pinjol to stop repaying their loans because they were not legally valid. He said debtors could request police protection if the digital loan sharks launch their well-known tactics of verbal abuse and threats.

Compounded by the police’s crackdown on illegal fintech operations in West Jakarta, North Jakarta, Tangerang in Banten and Yogyakarta, the government is showing its determination to clamp down on digital loan sharks.

Jokowi even ordered state-owned banks to increase their non-guaranteed loans to up to Rp 100 million for micro, small and medium enterprises (SME) from a previous limit of Rp 50 million as part of efforts to fight the marauding digital loan sharks.

The reality is that most pinjol borrowers are individuals who need quick money for whatever reason, from family or medical emergencies to mere consumptive and lifestyle-chasing purposes. The promise of low interest rates and easy access to money has lured unsuspecting borrowers into the traps of loan sharks.

Even if you pay your installments on time, the loan sharks cut a handsome portion for “administrative fees” before they slap you with interest rates as high as 0.8 percent per day or 24 percent per month.

Clearly, the borrowers have access to the digital world but fail to take advantage of more secured options, such as loans offered by both traditional and legal digital banks. People’s vulnerability to digital loan sharks has shed a light on financial illiteracy. An OJK study conducted in 2018 found that the country’s financial literacy rate stood at 38.03 percent, while the financial inclusion rate was 76.19 percent.

The pinjol saga proves that such disruptive technology — a favorite catchphrase of Jokowi — can be a double-edged sword. On one hand, it helps many MSMEs reach their customers, particularly during the COVID-19 pandemic; on the other hand, many have fallen prey to cybercrimes.

Apart from public education to enhance digital literacy, stricter enforcement of the law is mandatory to protect financially naive borrowers from illegal pinjol apps. Now that everybody can access a pinjol operator indicates there is room for banks and other financial institutions to expand their services.

Indonesia has a range of institutions that provide financial assistance to the public, such as savings and lending cooperatives, as well as rural banks (BPR). Bringing them into the digital world would provide more people easy access to microloans while increasing their financial inclusion and literacy.

 

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