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Focused on Java, P2P lending not as ‘inclusive’ as hoped
A study from professional services firm EY suggests that changes in tax policy and higher loan limits may help Indonesia improve financial inclusion.
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Workers make baking pans at a small business in Kampung Tonggoh, Bogor regency, on July 22, 2020. (JP/P.J.Leo)
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mproved financial inclusion has been one of the promises of the peer-to-peer (P2P) lending business from the get-go and is reflected in a mandate for P2P firms under Financial Services Authority (OJK) Regulation No. 77/2016.
However, players in the industry are falling short of that promise, as most of their loans go to borrowers on Java Island, including micro, small and medium enterprises (MSMEs), and relatively few go to less developed regions of the country.
Analysts say a closer partnership between P2P lenders and the government to facilitate loan disbursement outside of Java, as well as changes in tax policy and larger maximum loans could facilitate financial inclusion.
A recent study by Ernst & Young (EY) Indonesia's consultancy arm, EY-Parthenon, predicts that loan demand from MSMEs in the country will rise to Rp 4.3 quadrillion by 2026, which may result in a loan gap of Rp 2.4 quadrillion.
According to the study, which was conducted with support from the Indonesian Fintech Lenders Association (AFPI), 60.5 percent of the demand for MSMEs financing in 2026 would come from Java Island, where the majority of businesses are located.
The study forecasts that the role of state-owned banks in lending to MSMEs will continue to increase in the coming years, as they have been mandated to disburse at least 30 percent of their loans to that segment. On the other hand, the contribution of private banks, regional banks and multifinance firms is expected to either stagnate or drop.
