The Financial Service Authority (OJK) will soon regulate peer-to-peer (P2P) lending to minimize the risk of bad debt in the virtual financing business.
OJK’s financial technology (fintech) licensing and supervision director Hendrikus Passgi said his institution would issue a circular that would serve as a guideline for P2P transactions.
“The procedures for borrowing will be regulated in detail, such as how contract agreements anticipate the risk of bad debt,” Hendrikus said as reported by kompas.com on Wednesday.Read also: Peer-to-peer lending bears risk of bad debt: Economist
He said his institution would also regulate the mechanism of “know your costumer” (KYC) through the existing technology.
“We encourage fintech’s KYC by using an application,” he said, adding that the application would help lending institutions facilitate digital signatures, face scans, finger prints, biometrics and video conferences with customers.
The technology would be able to replace the function of conventional KYC, he added.
He said the circular would soon be drafted and that it was expected to be issued this year. “We want to issue the circular as soon as possible because the fintech business is growing rapidly,” he added.
Currently, OJK has issued permits for 16 fintechs, while 44 others have submitted their documents for verification, said Hendrikus, adding that 35 others had reported to the OJK their plans to submit proposals to obtain fintech permits.
Previously, Samuel Aset Manajemen economist Lana Soelistianingsih said the online-based lending business had an increased risk of bad debt because of the absence of physical documents from clients and the absence of an integrated customer blacklist data-base like in the banking industry. (bbn)