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Fintech lenders hit back at OJK

Indonesia’s financial technology (fintech) players were in shock when they found out that their main regulator, the Financial Services Authority (OJK), had some disconcerting views about their businesses despite having a relatively close relationship

Rachmadea Aisyah (The Jakarta Post)
Jakarta
Wed, March 7, 2018

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Fintech lenders hit back at OJK

I

ndonesia’s financial technology (fintech) players were in shock when they found out that their main regulator, the Financial Services Authority (OJK), had some disconcerting views about their businesses despite having a relatively close relationship.

Executives of peer-to-peer (P2P) lending fintech firms on Tuesday voiced their concerns about a controversial statement from OJK chairman Wimboh Santoso who reportedly said over the weekend that P2P lending platforms were “similar to loan sharks” because they charged their customers high level, double-digit lending rates.

However, fintech players argued that the high level of interest rates were common for any source of funds with risks higher than regular loans as P2P lending platforms did not require collateral, unlike conventional
banks.

“P2P platforms do not have any conflict of interest in charging lending rates because all of them will be transferred back to investors who supply their money to be given as loans [to end users],” Adrian Gunadi, the vice chairman of the Indonesian FinTech Association (AFTECH), told reporters on Tuesday.

Adrian, who is also the CEO of P2P platform Investree, said the high lending rates were inevitable as investors also bore the overhead costs from daily operations by paying certain fees when they invested their
money.

“The P2P scheme would only be attractive for both individual and corporate investors if the interest rate is above 8 percent,” he said. “About 60 percent of P2P investors are also millennials aged 25 to 35.”

Adrian added that P2P platforms reached out to the “unbankable”, including those who have no notable assets and those who only needed short-term loans of between one and six months.

Wimboh and other OJK officials were not immediately available for comment.

Despite rejecting Wimboh’s statement, AFTECH agreed that the fintech industry should create a certain set of standards and that was why it was setting up a code of conduct called the “Principal-Based Guidelines for Fintech Providers”, slated for release in April.

AFTECH data show that 32 P2P lending platforms, which are the group’s members and registered with the OJK, channeled more than Rp 3 trillion (US$210 million) in 2017 to about 350,000 end users across the country. The funds, which amounted to a 10-fold increase from 2016, came from 150,000 investors.

According to the group, P2P platforms applied a wide range of interest depending on their market segment.

For instance, Investree applies interest from 12 to 20 percent based on the risk assessment of loan applicants who are mostly owners of micro, small and medium enterprises (MSME).

Another platform, Modalku, charges a 12 to 26 percent interest rate for short-term business loans over a maximum period of 24 months.

By comparison, conventional banks, which require collateral from their customers, set their average lending rate at 17 percent for MSMEs.

Aside from being insured, Adrian said loans given through P2P lending platforms were of good quality as the sector managed to book a non-performing loan (NPL) ratio at 1.28 percent as of March, lower than the 2.6 percent recorded by the banking industry’s gross NPL at the end of 2017.

Nining Soesilo, an expert on MSMEs at the University of Indonesia, said P2P platforms were not comparable with loan sharks as the former were part of the formal sector while the latter were informal.

However, she argued that both parties had the right to demand high lending rates if there was rising demand for financing.

“So, calling a loan interest high or low is relative according to the market,” Nining said.

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