The Jakarta Post
Saving and lending cooperatives, locally known as simpan-pinjam, have dominated grassroot-level financing for decades in Indonesia, but they are now tussling with technology as they compete with internet-based lenders.
Some of the cooperatives are opening up to new technology by partnering with fintech lenders. For example, Koperasi Syariah Benteng Mikro Indonesia (Kopsyah BMI) in Tangerang, Banten, collaborates with nonprofit crowdfunding platform Kiva since 2014 to increase its capital and thereby issue more loans.
The partnership helped more than double the cooperative’s cash account from Rp 17.6 billion (US$1.23 million) in 2014 to Rp 42 billion the following year.
It now has more than 144,000 members comprised its own customers and micro entrepreneurs.
“The problem is that most of our members only save and borrow small amounts, very few put in large sums,” KopsyahBMI vice president Radius Usman told the Jakarta Post in Jakarta.
Indonesia is a sprawling archipelago, which makes access to finance challenging in vast parts of the country. Some 95 million people do not have access to financial services, but 59 percent of them own smartphones, which is where fintech could fill the gap.
Domestic internet penetration reached a rate of 54.7 percent in 2017 and is expected to grow by 4.6 percentage points a year, according to a 2016 McKinsey & Company report.
“The effect of the digital disruption is that everyone can do financing, even nonfinancial services, such as Go-Jek,” said economist Revrisond Baswir in reference to ride-hailing company Go-Jek, which has a smartphone-based loan program called Modal Mapan for its drivers.
Go-Jek’s program, however, is tiny compared to peer-to-peer (P2P) fintech lenders, which disbursed a combined total of Rp15.9 trillion in loans as of October last year. Some big names among the lenders are Modalku, Danamas, Investree and Amartha.
The total P2P lending figure is impressively close to the overall funds of Rp 17 trillion disbursed by cooperatives in 2016, according to the most recent Statistics Indonesia (BPS) data, even though the former are decades younger than the latter.
With the growing competition at the micro level, experts recommend that cooperatives embrace fintech to ensure their survival in the long run.
“If financing cooperatives do not embrace fintech, they might be the first to feel the effects of digital disruption,” wrote computer science lecturer Dimitri Mahayana, as quoted by media reports.
By partnering with fintech, cooperatives would also be able to compete with banks, which had begun adopting financial technology to expand their reach, he said.
A growing number of saving and lending cooperatives is indeed embracing fintech. They include Bali-based TEB Artha Mulia cooperative, which partners with payment gateway Sakti.pay, and the West Kalimantan-based Pancur Kasih Credit Union, which has its own mobile app for payment services.
Indonesia also has PT Sakti Kinerja Kolaborasindo, a small company specializing in digital technology for cooperatives, based in Bandung, West Java.
Radius of Kopsyah BMI, however, insists that cooperatives like the one he led would remain competitive against fintech as long as Indonesia’s internet network had yet to reach full coverage.
“Fintech lenders still need us to channel their funds,” he said, adding that his cooperative sent its staff to remote villages around Banten to sell its products.
The government, meanwhile, wants to help “protect and guide” cooperatives in the digital era by revising the Cooperatives Law, so that they could increase their contribution to the gross domestic product from currently 4 percent.
However, Rully Indrawan, deputy of institutional affairs at the Cooperatives and SME Ministry, acknowledged that it was difficult to regulate the new breed of digitized cooperatives, saying other ministries and agencies were still looking for the best formula.
“Technology just moves too fast,” said Rully, “But what we can do is issue government regulations to supplement the Cooperatives Law as we go on.”