The Jakarta Post
The use of “alternative data” in calculating credit scores is expected to improve financing access to micro, small and medium enterprises (MSMEs) and promote financial inclusion in Indonesia.
Senior economist Aviliani of the Institute for Development of Economics and Finance (Indef) said that data sourced from government institutions and agencies, telecommunications companies, social insurers and other parties could be used in the alternative method of innovative credit scoring (ICS).
“The use of alternative data will help close the financing gap among MSMEs and informal business, and also boost our financial inclusion rate,” she said on Monday during a webinar organized by the Indonesia Fintech Association (Aftech Indonesia).
The June 2019 report on “Indonesia’s Fintech Lending” by Pricewaterhouse Coopers (PwC) revealed that 74 percent of MSMEs in Indonesia and 71 percent of working-age Indonesians with middle to lower per capita expenditure still had no access to credit.
Meanwhile, the Financial Services Authority (OJK) put Indonesia’s 2019 financial inclusion rate at 76.2 percent and the financial literacy rate at 38 percent.
In addition to closing the financing gap, Aviliani said that the ICS method could also benefit debtors, as the alternative data could help improve their creditworthiness so they could receive competitive loan interest rates.
Aviliani explained that unbanked and underbanked businesses and individuals would often receive higher loan rates from financial institutions, because they were often deemed “risky” due to a lack of risk assessment data.
She added that the ICS method could benefit fintech lending, too: “This credit scoring method could reduce time and cost for fintech firms in deciding on a loan, as well as improve the loan’s success rate.”
Although most credit scoring firms in Indonesia used alternative data from sources such as the civil registry, e-commerce and financial transaction histories, social media and telecommunications, Aviliani said, there was still other data that could be used in ICS.
In the United Kingdom, for example, credit scoring firms used healthcare, voting, company and even browser data to create a borrower’s risk profile.
“Indonesia can follow this [step] and use data from institutions and agencies like the Health Care and Social Security Agency (BPJS Kesehatan) to allow for improved credit scoring,” said Aviliani.
She also suggested credit scoring firms to partner with law enforcement agencies to access the criminal and bankruptcy records to prevent potential fraud involving companies and individuals possessing such records.
Meanwhile, she urged the government to improve its civil registration data, particularly as the Home Ministry had opened access to the civil registry for other institutions.
The ministry’s civil registration data is currently used by2,258 institutions, including social security agencies, law enforcement agencies, banks, insurance firms and fintech firms.
Chief data officer Paramananda Setyawan of fintech lender Kredivo added that employment data from the Workers Social Security Agency (BPJS Ketenagakerjaan) and tax data from the Finance Ministry’s Taxation Directorate General could also be used as alternative data for credit scoring.
“We could also use those alternative data as an electronic know-your-customer (KYC) tool to verify their identity,” Paramananda said at Monday's webinar.
The OJK’s digital financial innovation director, Dino Milano Siregar, said that the authority was working with Aftech and other stakeholders to push the House of Representatives to conclude its deliberations on the data protection bill.
“This bill is important, not only to ensure the safety and protection of customer data, but also in supporting the fintech industry to innovate, as it will give credit scoring firms more access to data,” he said.
Given that Indonesia did not yet have a law specifically regulating data protection, said Aftech’s ICS working group head Herman Widjaja, the association was working on a code of conduct to ensure sound and safe governance of customer data.
He said that the draft code focused on four principles of data protection: integrity to ensure accountability, transparency to ensure security, independence to ensure freedom from conflict of interest, and robustness in infrastructure security.