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Combating high fintech costs for better financial inclusion
Affordability of access is often not accompanied by customer education, resulting in many implementation problems.
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Farmer partners of TaniHub pose for a picture while standing among a lettuce farm in Bedugul, Bali. (Courtesy of TaniHub)
F
intech peer-to-peer (P2P) lending services are able to penetrate the administrative difficulties experienced by banks in providing micro and ultra-micro credit to the public and MSMEs. Affordability of access is often not accompanied by customer education, resulting in many implementation problems. In addition, the interest rate and fines are still very high, making financial inclusion an illusion.
For this reason, a breakthrough in risk management is needed through adequate information support by the Financial Services Authority (OJK). Meanwhile, the government can provide stimulation to address the need for financial inclusion by modernizing cooperatives through the use of digital technology.
The OJK said in October that cumulatively there were 106 registered fintech firms that had thus far distributed funds of up to Rp 260 trillion (US$18.5 billion) to 508 million accounts. From January to October of this year, there were 82.6 million lender accounts and 128 billion in loaned funds. Meanwhile, from the borrower's side, there were 271 million accounts with total loans reaching 129 billion.
Most fintech customers use these services for consumption. They often also neglect the contract so that they are entangled in accumulating interest and aggressively imposed fines. This is in line with massive offers and advertisements for the urban consumer segment, through pay later or credit for consumption needs. Although the interest and fines mechanism has been regulated in OJK regulation 77/POJK/2016, the limits provided are very high, far exceeding the conventional banking average, especially when compared to subsidized micro, small and medium enterprise (MSME) credit schemes such as the microcredit program (KUR).
The OJK states that licensed fintech providers are allowed to charge 0.8 interest per day or 24 percent per month and have a fine limit of up to 100 percent, which means that fintech is cumulatively allowed to demand interest equivalent to 288 percent per year. Whereas the average conventional bank loan is in the range of 12 to 14 percent per year. Meanwhile, KUR loans are only about 5 to 6 percent per year. The very high-interest rate certainly does not allow business actors to utilize fintech for business or working capital financing.
The ideal business capital requirement should be below the potential net profit it generates. Thus, fintech is actually targeting the urban middle class for short-term consumptive needs, compared to groups of micro-enterprises that need cheap and flexible funds. Ease of access that is not accompanied by rational costs is certainly only an illusion in developing financial inclusion.
However, in the middle of the fintech industry based on P2P lending, there are several fintech firms that have a more inclusive business vision to help people in certain groups, for example, Tani Hub, I-Grow and e-Fishery, which are engaged in financing agricultural and fisheries investment based on P2P lending to finance selected prospective projects.
