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'Pinjol': The challenges and perils of online lending in Indonesia
Comprehensive regulatory reform is urgently needed in Indonesia's online lending ecosystem to protect consumers from falling into an unsustainable cycle of debt, particularly by enacting robust regulations on financial promotion.
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Jakarta Police on Jan. 26, 2022 raid the offices of an illegal online lending company in Pantai Indah Kapuk, North Jakarta. The Financial Services Authority (OJK) has blacklisted around 170 illegal online lenders. (Antara/Fianda Sjofjan Rassat)
T
he financial landscape in Indonesia is evolving rapidly. The rise of online lending platforms, commonly known as pinjol, has transformed access to finance, offering unprecedented convenience.
However, this digital finance revolution does not come without its perils. Ease of access, lax regulations on financial promotion and questionable practices have created a financial crisis, putting many Indonesians' economic security at risk.
One of the most pressing concerns is the accessibility of online loans through pinjol. With just a few taps on a smartphone, anyone can apply for a loan and have the money transferred directly into their bank account.
The allure of a fast process that excludes lengthy credit checks is compelling, especially in times of financial hardship. However, this accessibility comes at a steep cost, often trapping borrowers in a debt cycle that carries high interest rates and hidden fees.
Another alarming facet of this financial conundrum is the lack of stringent regulations on financial promotion. In Indonesia, virtually anyone can promote financial services, regardless of their expertise or credibility. The ubiquity of social media has amplified this problem, with social media influencers frequently endorsing online lending services.
Contrast this with the United Kingdom, where financial promotion is tightly regulated. Under the Financial Services and Market Act (FSMA), financial promotion can only be approved by authorized persons or entities with strong credibility in the field that have undergone rigorous assessments via a mechanism of the Financial Conduct Authority (FCA). Crucially, they bear full responsibility for the financial promotions they approve.
As of now, fintech in Indonesia is governed primarily by Financial Services Authority (OJK) Regulation No. 10/2022 on Information Technology-Based Joint Funding Services and Communications and Information Minister’s Regulation No. 10/2021, which amends ministerial regulation No. 5/2020 on the Implementation of Private Electronic Systems.
