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Big banks sink teeth into P2P partnerships
In this mutually beneficial relationship, banks have the capital and P2P platforms have the market.
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ig banks have been expanding partnerships with peer-to-peer (P2P) lenders over the past few years to channel loans to Indonesia’s underbanked population, a mutually beneficial relationship expected to continue at least over the short term.
Top lenders Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI) and Bank Central Asia (BCA) have announced partnerships with major P2P lenders such as KoinWorks, Amartha, Modalku, Investree and Modal Rakyat.
The banks use the P2P to access micro, small and medium enterprises (MSMEs), an economic segment that contributes 60 percent of the gross domestic product (GDP) but which is risky to serve. The P2P lenders benefit from having access to bigger capital.
“Most banks are having problems in disbursing loans to MSMEs because their business model is not designed to accommodate such services,” Indonesian Banks Association (Perbanas) head of policy Aviliani told The Jakarta Post on Nov 22.
But at the same time, “Without collaboration with banks, [P2Ps] would shrink, as there is not much money to lend. If the economic scale is small, it would be difficult for them to live,” added Aviliani, who expects the trend to continue for quite some time.
The trend marks a change in the dynamics between banks and fintech lenders, which used to be seen as competitors in banks’ markets.
P2P lenders offer smaller loans with shorter terms, and use artificial intelligence-based (AI) credit-scoring systems, which enable them to approve loans faster than banks’ credit-analysis methods. These features make it easier for P2P lenders to serve MSMEs.
Another important feature of P2P lenders is that they allow lenders to see who receives the loans, allowing banks to better manage their portfolio risk, and P2P platforms only receive a small share of the interest income on a loan, while the rest goes to the bank.
Financial Services Authority (OJK) data show that outstanding loans channeled from banks via P2P platforms grew 122 percent year-to-date (ytd) to Rp 3.55 trillion (US$246.28 million) as of September.
In comparison, outstanding loans channeled from individual lenders to P2P platforms grew a softer 56 percent ytd to Rp 5.79 trillion as of September.
Read also: Indonesia cracks down on illegal P2P lenders. But many people are already drowning in debt.
Nailul Huda, who heads the Center of Innovation and the Digital Economy at the Institute for Development of Economics and Finance (Indef), said that demand from borrowers had been rising faster than supply from lenders in P2P platforms.
Banks could provide a steady large amount of cash to meet borrower demand, unlike individual investors who could only lend limited amounts that fluctuated depending on individual investment appetite, he said.
He opined that the rising popularity of investing in crypto assets and the increasing number of P2P platforms had affected individual investors’ appetites.
Read also: OJK to tighten online P2P lending regulations, such as capital, permit
This bank-P2P partnership trend has attracted the attention of the OJK, which plans to tighten regulations over P2P platforms to safeguard retail investors.
Under the prevailing rules, lending by institutional investors can comprise no more than 25 percent of total outstanding loans on a P2P platform.
The OJK told reporters on Nov. 17 that the agency planned to restrict the presence of “super lenders” (big institutional lenders) on P2P platforms to ensure retail investors held the lion’s share.
The presence of foreign super lenders would also be restricted as it was easier for the OJK to supervise local companies.
“In the future, we want lenders to be from the public, which are people like us. If there are many [individual] lenders, then that is a good sign,” said OJK nonbank industry supervision head Bambang W. Budiawan.
Center of Reform on Economics (CORE) research director Piter Abdullah said the OJK plan would strengthen P2P lending platforms’ businesses.
He argued that relying on banks or other super lenders made P2P platforms fragile, as there was no guarantee the partnerships would be extended, unless the platform was a part of a conglomerate.
“If a P2P platform relies too much on institutional funding, then it is not developing well. The company may not be P2P anymore, as the definition is supposed to be about connecting individuals to other individuals,” said Piter.
