Indonesia eyes more oversight of fast-growing peer-to-peer lending industry

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P2P lending enables individuals and small businesses to obtain loans faster and more easily.

JAKARTA - Indonesia is aiming for more oversight of the fast-growing peer-to-peer lending industry, which has benefited many individuals and small businesses seeking modest sums from as low as 500,000 rupiah .

P2P apps allow users to transfer and receive money speedily, using digital platforms or mobile applications without going through intermediaries such as banks. Financial transactions can be verified and completed in a matter of minutes. While Indonesia’s P2P lenders can potentially receive good returns by loaning out small amounts, they bear bigger risks as their money is not protected by the Deposit Insurance Corporation, which guarantees bank deposits of up to two billion rupiah per person in case the banks go bust.

Almost half of Indonesia’s adult population, or 97.7 million, do not have bank accounts, according to World Bank data, as many live in remote areas in the sprawling archipelago spanning 17,000 islands and three time zones. Thus, online lending platforms would be a financial lifeline for these users. While P2P platforms in Indonesia have thrived in recent years with rapid developments in mobile technology and the widespread use of smartphones, some issues of concern have emerged. Examples are the proliferation of unlicensed lenders, lack of financial literacy among borrowers, and questionable debt-collection methods.

Desperate for cash, coupled with low financial literacy, some borrowers bite off more than they can chew, experts say.

 

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