Peer-to-peer (P2P) lending platforms have provided jobs for more than 362,000 Indonesians and reduced the poverty rate by 0.7 per cent – equal to 177,000 individuals – as they provide access to financing in cities and remote areas alike, a study said last week.

The study was conducted by local think thank Institute for Development of Economics and Finance (Indef) and the Indonesian Fintech Lenders Association (Asosiasi Fintech Pendanaan Bersama Indonesia, AFPI).

Speaking during the study’s launch in Jakarta, Indef researcher Izzudin al-Farras said: “P2P lending enables MSMEs [micro, small and medium-sized enterprises] to boost production and thus can directly impact the country’s gross domestic product [GDP],”

P2P platforms have contributed 60 trillion rupiah ($4.28 billion) to GDP as of June, he said.

Speaking to the Jakarta Post, Izzudin said: “MSMEs then need more workers to boost their productivity as we estimated that P2P platforms have created more than 362,000 jobs . . . The platforms are also [able to] boost consumption, which has resulted in many people lifting themselves out of poverty.”

The study compiled data regarding Indonesia’s economic growth and poverty rate from Statistics Indonesia and the World Bank from 1970 to 2017 to assess the impact of economic growth on poverty, Izzudin said.

“We multiplied the coefficient parameter with P2P platforms’ total investment and loan activities toward poverty and inequality to acquire the estimated number,” he said.

Good for the industry?

Despite the contribution of P2P lending platforms to the country’s economic growth, the Financial Services Authority (OJK) has called for a review of the industry to protect customers’ interests and to evaluate the number of P2P players.

“[We] need to review whether the current number of P2P lending platforms is good for the industry, as the number of fintech companies has grown too fast [in recent years],” said OJK nonbank financial industry executive director Riswinandi, arguing that the review would enable the OJK to decide whether to restrict the number P2P platforms operating in the country.

Meanwhile, OJK fintech licensing and supervision director Hendrikus Passagi said during a press briefing after the launch of the study that the non-performing loan (NPL) rate of the industry was unstable because of the rapid rise of P2P platforms.

“The average NPL rate in the [P2P lending] industry was around three per cent in October,” said Hendrikus, adding that P2P lending platforms treated NPLs as “part of the budget to enhance the machine learning system”.

Hendrikus added that fintech companies should not only lend money but also support the businesses of borrowers. “Fintech companies should help MSMEs to market their products, help them get the best prices and provide them with business certainty.”

The OJK is partnering with the AFPI to launch the Fintech Data Centre, which will enhance assessments of customers’ credit ratings and help reduce the rising NPL rate.

The data centre “will allow P2P providers to identify excessive lending, bad loans and fraud” to help ensure the “health of the industry”, said AFPI technical support head Ronald Andi T Kasim.

Ronald said that P2P lending platforms were obliged by the association to assess borrowers’ backgrounds using the data centre before providing loans.

“To prevent any abuse of data, assessments can only be conducted if borrowers apply for loans or still have outstanding loans,” Ronald said.

Bank Indonesia data shows that the more than 120 fintech companies currently registered with the OJK have lent a total of 60.4 trillion rupiah to more than 14 million borrowers as of September. According to AFPI, 144 P2P platforms are members of the association.

The rise of P2P lending platforms has also increased the prevalence of different types of financial fraud, particularly among unlicensed platforms.

This has prompted the OJK to introduce stricter transparency requirements for platforms and has seen it increase its monitoring of fintech companies, creditors and lenders to make sure they comply with the authority’s regulations.

This has also led many stakeholders, from government officials to cybersecurity analysts and the general public, to call for better customer protection against fraud and personal data misuse.

The P2P industry in Indonesia is defined as part of the creative economy, which employed 18.1 million people last year, up from 17.4 million in 2017 and 16.9 million in 2016, according to the Creative Economy Agency. Meanwhile, the Investment Coordinating Board recorded a little over 2,000 start-ups in February.

The increasing employment in the sector has also seen calls mount for better worker protections, as many people are employed on limited contracts.

THE JAKARTA POST/ASIA NEWS NETWORK