As COVID-19 sweeps across the country, business activity in Indonesia has slowed down drastically and even stopped completely in some sectors. Peer-to-peer (P2P) lending platforms are already dealing with requests for debt restructuring.
The chairman of Indonesia’s Fintech Lenders Association (AFPI), Adrian Gunadi, told KrASIA that around 50% of the organization’s members, or around 80 P2P lending platforms, have received restructuring requests. “The association calls on the platforms to facilitate good communication between borrowers and lenders,” Gunadi said, because they cannot approve restructuring on their own, as the funds for loans are put forward by investors and lenders, not the platforms themselves.
Gunadi’s own company, Investree, where he is CEO and co-founder, has been in discussions with three enterprise borrowers who have taken out less than IDR 2 billion (USD 127,500). The borrowers belong to sectors that have been hit directly by the pandemic—F&B distribution to hotels, consumer F&B, and retail fashion.
“We are considering some options to ease the burden of borrowers’ payments, by either giving a payment discount or extending the loan installment tenor. However, the lenders are the decision-makers,” Gunadi said.
Backed by MUFG’s investment arm and BRI Ventures, Investree claims that it has mitigated credit risk by utilizing credit insurance coverage against delayed payments. Nevertheless, Gunadi expects higher demand for loans from sectors related to healthcare and telecommunications.
Likewise, several enterprise borrowers have sought to restructure debt for loans they have taken out on KoinWorks, a fintech platform backed by Mandiri Capital Indonesia (MCI) and Convergence Ventures (before it merged with Agaeti Ventures). These debtors operate tourism-related businesses, and the loan sizes fall within a range of IDR 200–300 million (USD 12,700–19,100).
“Less than 5% of our total borrowers were impacted directly by the pandemic. However, we’re still counting the number of borrowers that are proposing restructurings,” Frecy Ferry Daswaty, vice president of marketing at KoinWorks, told KrASIA.
Daswaty said that KoinWorks has already extended loan repayment periods to ease the pressure on borrowers. In one case, the three-month tenor was rearranged into a 12-month installment schedule. KoinWorks will continue to assess the demand for adjustments among their borrowers.
To avoid loan defaults by new borrowers, the platform is tightening its requirements before taking on new clients. “We will do phone interviews or even video calls with our prospective borrowers to analyze their financial statements and their sales, as well as their business strategy during this pandemic situation,” Daswaty explained.
Modalku, a lending platform backed by Sequoia Capital and JWC Ventures, has also been stricter in its loan application process for prospective borrowers in F&B, the travel industry, cross-country trade, and service industries that depend on labor from affected countries in Southeast Asia.
“Modalku will respond faster to the economic situation by adjusting the limit of the credit and loan term. It will be adjusted with the type of loan and each business profile, case by case,” Reynold Wijaya, co-founder and CEO Modalku, told KrASIA through a text message, adding that he has already been approached from some borrowers seeking restructurings.
Analysts predict that lending institutions—digital or otherwise—will continue to receive similar requests as the COVID-19 pandemic unfolds.
SME loans the most affected
Among the loans issued on P2P platforms in Indonesia, 3.92–3.98% were non-performing in January and February, according to Indonesia’s Financial Services Authority. Without significant adjustments to repayment arrangements, that rate may soar in the coming weeks.
Alvin Cahyadi, an investment associate at AC Ventures, noted that all types of fintech lending, whether consumer-focused or SME-focused, will see various degrees of debt restructuring. However, the impact will be greater on the business-focused side, because the loan sizes are generally much larger than those for personal purposes.
According to Cahyadi, disbursement amounts will go down while more people seek loans to bridge a period of financial difficulty.
The Indonesian government has rolled out IDR 70.1 trillion (USD 4.4 billion) in tax cuts and micro loan stimulus, but these policies will not include assistance for fintech platforms.
“It is difficult for fintech companies to apply for debt restructuring because fintech apps are only the loan distributors from lenders to borrowers. They don’t have the authority to give discounts for ongoing debt. An option that fintech can provide is to give an interest discount for new loans or loans that have not been approved by the lender,” said Naila Huda, a researcher at the Institute for Development of Economics and Finance.