Indonesia tightens rules for online lending platforms

It’s an ongoing battle to reign in unethical P2P lending platforms

The Indonesian financial services authority (OJK) says that of 145 registered online lending platforms 25 are in the process of applying for OJK’s operating license. Noting that there are many more lending platforms currently applying for registration and permits, OJK decided to tighten the licensing process to ensure that all platforms operating in Indonesia are of high quality. Some Indonesians who borrowed from the mushrooming online lenders have reported instances of unethical debt collection practices and complained about unreasonable interest fees.

OJK executive Hendrikus Passagi told local press that the regulator is prioritising quality over quantity.

OJK has set six conditions for lending fintech platforms; platforms are required to use digital signatures;  must obtain permission from the IT Ministry; must work with microinsurance service providers; must cooperate with banks; collaborate with credit scoring operators that have OJK licenses; and must be partner with a debt collection company that’s registered with the Indonesian Fintech Association.

In addition, OJK divides lending fintech into three types; those with a closed ecosystem (for example, Go-Jek partnering with online lenders to provide loans for its driver partners); those whose ecosystems are open but limited (Platforms that offer loans for farmers or fishermen); and those that provide consumer loans. OJK says it will prioritise licenses for the first and second type of online lending platforms as they are seen to provide productive funding.

In order to avoid misuse of personal data provided by borrowers, OJK also stipulates that all registered and licensed lending platforms are only allowed to access three features on user’s smartphones, namely the camera, microphone, and location. “If the platforms access data from any other source than these three features, we’ll cancel their registration or at least we’ll ask the IT Ministry to immediately block the application,” said Passagi at a press conference.

Meanwhile, because online lenders had also come under fire for their high-interest fees, OJK said that these platforms can only charge a maximum interest fee rate of 0.8% per day and an accumulated maximum fine of 100% of the principal value.

Moreover, if debtors are in arrears on loans, fintech companies can only collect instalments in arrears up to a maximum of 90 days. Debtors who fail to pay back their loans will be listed on the credit blacklist in Indonesia which limits their ability to apply for further loans from fintech platforms or banks.

The tightening of regulations is one of the efforts to prevent problems related to fintech lending. OJK has received many public complaints related to P2P lending platforms recently, mostly about unethical debt collection methods and high-interest fee. A report by the Jakarta Legal Aid Institute found that 86% of consumer complaints were about suffocating interest fees. Responding to these complaints, OJK has already blocked 635 illegal P2P lending entities.

Editor: Nadine Freischlad