Indonesian fintech association sanctions lending platform that sets high interest rate

Indonesia has taken a cautious stance towards online lending and hopes to reign in bad actors.

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Indonesian fintech association sanctions lending platform that sets high interest rate

Two Indonesian lending platforms regulated under the country’s financial services authority (OJK) have been penalized by the ethics council of AFPI, the industry association for fintech lenders in Indonesia.

They were proven to violate a regulation stipulated by OJK that sets the maximum interest fee rate online lenders can ask from borrowers to 0.8% per day, AFPI said.

The organization revealed that one of the companies in question is P2P lender Do-It, which charged an interest fee rate of 1% per day. Do-It is a platform that focuses on consumer credit and small-and-medium businesses. In March, one of the top Indonesian digital payment platforms Ovo, had announced a collaboration with Do-It to enrich Ovo’s financial services.

Do-It is now required to adjust the interest rate according to the regulations and return the excess interest paid to the borrowers.

The AFPI ethics council decided not to reveal the identity of the other P2P lending operator because it said its violations were “minor”, according to a local media outlet.  In addition, the related company has already paid reimbursements to borrowers.

AFPI emphasized that companies who do not comply with the government’s regulation will be penalized. The first step is a written warning, followed by “naming and shaming,” when a public announcement is made about one company’s violation. If the company continues to violate the rules, it will be temporarily stripped of its membership in the association, The final step would be that it gets its operational licenses revoked and gets shut down.

Indonesia has tightened rules for online lending platforms in order to ensure that all platforms operating in Indonesia are of high quality and that consumers and businesses using the platforms don’t fall victim to fraud or unethical practices.

In addition to capping the interest rate, OJK also requires online lending platforms to vet their customers with digital signatures, to obtain operating permissions from the IT Ministry, to cooperate with microinsurance service providers and banks, as well as to collaborate with credit scoring operators that have OJK licenses. Finally, the platforms must also partner with debt collection companies that are registered and monitored by the Indonesian Fintech Association.

With this more managed approach to online lending, Indonesia wants to avoid this space becoming into a minefield for fraud and irresponsible lending. In China, where thousands of online lenders had proliferated at some point, the government had to crack down on bad actors and ended up shutting down hundreds of them.

Editor: Nadine Freischlad