As Indonesia’s fintech ecosystem matures, criminals are developing ways to conduct business in the space too. This has led to the victimization of unwitting users, and the problem is widespread. The IT ministry has blocked 1,856 unlicensed fintech lending platforms in 2021, and nearly 4,900 illegal platforms since 2018. However, this has not slowed down the proliferation of illicit loan apps that prey on financially vulnerable Indonesians.
Online loan sharks operate by providing fast loans in small amounts, usually around IDR 1–3 million (USD 70–210), that carry penalties and sky-high interest rates well over the OJK’s 0.8% maximum per diem rate. They access all data on the borrower’s phone and abuse it to terrorize the borrower if they do not clear the debt. Debt collectors harass borrowers with threats of violence and humiliation, or say they will share borrowers’ personal photos and videos, or even compromising images that are forged, with their contacts. Since 2019, OJK has received more than 19,000 complaints from consumers regarding illegal lenders.
This problem is so persistent that it has attracted the attention of President Joko Widodo. On October 15, the president held a meeting with the relevant authorities—the financial services authority OJK, the IT ministry, and the national police chief—and ordered them to take firmer actions on illegal fintech businesses that are a menace to low-income communities.
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The president’s order led to a massive investigation into the activities of online loan sharks. In the past two weeks, the police carried out raids and arrested dozens of employees of unlicensed lenders in many cities, including Jakarta, Yogyakarta, and Surabaya. For instance, during the raid of a company called Ant Information Consulting last week, the police found pornographic photos that had been edited, so the depicted individuals resemble people who had taken out loans. An employee who was arrested said the photos were used as tools of intimidation. The police are still searching for the company’s owner.
Bhima Yudhistira Adhinegara, director of the Center of Economic and Law Studies (Celios), said arresting employees and debt collectors of illegal lenders is not enough to stop the practice. “Data from the IT ministry showed that 78% of illegal lenders operate by using servers abroad, such as in China, the US, or Singapore. I think international cooperation is needed to eradicate illegal lending,” he told KrASIA.
The government and other stakeholders, including fintech companies, also need to develop ways to help consumers understand the ins and outs of online loans because financial literacy is crucial when utilizing these services, Adhinegara added. “So far, efforts to educate the public have not kept up with illegal lenders that use SMS to market their products. The government needs to cooperate with telco operators to provide warnings and education via SMS regularly and at a wide scale.”
In addition, the bill on personal data protection needs to be passed as law as soon as possible, Adhinegara said, because many unregistered lenders obtain data from prospective customers illegally.
As part of the effort to shut down Indonesia’s online loan sharks, the government will also impose a moratorium on license issuance for fintech lenders. This way, the authorities can divert resources to eliminate illegal platforms. OJK has revoked the licenses of dozens of fintech lenders this year. Based on the most recent count that took place on October 6, there are 106 registered and licensed fintech lending platforms in the country, down from 149 platforms that were on the list in December 2020.
Adhinegara agreed with the government’s plan to withhold new permits for fintech lenders. “We already have too many players right now, so it’s difficult to supervise,” he said, indicating that the oversight process demands a hefty budget and many resources from the OJK. Adhinegara expects to see fintech lenders merge or be acquired by larger players. “Eventually, we may only have about 20 platforms that survive and dominate the market,” he said.