The online lending industry in Indonesia is set to undergo a significant shift, as interest rates for legal peer-to-peer (P2P) lending platforms, or fintech, will soon decrease. This change is outlined in the recent Circular Letter from the Financial Services Authority (OJK), signaling a move to make borrowing through legal fintech platforms more affordable. Starting in 2025, the maximum interest rate for consumer loans will drop from 0.3% to 0.2% per day, and in 2026, it will be further reduced to 0.1%. Meanwhile, the interest rates for productive loans, such as those for businesses, will remain stable at 0.1% until 2026, after which it will decrease to 0.067% per day.

This move to lower interest rates comes at a time when the fintech lending sector is poised for rapid growth. Industry leaders such as Tubagus Rahmat Adrian, Head of Regulatory & Compliance at PT Indonesia Fintopia Technology (Easycash), see lower interest rates as a key driver for attracting borrowers. In fact, the speed of service and competitive interest rates are considered essential factors that fuel the expansion of the fintech P2P lending business. Easycash, a leading legal fintech player under OJK's supervision, has already disbursed a cumulative total of IDR 59.69 trillion in loans by October 2024, with nearly 7 million borrowers.

One of the most significant benefits of this drop in interest rates will be the increased accessibility of loans for a broader segment of society, especially those who have traditionally struggled to access conventional banking services. This includes microentrepreneurs and small business owners, especially from Indonesia's vast micro, small, and medium enterprise (MSME) sector, which the government estimates at over 65 million businesses as of 2024. Both Adrian and Arthur Adisusanto, the Country Head of Modalku Indonesia, recognize the enormous potential of fintech P2P lending to serve the financing needs of MSMEs, further fueling growth in the sector.

Young borrowers also represent a large and growing demographic in the P2P lending industry. According to Marcella Wijayanti, Chair of the Education, Literacy, and Research Division at the Indonesian P2P Lending Association (AFPI), the 19-34 age group constitutes the majority of borrowers in the fintech space. These younger borrowers often turn to fintech lending platforms for immediate cash needs, further underscoring the role fintech plays in modern financial services. As Indonesia's young population continues to dominate the workforce, there is substantial opportunity to drive even greater demand for fintech loans.

Despite these positive developments, the growth of fintech lending faces significant challenges, particularly from illegal, unlicensed lenders. These "illegal pinjol" (online lenders) undermine the legitimate P2P lending industry by offering unregulated loans with higher interest rates and often using aggressive tactics for debt collection. The spread of these illegal lending platforms not only harms the reputation of the industry but also exposes vulnerable borrowers to predatory practices.

The Indonesian government and OJK have been actively working to combat illegal lending, with the Financial Task Force (Satgas PASTI) taking down more than 11,000 illegal financial entities since 2017. However, these efforts have been met with limited success as new illegal platforms continue to emerge. The OJK has emphasized the need for increased financial literacy among the general public to help distinguish between legal and illegal lending services. Many Indonesians still struggle to differentiate legitimate platforms from illegal ones, often perceiving all online lenders as predatory.

To support these efforts, OJK is pushing for enhanced digital financial literacy education to help the public make more informed choices when using fintech services. The education campaigns aim to foster a greater understanding of what constitutes a legal, trustworthy lending platform and how to avoid the dangers of illegal loans. The success of these initiatives will be crucial in ensuring that the P2P lending industry continues to grow while minimizing the impact of illegal practices.

With fintech interest rates expected to decrease in the coming years, the industry has a golden opportunity to expand its reach and better serve the financial needs of underserved populations. However, the threat posed by illegal lending practices cannot be overlooked. By focusing on better regulation and financial literacy, Indonesia’s fintech sector can thrive while ensuring that borrowers are protected from harmful practices.

KONTAN.CO.ID