Indonesia’s peer-to-peer (P2P) lending segment is in a state of flux.
Even as loan disbursements have recovered to pre-COVID levels seen in April last year, the pandemic has left a permanent scar on the sector. More than two dozen companies are no longer able to operate since the start of last year, data reviewed by DealStreetAsia show. And at least two dozen more are expected to follow this year, said industry sources.
New market realities have also forced surviving P2P lenders to change their business models. They are now focusing more on super lenders —big institutions or individuals that give out huge loans — as opposed to servicing loans from individuals who typically have limited capital and show high reluctance to accept debt restructuring when it becomes necessary.
With most players increasingly running their business like traditional multifinance companies, crowdfunding is no longer a distinctive feature of the P2P lending business, raising serious questions on regulatory compliance and the very definition of the business.
More fundamentally, the competitiveness of P2P platforms in facilitating loans and deepening financial inclusion in the largely underbanked nation is facing a growing challenge from the rise of digital banks that offer far lower interest rates and relatively more rigorous know-your-customer (KYC) systems.
Indonesia’s P2P players could be facing their biggest existential threat yet.
Off the wagon
As of last week, a total of 27 P2P lenders have fallen off the list of players approved by the country’s regulator Financial Services Authority (OJK) as they were deemed no longer fit to operate. This brings the total number of registered and fully-licensed players down from 165 at the start of last year to 138, monthly data studied by DealStreetAsia shows.
The OJK implements a two-step licensing process. P2P players must be approved through registration process that necessitates a recommendation from the local fintech lending association AFPI. All registrants are given a probation period that could last for more than two years before obtaining the full licence.
Once delicensed, the players have to cease operations immediately.
Factors that led to the OJK dismissal vary from high cost of funds, inadequate credit-scoring technology, market overcrowding, and bad management, to lax regulatory oversight. These are longstanding issues that DealStreetAsia has written extensively on. Now, the pandemic has dealt another severe blow.
List of P2P lenders with revoked registration
|Brand Name||Legal Name||Registration Date|
|Tolongku||PT Ocean Fintek||2019-12-20
|Pinjam KAN||PT Gerakan Digital Akselerasi Indonesia||2019-12-20
|Puhui Lending||PT Lufax Technology Indonesia||2019-12-20
|Argapro||PT Arga Berkah Sejahtera||2019-12-20
|Danon||PT Danon Digital Nusantara||2019-12-20
|Mitra P2P Lending||PT Mitra Perdanaan Mandiri||2019-12-20
|finsy||PT Global Kapital Tech||2019-10-30
|Mopinjam||PT Amanah Karyanata Nusantara||2019-10-30
|bsalam||PT Maslahat Indonesia Mandiri||2019-08-07
|AssetKita||PT Assetku Mitra Bangsa||2019-08-07
|TunaSaku||PT Digital Quantum Tek||2019-08-07
|LadangModal||PT Digital Yinshan Technology||2019-08-07
|Kaching!||PT Arthatech Internasional Manajemen||2019-04-30
|Syarfi||PT Syarfi Teknologi Finansial||2019-04-30
|Bocil||PT Bole Cicil Indonesia||2019-04-30
|Digilend||PT Digilend Mobile Nusantara||2019-04-30
|AdaKita||PT Unikas Indonesia Pasifik||2019-02-01
|Danakoo||PT Danakoo Mitra Artha||2019-02-01
|KASPIA||PT Berkah Kelola Dana||2019-02-01
|iKredo||PT Investdana Fintek Nusantara||2018-12-12
|Plaza Pinjaman||PT Nusantara Digital Techno||2018-12-07
|Saya Modalin||PT Minitech Finance||2018-11-28
|Pinjam||PT Pinjam Meminjam Global||2018-10-16
|RupiahOne||Finlink Technology Indonesia||2018-08-31
|Danalaut||PT Seva Kreasi Digital||2018-06-08
|Telefin||PT Solusi Finansial Inklusif||2018-06-08
|Do-it||PT Glotech Prima Vista||2018-05-23
Source: Financial Services Authority
“Unlike past economic crises, this one [COVID-19] affects SMEs the most. Market demand dropped globally and domestically. SMEs had to scale down production. The tail impact is long and hard,” said Tumbur Pardede, a veteran fintech investor who recently stepped down from his role as AFPI spokesperson and the CEO of the online lending platform TunaiKita.
Existing financial technologies on KYC and risk mitigation systems adopted by local players had not been able to make loans less risky and more affordable to customers, contributing to the high prevalence of non-performing loans (NPLs) and hurting overall competitiveness, Pardede said.
Instead of technology, he added, it is access to capital that is shaping the competition landscape, where many smaller players are struggling to compete against those backed by large foreign super lenders for loan disbursements.
“There should be different regulations for cash loan P2Ps that rely on super lenders, as opposed to those that rely on crowdfunding … As of now, the regulation is unclear on lenders’ source of funds, which could carry the risk of tax evasion through transfer pricing,” said Pardede who also co-founded the SME-focused P2P firm Fintag.
Pardede said he had completely exited from all investments in cash loan P2P lenders following the spread of COVID-19, deeming most of them unsustainable.
Mind the mirage
The recent recovery in P2P lending activities in Indonesia, after the lifting of many COVID-induced controls, must be taken with a grain of salt. The growth of disbursements has been driven by high-risk uncollateralised loans at a time when millions of Indonesians have seen their incomes fall as economic recession persisted in the past four quarters.
Monthly disbursements fell dramatically in April last year as Indonesia imposed lockdowns and only returned to pre-pandemic levels in October. The trajectory has been up ever since as companies step up disbursements to capture the growing demand for loans.
As per OJK data, the total disbursement value grew 46.1% year-on-year in the first quarter as March witnessed a new record high disbursement of Rp11.8 trillion ($826 million).
P2P loan disbursement per month
Source: Financial Services Authority
The OJK data does not separate cash loans from business loans that tend to have lower default risks.
For this article, DealSreetAsia examined the performance of fully-licensed firms and found that cash loans, including those provided by hybrid P2P lenders, contributed more than 70% of total loans disbursed so far this year.
Cash loan firm AdaKami, controlled by Nasdaq-listed Chinese firm FinVolution (Xinye Technology), is the biggest loan facilitator this year with Rp 2.4 trillion as of last week. There is no historical data available to compare growth performance. However, the first five-month value already makes up 49% of total funds that AdaKami helped disburse since it began operations in mid-2018.
At such a blistering pace, the company outperformed Kredit Pintar and DanaRupiah that disbursed Rp 2 trillion and Rp 1.8 trillion of loans respectively this year. The former, which is controlled by Singapore-based Advance Intelligence Group, is the largest player in the market in terms of total disbursed loans since inception at Rp 16 trillion.
Selected metrics of 57 fully-licensed P2P firms
|Brand Name||Total Loan Disbursed (IDR Billion)||Loan Disbursed in 2021 (IDR Billion)||Outstanding (IDR Billion)||90-Day NPL (%)||Type|
|Kredit Pintar||16,000||2,000||1200||0.00||Cash loan|
|Koin P2P||3,813.6||794.2||682.6||4.00||Business loan|
|Pinjam Yuk||3,200||125||47.5||7.92||Cash loan|
|Awan Tunai||1,402||-||104.4||0.85||Business loan|
|Modal Rakyat||1,400||591||205.5||0.02||Business loan|
|Alami Sharia||592||297||152||0.00||Business loan|
|360 KREDI||589.7||376||153.2||2.00||Cash loan|
|Pinjam Gampang||204||15.9||6.6||0.00||Cash loan|
|Dompet Kilat||135.2||-||33.4||0.37||Business loan|
|Esta Kapital Fintek||107.1||13||5.9||1.06||Business loan|
|Lumbung Dana||61||43.8||11.1||0.00||Cash loan|
|Singa Fintech||8.6||1.2||0.9||2.06||Cash loan|
|Klik UMKM||3.4||0.19||0.1||0.00||Business loan|
|Dana Merdeka||-||-||-||0.00||Cash loan|
Source: Individual company websites last accessed on Friday, May 28.
The trouble with NPLs
In line with the rise in monthly disbursements, NPL ratios are also improving. The average 90-day NPL for the entire industry has gradually come down from its worst level of 8.9% in August 2020 to 1.3% by the end of March.
However, the NPL data does not entirely reflect borrowers’ ability to repay loans as major P2P firms are able to offer loan protection for individual lenders and to secure debt restructuring and write-offs from super lenders. This explains why many companies have been able to report zero NPLs, something that simply does not happen in the consumer loan business.
Our data shows that 40% of all licensed P2P lenders have zero NPL, including the top four largest cash loan firms: Kredit Pintar, RupiahCepat, UangMe and AdaKami.
Outstanding vs non-performing loans
Source: Financial Services Authority
Among 34 fully-licensed P2P firms with NPLs, more than half are reporting ratios higher than the industry average, while seven are reporting above 5%, including some of the most recognised brands in the market such as Amartha with 5.9% and UangTeman with 8%.
The latter, which has been operational since 2015, is in survival mode as it tries to restructure bad loans worth billions of rupiah.
Co-founder and CEO Muhammad Aidil Zulkifli told DealStreetAsia recently that like many other players in the market, UangTeman had been struggling to collect funds from borrowers and had to take tough decisions to improve risk management in the context of COVID-19.
Aidil said his company had to let go of more than half of its employees and hoped to achieve profitability as soon as possible. The company, which is backed by Indonesian venture firm Alpha JWC Ventures and US-based Draper Associates, is no longer facilitating loans from individual lenders, in favour of institutions—ironic when considering the brand name translates as “friend’s money” in English.
“Honestly, I don’t think P2P lending is as hot as it used to be, when there was lots of investor interest. So now, we need to really achieve profitability,” said Aidil.
Carving a niche
The next chapter in the development of P2P lending in Indonesia will involve more investments into consumer financing business and digital banking either directly or via parent companies with the intention to cross-pollinate resources, particularly user data.
“P2P lenders are a niche business and still growing but will likely remain niche, whereas digital banks have greater long-term growth potential given a naturally low-cost base,” said Angus Mackintosh, founder of CrossASEAN Research and Insight Provider at Smartkarma.
Mackintosh argues that, given the nature of the P2P business, digital banks with strong backing should be able to secure lower-cost funding than P2P lenders. He added, however, it is not going to be smooth sailing for the digital banks either when it comes to profitability due to tough competition from incumbent banks.
Kredit Pintar’s parent company, Advance Intelligence Group, acquired Indonesian multifinance company PT Mega Finadana Finance in April and placed it under its “buy now pay later” platform Atome Financial. The latter partners with retail merchants in Singapore, Malaysia, Thailand, Vietnam, Hong Kong, and mainland China.
Just last month, FinAccel, the parent company of Indonesian P2P firm KrediFazz paid close to $40 million to acquire a 24% stake in Bank Bisnis International. FinAccel is also the parent company of BNPL firm Kredivo.
Sharia-compliant P2P firm Alami has also acquired Sharia rural bank BPRS Cempaka Al-Amin with a total transaction said to be less than $10 million.
In a recent interview with DealStreetAsia, Alami CEO Dima Djani argues that P2P lenders still have a shot at growth.
“There is a scope to expand further into the many levels of society throughout the country. Fintech must collaborate to expand its market such as by integrating financial institutions in rural areas,” Djani said.
P2P lending may continue to serve the riskiest segments of finance and become a bottom feeder. But the industry itself is still relatively young in Indonesia. With only seven years under its belt, P2P lending will continue to evolve and benefit from new technological innovations as well as regulatory reforms that are likely to occur in the near future.
Cindy Silvana contributed to this story.