Indonesia – the largest economy in the south east Asian region – is betting on the great big fintech opportunity riding on its demographics and unbanked population. Indonesia, which has already seen the emergence of 130 fintech companies, is expecting this number to double in a year with $3.6 billion worth of transactions on this model over the next one year, deputy director of OJK, the financial services regulator, Pak Tuahta Aloysius Saraguh, said in an interaction. Pak Aloysius has been instrumental in encouraging the Fintech industry in Indonesia.
With only 36% of Indonesia’s adult population having formal bank accounts, much lower than the number of mobile phone owners, the future of Indonesia’s financial inclusion, will rely heavily on its digital transaction facilitated by mobile gadgets.
Even the nascent venture capital industry in Indonesia is undergoing a change with recent regulations encouraging more local venture capital companies to set shop in the country, he added. Recently, two local venture capital companies, Dana Mandiri Sejahtera and Reliance Venture Capital, formed Indonesia’s first venture fund as well. Banks too, are coming out with VC arms, with Bank Negara Indonesia likely to follow suit after Mandiri Capital and BCA.
Can you tell to us about the rising Fintech phenomenon in Indonesia. How instrumental is Fintech in driving the Indonesian Economy.
We have 135 fintech companies currently. The Indonesia market is very big that’s why Fintech is growing here. Necessity of people to borrow money is extremely high in Indonesia. Although Fintech must have started in countries like Singapore and Australia already, but they are very small markets, and its actual utility in a big way can only be understood in markets like Indonesia. Both Jakarta and Surbaya have bigger markets. We expect Fintech companies to be very big in two years.
What is the future of FinTech in Indonesia. What kind of growth do you expect from the FinTech sector going forward
I expect, 200-250 FinTech players in the next one year. The problem is that we haven’t created a proper, growing, fair ecosystem for FinTech players in Indonesia to operate in. This market is still not in good condition. If we can set it up like Singapore and Australia, I believe we will have more than 300 FinTech companies in no time. We hope Indonesia will have an ecosystem to nurture young FinTech players. We need to arrange funds from the government, the exchanges and the telecom for the same. This model has been applied in Australia, where the government puts some money, and once the FinTech company is very big, they eventually get listed. So the stock exchange will get benefited through this as well. We expect at least $3.6 billion worth of transactions to take place through FinTech in the next one year
While the recent P2P lending norms has laid down guidelines to streamline online lending and borrowing system, certain challenges with respect to data credibility continues to exist when it comes to P2P lending. How is OJK planning to mitigate this risk?
There is a stringent measure of due diligence, where we are using social media to find information about people. We even ask the friends of people and their colleagues, bosses etc.The P2P lending platform, will carry out these investigations. These platforms are essentially taking risk. They will all lend you money. But once you pay the money back, they will increase money they will lend to you. Now in most of the Fintech companies, the non performing finance or bad debt is zero. Now the industry is very efficient. The non performing finance is only 1%. I believe Fintech is very efficient. I believe this industry will competitiveness in the long term.
P2P lending is only a part of Fintech, which has many other aspects. What according to you will help regulate Fintech better?
We are trying to set up better system where Fintech companies can regularly meet us and report to us. We will put out fine prints of how they will report etc, soon.
Recently we saw two banks, start VC arms – are you seeing this as a growing trend?
Yes, of late, we are seeing this happen. VC arms of Banks come under the super vision of the OJK. After Mandiri Capital and BCA, we are expecting to see more of this. Even Bank Negara Indonesia is in initial discussions to start a VC arm. But we don’t have much details on that yet.
What is the next focus area for OJK?
We plan to regulate FinTech in a much better way. We are also planning to establish a new office for FinTech exclusively, which will promote the FinTech platform solely.
One of the biggest growth drag to the startup ecosystem is lack of VC funding. Despite revising the VC regulations, we are not seeing many local Venture Capital companies operating in Indonesia. Why is that?
Indonesia does not have ideal ecosystem to touch the venture capital. We don’t have the adequate infrastructure. I don’t believe the VC will increase by private sector participation. It is only the government companies that can take the risk and start Venture Capital. The risk of operating as a Venture Capital company is very high. Private Sector companies always wants profits and something in return. Thus I don’t think this risky VC model, is best suited for privately led companies. The Venture Capital sector will be a government led sector. I believe that without government’s serious intervention, the situation will not change much.
How much Venture Capital money are you targeting to attract in Indonesia in 2017?
We don’t have targets as such. But we have already added sweeteners for them. We recently allowed companies to open Venture Funds, which means that venture companies can now open or establish a new fund, which can help in financing one project. More than one VC can come and form a fund to finance a project. In the last one year, we got two Venture capital companies who opened a venture fund. This is a breakthrough for us. We hope this regulation will increase VCs value. Indonesia is a promising country, but without the correct ecosystem and support, nothing much can change.