BI Governor Agus Martowardojo - Photo by Bank Indonesia

JAKARTA (TheInsiderStories)—The financial technology (FinTech) players are shaking up the banking sector in Indonesia to provide payment and lending facilities and collaboration between the two is likely inevitable in the future.

While last year the banking sector only posted a 8.1 per cent loan growth, FinTech lending rose in a significant pace. According to data from the Financial Service Agency (FSA), lending from tech companies providing financial services rose by 952 per cent to Rp 2.6 trillion in January 2018 from December 2016.

There where more than 250,000 people had taken out loans through FinTech companies, data from the FSA showed and regulator sees lending from FinTech companies could reach Rp3 trillion this year.

According to the PT Digital Artha Media data, currently there are around 196 FinTech firms in Indonesia and 25 among them have secured the licenses from FSA and another 33 FinTech firms are in the process to get the license, .

The FinTech lending in Indonesia are dominated by the two peer to peer lending firms with the two biggest players are Investree and Modalku. In 2017, the Investree distributed lending of Rp380 billion and by the end of this year targets to distribute Rp1 trillion. While Modalku distributed around Rp450 billion in the same year.

The impressive growth of FinTech lending in Indonesia will continue brighter since the country has a huge population of 260 million people. The future of FinTech lending in Indonesia also driven by huge users of smart phones reached 100 million in 2017. Currently, around 143 million people connected to the internet in 2017, according to the Association of Indonesian Internet Service Providers data. The majority of these netizen located in the urban areas.

With such a huge population, the inclusive financial rate only reached 63 per cent of the population by the end of 2017. It means there are 165 million people who cannot access the financial services. Currently, only one in the three adults have bank accounts, it was around 34 per cent of GDP in 2015, the lowest among Asia Pacific countries.

According to the Indonesia’s financial regulator in 2016, the national loan demand reached Rp1,600 trillion. Unfortunately, only about Rp600 trillion can be served by banks and other financial institution. This mean, there is a shortfall of Rp1,000 trillion. This shortfall resulted in the many small business cannot access the loan, resulting in a GDP loss of 14 per cent by 2015.

The FinTech lending will continue to be in demand in Indonesia because it offers easiness. It does not the collateral and the debtors can submit the documents anytime.

Although the fintech lending has large potential in Indonesia, it faces some obstacles. The main obstacles are the lack of data to assess the feasibility of prospective debtors. Before giving a loan to a user, a startup FinTech lending should check whether the prospective user will be able to return the money or not. The assessment is commonly known as credit scoring.

In other countries, there are many third parties who provide the credit scoring services, but this service is rarely available in Indonesia. As a result, the fintech lending should be the both lender and credit scorer.


Because of its growing potential, the government must set the rules of business play quickly in FinTech lending. The government must learn from the lateness in regulating the e-commerce and ride-hailing services.

The government currently only issued the regulation No. 77/POJK.01/2016 regarding Information Technology-Based Money Lending Services. It regulates the implementation of FinTech business on loan portions, business activities, registration licenses, risk mitigation, reporting, and the management of information technology systems.

However, the regulation limited only on the P2P lending. The government have not issued rules for the other FinTech lending business such as the balance sheet lending (UangTeman, Julo, TunaiKita, and Doctor Rupiah), Credit provider startup for online transactions (Kredivo, Akulaku, and Cicil), fintech lending on mortgage service such as Pinjam.

The government also should provide a one door policy on this business to facilitate the players FinTech lending to coordinate with regulators from other sectors.

One of the main regulation is about the interest. Currently, the interest rate of fintech lending reachs 19 per cent per year, according to the FSA data. The FinTech lending claimed the high interest is needed to secure the high risk since they give loans to unbanked segment.

However, this high interest rate potentially lead to the systemic problems if many debtors cannot afford to pay the loans. When the the FinTech lending boom, the non-performing loan potentially lead to the financial crisis. It similar in America, when the non-performing mortgage loan lead to the global financial crisis in 2008.

However, the government should give the disruption approach on this business. The regulation cannot duplicate the banking regulation. If not, the fintech lending will die before blossom.