Co-Founder and CEO Modalku, Reynold Wijaya.

JAKARTA (TheInsiderStories)Indonesia’s peer-to-peer lending (P2P) startup Modalku disbursed Rp1 trillion (US$69.39 million) loans to 3,500 creditors (year to date).

Founder and CEO of Modalku Reynold Wijaya on Thursday (5/7) said most of the company’s clients are small medium enterprises (SMEs) in Indonesia. He added the loan disbursement was higher than last year, whereas the loan disbursement growth last year was 10-fold from 2016 loan.

“The majority of debtors are millennials, young people who are technology literate and businessman,” he added, as quoted by Kontan.

Modalku charges interest of 15 per cent to 35 per cent per annum. The company received 3 per cent of the fee.

The Financial Service Authority (FSA) earlier criticized the high-interest rates that FinTech P2P lending offered. Chairman of FSA Wimboh Santoso compared the technology-based P2P lending as modern loan shark since they offer some loans with the high-interest rate. It is significantly higher than conventional banking’s interest rate of 11.18 per cent.

Wijaya said the high-interest rate is reasonable according to the high risk faced by peer-to-peer lending. High risks arise because P2P lending services only provide access for consumers who can not make loans through financial institutions such as Bank. Thus, the determination of high interest is done to avoid the loss of money that has been given by investors (investors).

Furthermore, the non-performing loan (NPL) of Modalku reached 1 per cent by June 2018. Modalku expected to maintain NPL level at 1 per cent to 1.5 per cent.

Modalku uses the digital system to make the loan disbursement more targetted in order to maintain NPL level.

That way the company can take into account the ability of the borrower. One of them, the selection of the right segment, where the focus is on unbankable customers. The company will focus on the bankable debtors. However, it contradicts the peer-to-peer lending’s goal to make the unbankable people access the loan.

The FinTech lending is expected to patch up Indonesia’s low level of financial inclusiveness. Indonesia has a population of 263 million people, but 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 and Indonesia’s savings-to-GDP ratio, at around 34 per cent in 2015,  was the lowest among Asia Pacific countries.

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

Despite the criticism, FinTech lending rose in a significant pace by 952 per cent to 2.6 trillion in January 2018 from December 2016, much higher than 8.1 per cent of loan growth of conventional bank in 2017.

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.