Fintech Lenders in Indonesia to Support Government with Disbursing Loans to SMEs as Part of COVID Relief Effort

Asosiasi Fintech Pendanaan Bersama Indonesia (AFPI), which is an association of 156 Fintech lenders, is reportedly planning to work cooperatively with the Indonesian government to distribute funds that are meant to offset the economic problems and challenges created due to COVID-19.

As of September 2020, the Indonesian government has issued 25% of the planned IDR 695 trillion (appr. $46.8 billion) it has set aside for COVID-related financial relief for local businesses.

The AFPI has been creating credit profiles for various Indonesian businesses. The association has reportedly collected data on 25 million local entities since June of this year.  AFPI manages this data by using appropriate analytics tools developed to reach underbanked or financially underserved Indonesians and their micro-, small and medium-sized enterprises (MSMEs). The data may be used to assist with disbursing COVID relief funds to local residents and businesses that the government is planning to help.

Most of the AFPI members offer peer-to-peer (P2P) lending services.

Chatib Basri, a member of the advisory board at AFPI stated:

“One of the merits of P2P platforms is data. And this data is the main problem in the disbursement of [funds from the government, whose]… data is outdated, especially for the lower-middle-income segment…. There needs to be a good collaboration between regulators and the industry. Collaboration on data could be a ‘quick win’….”

Adrian Gunadi, chairman of the Indonesian Fintech Lenders Association (AFPI), confirmed on September 23, 2020 that P2P lender Investree had received an allocation from the State’s Bank Mandiri so that it can disburse the funds as part of the national economic recovery plan. As reported by the Jakarta Post, the funds will be provided to several small business owners.

Adrian, whose comments came during the Jakpost Fintech Fest (a virtual discussion/event), noted:

“That is one way we could see fintech playing a very big role, especially when everything is going digital because of the pandemic. The government is moving toward a less-contact economy.”

He added:

“I think that is where fintech will become more relevant. It has to be part of a bigger ecosystem for us to be able to accelerate the relief effort for Indonesia.”

Ravi Ivanuri, an advisor at Big Four auditing firm PricewaterhouseCoopers (PwC), said that financial authorities in other countries had been working toward improving their digital financial services during these unprecedented times. However, he claims that Indonesia is leading the charge in the Southeast Asia region when it comes to developing and supporting a Fintech-friendly environment. But Ravi also recommended that more coordination is required between regulators and local businesses.

He also mentioned:

“Maybe in the next one or two or three years, if there is more and more collaboration set up between these regulatory authorities, there will be more clarity for fintech players in terms of how to comply with these different regulations.”

As of June 2020, there were 161 licensed or registered P2P lenders operating in Indonesia. Only 12 of them are Sharia-compliant, according to recent data from the OJK, the nation’s financial regulator. The nation’s P2P lending platforms have managed to help around 20.6 million borrowers by connecting them with 539,460 lenders.

But COVID has had a major negative impact on certain segments of Indonesia’s Fintech sector. Its non-performing loan (NPL) ratio has jumped to 7.99%, which is part of a worsening trend that began in March 2020 (when the Coronavirus crisis began). The NPL stood at 4.22% in March 2020, which is significantly more than the 2.62% from last year.

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