The Financial Services Authority (OJK) recently made a statement that immediately raised concerns among Indonesians who are increasingly using the services of fintech (financial technology) companies.
OJK said Indonesians should use caution when using services offered by fintech companies, in particular those in the peer-to-peer lending sector. What are the concerns regarding fintech raised by the OJK? What should you, as a user of P2P lending platforms — be it as a borrower or a lender– take into account when using their services?
Our blog posts in this series will provide answers to OJK’s recently voiced concerns regarding the P2P lending industry in Indonesia.
Peer-to-Peer Lending, a Fancy Name for Digital Loan Sharks?
In early March, the OJK said that fintech companies that facilitate peer-to-peer lending are charging exorbitant interest rates to their borrowers. “If the interest is high, does that not make them loan sharks?” OJK’s Chairman Wimboh Santoso said, as quoted by CNBC Indonesia.
Let’s take a closer look. P2P lending companies like Mekar naturally targets those who are not catered by banks. What do the profiles of those who can’t access a bank credit look like? Among them are people who do not have a fixed income and/or do not have a collateral to offer, and this include the majority of Indonesia’s micro, small and medium sized enterprises (MSMEs).
Mekar caters to the latter. Mekar connects them, those who are in need of a loan to grow their business, with lenders who want to take part in the effort to empower small businesses in the country.
Mekar’s commitment to MSMEs in Indonesia
It has always been Mekar’s commitment to support the growth of Indonesian MSMEs. The P2P lending company was established and is now run with a vision to improve access to finance for small businesses, the majority of whom are underserved by banks.
The strength of Mekar’s business model lies in its cooperation with microfinance institutions that act as loan originators. This means that all the loans in Mekar come from Mekar’s partners and Mekar does not set the interest rate that is being charged to the borrowers.
The microfinance institutions that partner with Mekar (also called Lending Partners) are the ones that set the interest rate for the loans. Nevertheless, Mekar can attest that the interest rate that is being charged to the borrowers in Mekar is much lower than the interest rate for non-collateral loans offered by banks, which can reach 3% per month or equals to 360% per year, or the extortionate rates that loan sharks usually charge — starting at 20% per month, or equals to 240% per year.
The low interest rate makes it is easier for borrowers in Mekar to repay their loans on time and not go into default. Hence, it lowers the risks for lenders (also called funders) in Mekar.
With a non-usurious rate of interest, Mekar can offer credible peer-to-peer lending services while presenting middle-class Indonesians with the opportunity to contribute to the empowerment of the underprivileged.
Mekar: where Everyone Benefits
While Mekar makes sure that borrowers get a fair rate, we also remember to take care of our lenders. Mekar’s focus is to build a healthy ecosystem in which both funders and borrowers benefit from using our services. For the funders, Mekar’s peer-to-peer lending services give them the opportunity to earn two times more than what they are earning from their bank time deposits while helping to create positive social impact.
By providing peer-to-peer lending services to both MSMEs and people from all over the country, Mekar hopes to advance financial inclusion in Indonesia.