Peer-to-peer lending is one of the most popular fintech (financial technology) sectors in Indonesia. Fintech innovations in this particular field are changing the face of financial services and leading to disruption of the old, conventional banking system.
First-world countries such as the US, the UK and China are no strangers to P2P lending platforms; their development goes back a decade or so. In Indonesia, however, this industry is quite new. To date, there are only a handful of peer-to-peer lending companies in the country (Mekar, Koinworks, Modalku, Amartha, Investree, to name the largest few).
These emerging startups are attracting investors, young and old, new and seasoned alike, by making investing easy and affordable for almost anyone.
While P2P lending can offer good returns for your investment, it is always wise to learn about the risks that come with this kind of investment product. One smart way to make an informed decision for your investment portfolio is by asking these four important things about the platform you are looking to invest through:
1. Who are the brains behind the platform, and what are their experience?
Peer-to-peer lending is not only about channeling money to borrowers and paying back investors. Of course, what you see on the platform is usually that simple, but there are a lot of work behind it.
Among the most important aspects of peer-to-peer lending is risk assessment. A good P2P lending platform must have people behind it with a strong expertise and proven track record in this field.
Albeit being new to peer-to-peer lending, Mekar (PT Sampoerna Wirausaha) is backed by big names in the industry. Founded by Putera Sampoerna, Mekar was established with the aim to support the growth of Indonesian micro, small and medium-sized enterprises (MSMEs).
In doing that, Mekar partners with financial services institutions with solid experience in loan management and risk assessment. As of September 2017, Mekar has been partnering with two lending partners, Koperasi Mitra Dhuafa (KOMIDA) and Abdi Kerta Raharja, both are award-winning savings and loan cooperatives that boast years of experience under their belt in lending to small business owners in many parts of the country. Their expertise in risk assessment is shown by their low NPL (non-performing loans) rate, which has always stayed at less than 2% year after year.
2. What happens if a borrower defaults? Keep in mind that not all platforms guarantee your investment.
Every type of investment comes with some degree of risk. If you are considering lending through a peer-to-peer lending platform, you will want to learn about what the platform will do for you if a borrower defaults on a loan you’ve invested in.
In Mekar, 100% of your principal investment is guaranteed. This guarantee is provided by Mekar’s lending partners. So even if there is a rare case of a non-performing loan, you can be sure that you won’t suffer a loss.
3. How transparent is the lending platform?
One smart step to take before you trust your money on a lending platform is to browse through the whole website and see if it provides the necessary information, such as their record as a lender, the profile of the borrowers or where they get their funding from. Also, do they publish all their default rates and fees? You might also want to look for reviews or testimonials from other users of the platform.
4. Does the platform care about where your money goes to? Does it offer investment opportunities that are aligned with your values?
In a peer-to-peer lending environment, anyone can be a borrower (provided they meet all the requirements to be eligible for a loan). Some peer-to-peer lending platforms let their borrowers use the loans for whatever purpose they like. But many other offer specific-purpose loans and they go the extra length to make sure that the loans are used for their intended purpose. Loan types can vary from student loans, healthcare loans, to small business loans.
All the loans in Mekar are small business loans for MSMEs. Mekar is one of only two P2P lending platforms in Indonesia that put Indonesian small businesses at the heart of their business model. Mekar’s peer-to-peer lending platform is increasing access to financing for MSMEs by letting investors invest in loans for small businesses managed and owned by Indonesian men and women, farmers, fishermen, crafters, weavers and the such.
Not only that, Mekar and its lending partners take a step further and make sure all the MSMEs that can get a loan financed through Mekar are those that have positive social and environmental impact. In Mekar, you will find MSMEs whose business bring positive impact to their community and their natural environment, whether by creating jobs, reducing pollution and waste or empowering women. This ensures that any investment you make by lending through Mekar is socially responsible.
Peer-to-peer lending does offer a great investment opportunity. Before you lend, ask these questions and choose your platform wisely.