The Unbankables: Why Mekar Reaches Out to The Marginalized
Out of desperation, a mother in Gresik, East Java, in 2013 took out a loan of Rp 2 million from a loan shark to pay for her daughter’s education and start a small juice kiosk. The usurer charged a high interest rate of 30% that the borrower had to pay in three months (equals to 120% a year).
With such an exorbitant interest rate, the mother ended up unable to repay her debt. She fell into arrears on her payments and her loan shark continued to charge interest on her interest. By the end of 2015, her debt had amounted to Rp 8 million.
It’s a story that is all too familiar. In Indonesia, a country of more than 17,000 islands with many areas that are still too isolated, access to a loan from the banks or other traditional financial institutions is still a luxury only enjoyed by people from certain economic classes.
And this is a fact not only for people living in remote villages. Even in big cities where a huge number of banks are operating, there are still communities that are deemed unworthy of a bank credit. These are the unbankables; people who are not given a second glance by the banks but at the same time are falling prey to loan sharks and usurers.
For the unbankables, bank loans are almost impossible to obtain due to the fact that they don’t even have the documents or the collaterals that are required for a loan application. Running out of options, they resort to loan sharks. The latter can provide quick cash and usually ask for no more than an ID card from their borrowers. The catch is, the borrowers will then have to pay extortionate interest rates that can reach 400% per year.
MEKAR for Indonesian MSMEs
Many of those who take out a loan from a loan shark are owners of micro and small businesses. Ultimately, this is a cause for concern since micro and small businesses in Indonesia actually have great economic potentials. Many of them are the backbone of their local economy, but their debts to loan sharks often put them in troubles. In the worst cases, some are forced to go out of business.
MEKAR understands that these people, the unbankables, are a part of the society that is in dire need of access to financial services. That is what MEKAR, a leading fintech company in Indonesia, is here for: to provide peer-to-peer lending and investment services.
Mekar.id, an online platform managed and run by MEKAR, has been connecting investors (people from all over Indonesia who want to see their money grow) with small business owners who are in need of funding to grow their ventures.
It is, afterall, MEKAR’s mission to support the growth of small businesses and advance financial inclusion in Indonesian society. Hence, Mekar has always been committed in providing low cost loans for small businesses. MEKAR does this by partnering with savings and loan cooperatives with offices in hundreds of cities and villages in the country. The partners, also called Lending Partners in Mekar, charge a reasonable rate of interest; most loans in MEKAR have an interest rate of only 25% a year.
For investors in MEKAR, investing in small business loans via the Mekar.id platform is more than a safe and profitable way to grow their money by at least 10% annually; their investments in MEKAR are also the kind of investments that truly benefit the Indonesian society and are able to create great social impact.