OJK and P2P is the next big thing for innovation.

In October, President Joko “Jokowi” Widodo brought the issue to the fore by ordering the Financial Services Authority (OJK) to put a moratorium on issuing new licenses for P2P platforms. It’s not clear how the President’s new moratorium differs from the one existing—put in place by the OJK in early-2020.

Nonetheless, Jokowi’s statement imbued a new sense of urgency. Pressure on Jokowi On 12 November, 19 citizens (with LBH Jakarta) filed a lawsuit against Jokowi arguing that the government’s failure to address online lending platforms is against the law.

They demanded that the judge ruled for the government to temporarily stop the operation of all online lending companies. In the same month, OJK announced its plans to overhaul P2P regulation to make it harder for people to start P2P platforms, as well as to make loans more accessible to borrowers all across Indonesia—right now, most platforms are serving borrowers in Java. The push to lower interest rates was mentioned as part of the overhaul.

OJK is a new Big Reform we can expect soon

Within days of that announcement, AFPI, the country’s P2P lending platform association, issued a press release saying that it had lowered the cap for maximum daily interest rates a platform can charge borrowers by 50%—from 0.8% to 0.4%. This was done “[…] so that the public can distinguish between the illegal and official [platforms] from their very competitive pricing,” said Adrian Gunadi, AFPI chairman, in the press release.

The enforcement was immediate. Platforms were only given seven working days to make the necessary changes. The illegal players are, indeed, aplenty. Between 2018 and October 2021, the government closed down 4,874 illegal lending platforms—1,856 of which were shut down this year—in an attempt to help those like Evi. “Many people have taken their lives because of this,” Nelson Nikodemus Simamora, lawyer at LBH Jakarta, told us.

Headlines have included the suicide of a 35-year-old taxi driver in 2019, and more recently, a 44-year-old mother of two, who was indebted to 23 different platforms. But while it’s encouraging to see collaboration between the public and private sector, it is likely that the current approach is only adding fuel to the fire.

Pushing the legal P2P platforms to adopt lower interest rates will render the lower end of the borrower segment unprofitable to lend to, and these borrowers will likely turn to the illegal players as a result of being excluded by the legal ones.

P2P is a next big thing

There’s still about 47 million adults in Indonesia who are underbanked with insufficient access to financial services. And if the goal is to eliminate the bad lending practices, is the current approach a problem-solution mismatch? Hitting the brakes To varying degrees, the Indonesian P2P players we spoke to attributed the crisis that happened in Indonesia to the industry meltdown in China—P2P platforms rose to almost 6,600 in 2017, to only nosedive from there on.

Following government crackdown, by mid-November 2020, P2P lenders “had all been zeroed out”, according to Chinese regulators. And Chinese loan apps turned to Indonesia. Explaining this, Ronald Yusuf Wijaya, the CEO and co-founder of sharia-compliant P2P platform Ethis, said: “Big population, low financial literacy, consumptive society.

This is the sexiest market for them.” OJK’s Investment Task Force, an entity assigned to take action on these illegal apps, confirmed the link. When the Chinese players got banned locally, they moved to developing countries, including Indonesia and India, chief of the Task Force, Tongam Lumban Tobing, told us. Still, data from the Ministry of Communications and Information shows that while many of these illegal loan app’s servers are hosted overseas, only 6% have been confirmed to be located in China—44% are still unknown.