July 5, 2021Indonesia
Fintech ecosystem in Indonesia
Being the largest economy in Southeast Asia, Indonesia has experienced a big growth since the late 90s. Also, Indonesia is the world’s fourth most populous nation and the 10th largest economy in terms of purchasing power parity (World Bank, 2021)
Even though the pandemic affected all countries, Indonesia has done well in 2020, thanks to the well-coordinated, well-communicated crisis response and strong leadership to contain the pandemic. Furthermore, Indonesia’s growth rate is expected to reach 4.5% in 2021 and 5.0% in 2022 (Abd, 2021)
Indonesia has an internet penetration of 67 percent; however financial inclusion is still a challenge. Moreover, there are approximately 63 million and small companies; however financial gap is still large since no more than 19 percent of the banking industry’s total credit was allocated to the SME sector as of 2018
Lending Fintech in Indonesia
Indonesia has a strong Fintech ecosystem, with more than 300 Fintechs innovating across different product and service categories. The sector is dominated by peer-to-peer (P2P) lending (50 percent) and e-payment (23 percent) platforms. Other verticals include Blockchain, Insurtech, Personal Finance and POS services (Asean Briefing, 2021).
In terms of investment, between 2018 and 2020, $849 million were invested in the FinTech sector. According to MEDICI’s report, 2020 was a defining year for FinTech funding in Indonesia with over 77 deals garnering $329 million, the highest ever. (Gomedici, 2021).
Lending Fintech in Indonesia
The lending sector is one of the most important in Indonesia and is one of the few that operates under a defined regulatory framework. There are approximately 156 lending companies as of 2020. Normally the process of lending takes just 24 hours for the funds to be disbursed, and the terms and maturity are small and short, borrowers typically receive not more than US$100 (Microsave, 2021)
Furthermore, despite the pandemic, Fintech managed to attract significant funding with three mega-rounds of over US$100 million recorded since late-2019.
In the case of regulation the country’s P2P business is covered in OJK regulation No. 77 on information technology-based lending (POJK 77). In November 2020, the OJK published a draft of its regulation on P2P, which is planned to replace POJK 77, to provide more legal certainty on the P2P business model and protect the public interests. According to the draft, the maximum loan granted by a lender, including a super lender and its affiliates would be limited to 25 percent of the total annual outstanding loan (Asia Business Law Journal, 2021)
Fintech companies have an important role to play in efforts towards national recovery, especially for the delivery of social assistance. Therefore, Fintech must continue to be taken seriously and have more options to expand its reach.
