Crisis rocks Indonesia’s P2P lenders. Can they regain trust?

Indonesia’s digital peer-to-peer lending industry has long had its share of issues. But over the past year, the pressure has escalated as two prominent names faced problems.

Investree’s default issues led to the Financial Services Authority (OJK) revoking its operational license in October, with CEO and co-founder Adrian Gunadi named a police suspect and placed on the most-wanted list.

Meanwhile, a KoinWorks borrower fled with 365 billion rupiah (US$22 million) last month, forcing the company to implement a standstill or delay payments to some lenders. The case has already been reported to the police.

Perhaps what’s striking about Investree and KoinWorks is that these are companies funded by notable VC firms. Both provide so-called “productive loans” to MSMEs (instead of risky, exploitative payday loans to individual consumers), and they are well-known brands in a sea of players that can have questionable bona fides.

“The negative impact [from the two cases] is inevitable. People are becoming more hesitant to invest because of the industry’s current state,” says Ivan Nikolas Tambunan, CEO and co-founder of lending firm Akseleran.

Even so, he emphasizes that the problems faced by some players do not represent the entire industry, as “there are players who are performing well too.”

Plus, consumers are still on board – good or bad. As of October, the outstanding loan amount for P2P lending in Indonesia reached US$4.6 billion, a 29% year-on-year increase.

Leaving the “peer” in P2P

Excluding digital banks, lending is Indonesia’s most-funded fintech sector between January 2020 to April 2024, according to the Tech in Asia database.

However, a consequence of that is the inherent tension of being a VC-funded company in a highly regulated space like fintech.

Amartha representative with a small business owner / Photo credit: Amartha

Dino Setiawan, CEO and co-founder of digital lending platform AwanTunai, points out that VC firms reward players who grow aggressively with large amounts of capital. This approach can lead to real innovation for the few that succeed, but for most VC investments, failure is “expected.”

“OJK could consider facilitating VC-funded fintech firms to fail safely rather than regulating to ‘prevent’ failure,” he adds.

See also: Indonesia puts more constraints on online lenders, but at what cost?

Pivoting to profits?