Abrupt removal of loan insurance on Amartha frustrates lenders

The removal of an option to purchase insurance for loans made on Amartha, the peer-to-peer (P2P) lending platform, has drawn criticism, with a lender saying he was not duly informed of the change.

Photo credit: Amartha

The Indonesia-based company, which has raised over US$185 million to date, connects investors with female microentrepreneurs seeking funds to grow their businesses. Loans begin at 1,500,000 rupiah (US$100).

Loan insurance protects lenders in the event that a borrower defaults. Prior to the change, which took effect on June 1, investors could opt to pay a premium of 1.5% of the total funding amount for loan insurance. This guaranteed 75% of the remaining principal in the event of a default.

An investor affected by the change tells Tech in Asia that the loan option was abruptly removed “without making any announcements” to lenders on the platform. They were neither informed via email nor the company blog, claims the source, who spoke on the condition of anonymity.

While various posts on the company’s FAQ page outline reasons for the change and other details, these were published on June 12, over a week after the change was implemented.

In response to Tech in Asia’s queries, an Amartha spokesperson says the firm is “currently evaluating the effectiveness of the service” provided by its previous insurance partner to “improve our users’ overall satisfaction,” though the spokesperson didn’t state who this partner was.

The spokesperson adds that credit insurance will continue to apply to funding that had been successfully registered on the platform prior to June 1, according to the applicable terms and conditions.

All loans will also continue being covered by a life protection plan, ensuring that in the event of the borrower’s death, the lender will receive full repayment of the loan amount.

The company “regularly updates all required information through our communications channels, which are accessible to our users, including through our website,” the spokesperson says, adding that the Amartha Care hotline is “readily available” to assist its users.

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Under Regulation No. 10/POJK.05/2022, Indonesia’s Financial Services Authority (OJK) requires P2P lending platforms to “mitigate risk” for users, including to “facilitate risk transfer” for the borrowers, according to Roy Purnomo, Fitch Ratings Asia-Pacific associate director for non-bank financial institutions.

However, there are no rules preventing platforms from changing their terms.

While several P2P lenders offer credit insurance as a risk mitigation strategy to comply with the regulation, there is no specific obligation by the OJK for fintech loans to be covered by such insurance, Purnomo tells Tech in Asia.

Although original credit agreements with lenders are required to specify the risk mitigation measure in case of default, there is also no provision for subsequent changes made to the agreement, Purnomo adds.

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