This Indonesian micro-finance startup wants to put loan sharks out of business

In Indonesia, 203 million people are classified as poor, living on less than US$4.50 per day. This group of consumers is not the section of the economic pyramid that conventional banks and insurance companies tend to prioritize, despite their making up the majority of the archipelago’s population. This is a problem Aidil Zulkifli, co-founder and CEO of UangTeman, hopes to solve.

According to a 2014 study from the KPMG global network of firms providing audit, tax, and financial advisory services, roughly 105 million Indonesians still need access to formal or semiformal credit and finance programs to progress up the socioeconomic ladder. UangTeman (which translates to MoneyFriend) is an online short-term microlender looking to serve the needs of ordinary Indonesians. The startup lends no more than Rp 2 million (US$136) with a span of up to 30 days before it must be repaid. The firm claims to “crunch data” to assess people’s credit in places where there are no credit scoring agencies or bureaus.

“We compete directly with organized crime loan sharks, pawnshops, and traditional market lenders,” says Aidil, who also happens to be the founder of Singapore-based Loan Garage’s KreditAja, which was acquired by MoneySmart in late 2014. He adds, “We truly believe in being a socially responsible lender and harnessing big data technologies to deliver financial services in a safe and transparent manner. We do not engage in hard collections – we work with borrowers if they have difficulties.”

UangTeman team

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Bottom of the financial pyramid

With UangTeman, borrowers do not need a credit card or even credit history to get a loan, unlike in traditional banks. Aidil says the loan appears in your account within 24 hours if it’s your first time, but much faster if you’re a repeat borrower. Borrowers are at liberty to choose to borrow for any time between 10 and 30 days.

UangTeman asks that users pay back their loan at the end of their chosen tenor period, including the principal amount plus the accrued interest. For the first loan, the interest rate is one percent a day, and can decrease over time with good credit behavior, says Aidil. He also admits that UtangTeman’s interest policy has been the subject of controversy in Indonesia’s financial space recently. Many stakeholders like banks and traditional micro-finance institutions disapprove.

“The reality is that we are providing key financial services to people who otherwise wouldn’t be able to get access to safe and transparent financial services, and whose alternatives are criminal loan sharks or to pawn valuables,” Aidil argues. “It is important to understand that we are targeting the B-, C, [and] C+ segments in Indonesia who do not have or have very little access to credit in Indonesia.”

Aidil adds that banks have “perfected the art” of persuading customers that an 18 percent interest rate per year on an unsecured loan is a cheap source of credit. He contests, “If consumers do a side-by-side comparison to include all the various fees applicable and the actual interest paid over a long tenor loan, you are actually paying a bank about 30 percent [or more] on your loan principal.”

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Looking for friendly money

UangTeman claims to absorb all bank-related disbursement or transfer costs, meaning if you borrow Rp 2 million (US$136), that’s exactly how much will end up in your account. The startup does have other fees though, including an Rp 180,000 (US$12) extension fee, a late payment fee of Rp 50,000 (US$3.40) plus Rp 10,000 (US$0.68) per day thereafter, and a debt collector’s fee of 10 percent from the total payment.

UangTeman is supported by a crew of investors including an unnamed family office in Malaysia, Jakarta-based venture capital firm Alpha JWC Ventures, and a co-founder of Wonga, a British payday loan company that bears a striking resemblance to UangTeman. Wonga and other payday lenders have also proved controversial in the UK after a series of scandals. Aidil did not share any further details on how much money has been put into the company so far.