In Indonesia, student loans are ‘a major opportunity’ for fintech

Susli Lie (right), co-founder of Dana Cita, discusses the student financing landscape in Indonesia.

This article is part of Tech in Asia’s partnership with Convergence Ventures. The following is from an episode of the firm’s podcast, Convergence Spotlight. To listen to the full episode, go here.

Dana Cita is a fintech lender providing affordable student loans, with a vision to make higher education attainable for all Indonesians. It was the third Indonesian company to graduate from Y Combinator.

For this episode, we sat down with Dana Cita co-founder Susli Lie who led research for World Bank and Asian Development Bank on student financing in emerging markets. She returned to Indonesia a few years ago, eager to tackle this elusive problem.

Presidential call for student financing

Indonesia clearly lags behind its neighboring countries in terms of tertiary enrollment, with approximately 28 percent enrollment rate. The Philippines and Thailand are at around 36 percent and 49 percent, respectively. Moreover, the total cost for tuition for a four-year degree is approximately 1.4x the current GDP per capita, which is high relative to the neighboring countries.

Indonesian president Joko Widodo is then calling on the banking and financial sector to address the scarcity of student loans in the country. Lie believes that this will become a major opportunity for the nation, considering the growing purchasing power of the young population and the shifting focus from labor to skilled workers. Despite the costs attributed to it, tertiary education has immense power to change a person’s livelihood, which is why Lie thinks the president is putting emphasis on it.

Scarcity of student loan products

Lie says that the lack of student loans is not unique to Indonesia. Developed markets feel that tertiary education is something they are entitled to and that the government should be providing. But it’s different in developing markets.

According to Lie, if we look at the enrollment rates in basic and secondary levels, Indonesia is still playing catch-up. “What you’re seeing in our country is that 20 percent of our national budget is dedicated precisely to solve that problem. So, you could argue that the government should probably be fixing that problem first before tackling tertiary education.”

So for banks, the student loan market is still quite small compared to other types of consumer loans such as motorbikes, cars, and houses. In addition, the financial history of students is fundamentally lacking, which makes student loans riskier (not to mention that they are also typically unsecured and long-term). It would be difficult for banks to focus on this market.

The fintech approach

In general, fintech lenders use technology to compile and gain access to data, and lower costs for both the business and the borrowers. But in the case of student loans, Lie says that acquisition using tech makes a lot of sense as opposed to the traditional brick and mortar model. “If you think about our user base, these are young people [aged between] 18 and 24 […] who are incredibly tech-savvy, have a strong online presence, and are easily reachable,” she explains.

Lie says that fintech companies can also partner with banks when it comes to providing specialized products. “I think fintech companies operate best when they’re a niche player.” She shares that Dana Cita work closely with a community of borrowers, which enables them to understand their consumers and the nuances of the niche.

Moreover, fintech startups are more agile because they can take different types of risks and are open to innovation.

The government’s role

Lie says trying to solve a meaningful social problem at scale almost always requires the government’s involvement—whether as a policy maker or a provider of resources. When it comes to higher education, the government often acts as a lender of first resource, which is often virtually free or highly subsidized.

In Anglo-Saxon countries such as Canada, Australia/New Zealand, and the US, the governments there partner with the private sector to guarantee affordable tertiary education. How can they do this? They simply have the spending power from the taxes. Developing nations, on the other hand, couldn’t allocate as much.

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