3 startups in Indonesia that lend money to the poor

Indonesia’s vast and young population sounds like a great market opportunity. But there is one catch. The majority of Indonesians don’t have the financial freedom to purchase goods and services beyond bare necessities.

Out of a population of 252 million, 28.6 million Indonesians currently live below the poverty line, according to the World Bank. Approximately 40 percent of all people remain clustered around the national poverty line set at IDR 330,776 per person per month ($22.6).

People at the “bottom of the pyramid” have a hard time getting access to loans because classic financial institutions don’t have much incentive to serve this segment – and they don’t offer the right products.

So-called microfinance institutions have sprung up to fill that gap. But some of their lending schemes, especially in Indonesia’s rural areas, have earned a bad rap. They might ask for high interest rates and have shady debt collecting methods.

Increasingly, young, technology-driven fintech startups have taken it upon themselves to address the issue, and they like to say they offer a better, fairer solution than “loan sharky” microfinancers.

See: This Indonesian microfinance startup wants to put loan sharks out of businessBut are they really so much better?

Here’s a breakdown of three such microfinance sites in Indonesia. The first two give cash without collateral, while the third demands collateral, such as a motorbike or car.

UangTeman

UangTeman (Indonesian for “friend’s money”) offers loans from IDR 1.5 million to IDR 2 million (US$108 to $143) for 10 to 30 days, with an interest rate of 1 percent a day. It also has additional fees for extending the payback deadline (IDR 180,000; US$13), a fine for delays of IDR 50,000 (US$3.57), plus IDR 100,000 (US$7.10) for each day it’s delayed. On top of that, a late-paying debtor is asked to pay a fee of 10 percent of the total loaned to the debt collector.

UangTeman has been the subject of controversy due to its high interest rate. One percent may sound low, but here’s an example of how much a loan on UangTeman would cost you. Let’s say you take a loan of IDR 2 million for ten days – to get you through a rough time until the next payday. On the first day, you will pay IDR 2,000,000 x 1 percent, which means IDR 20,000. On day two, expect to pay IDR 20,020,000 x 1 percent, which makes your total loan on day two come out to be IDR 2.040.200. And so on until day 10. The total sum you will have to pay back is IDR 2,209,000 (US$158), over 10 percent more than what you borrowed.

Tunaiku

Taralite

One metric to compare them all