Can Indonesia strike a balance between debt recovery and financial inclusion?

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Hi readers,

If you had asked me 10 years ago what my biggest fear was, I would’ve said the sight of beehives. But now that I’m the main provider for my family, the thought of unemployment terrifies me the most.

This fear is exacerbated by seeing how some of my friends are struggling to pay off loan sharks, who can charge interest rates as high as 30% a month. These sharks will even go to borrowers’ houses and yell at them when collection time comes, and they must hand over the money to avoid social humiliation.

The exorbitant rates of loan sharks stand in stark contrast to peer-to-peer online lenders in Indonesia, which previously charged as high as 12% a month or 0.4% a day. Despite this, borrowers still struggled with repayments, leading Indonesia’s financial authority – Otoritas Jasa Keuangan (OJK) – to cut interest rates to a more manageable range of 0.1 to 0.3% daily.

However, the debt collection practices of online lenders are no less intense, often involving incessant phone calls and texts. Some borrowers have reported receiving threats and being verbally abused as collectors resort to tactics such as sending fake deliveries to their homes and coercing them to pay for these orders.

As interest rates are lowered to reduce high default rates – an ongoing issue under scrutiny from OJK – online lending platforms may find themselves operating in less risky segments, which in turn will shrink their market.

OJK is also increasing the minimum equity requirement and paid-up capital for these platforms and has instructed banks to cease lending to platforms facing defaults in repayments. That will only heap more pressure on the industry.

— Budi Sutrisno, journalist at Tech in Asia

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