The Promising, Albeit Risky, State of P2P Lending in Indonesia

Image via Adam Cohn/Flickr

Sandi Ardianto was shocked when he received an email last year saying that his 100 million rupiah ($7,500) loan application was approved by a lending company he had never met in person.

The Jakarta-based entrepreneur, who makes sneakers for a living, first heard about Koinworks, the company, from e-commerce firm Lazada, Ardianto’s primary sale channel for the past five years.

“I applied for a loan because the requirements were easy…it took less than a week until I received a notification that my loan was approved,” the 32-year old entrepreneur said. “In two days, I received the money in my bank account.”

Ardianto illustrates how many Indonesian entrepreneurs already reaped the benefits of borrowing from online peer-to-peer (P2P) lending platforms, a vertical in the wide spectrum of financial technology services that has been growing in the Southeast Asia’s biggest economy in the past couple of years. Koinworks, established in March 2016, is one of the five platforms that started its operations last year, according to industry group Indonesian Fintech Association.

Ardianto said that he now prefers to borrow money from P2P lending platforms such as Koinworks, than from banks where loan is capped at 25 million rupiah ($1,800) for SMBs. Like many before him, Ardianto dislikes banks’ high interest rates. When he started his gig in 2012, he borrowed 105 million rupiah (around $7,800) from a bank with 20% interest. With Koinworks, he only pay 1% of interest every month, which is “really helpful” for small-scale businessman like him.

Indonesia “offers big market potential for P2P lenders, that’s why we are here,” said Benedicto Haryono, co-founder and CEO at Koinworks. The company mainly targets small-and-medium enterprises like Ardianto’s sneakers business because “that’s where the value is, for now.” To tap into this segment, Koinworks teamed up with e-commerce companies such as Singapore-based Lazada and Indonesia’s own Tokopedia that allows it to reach out to local SMBs.

While SMBs contributed more than half of the country’s GDP, it is a sector often overlooked by traditional banks and financial institutions when it comes to obtaining secured loans. Big banks here typically lean towards medium and big businesses as risks posed by small firms are hard to assess, especially in a country where credit data remains very limited and credit scoring agency is non-existent. The situation forced SMBs to take loan from other multi-financing options such as pawn shops and loan sharks.

Online P2P lenders “will have positive impact to Indonesian SMBs…they will have access to alternative financial services and products beyond traditional banks,” said Dumoly Pardede, deputy commissioner of non-bank financial institutions supervision at Indonesia’s Financial Services Authority. Pardede said that regulator is yet to estimate the value of the country’s P2P lending market because it’s a “very nascent” sector.

But it’s safe to say that Indonesia offers an untapped opportunity for fintech companies from its unbanked citizens, estimated at roughly 60% of the country’s 250 million people. From those, 113 million would be bankable by 2020, thanks to the growing number of mobile phone usage and Internet penetration, according to research and consultancy firm Deloitte. The value of online transactions is also projected to reach $130 billion by 2020, a jump from nearly $15 billion last year, according to Bank Indonesia.

In lieu of credit scoring agency, Indonesian P2P lenders rely on non-traditional data points such as machine learning and online performance such as page views and number of returning customers. They also check the would-be borrowers’ social media accounts to determine their honesty, among others.

Despite its massive potential, experts said that Indonesian P2P lending sector still face tough challenges such as lukewarm interest from investors and lack of trust among the country’s digital customers.

It received a legal boost when Indonesian FSA, or OJK, issued a regulation in December on financial technology services that includes P2P lending. Under the rules, P2P lending platforms are required to possess at least 1 billion rupiah ($75,000) in capital to be registered with OJK, and 2.5 billion rupiah (nearly $200,000) to apply for licence to operate. OJK also capped foreign ownership at local P2P lending startups at 85 percent, while loans are limited at 2 billion rupiah or around $150,000.

Existing online P2P lenders also need to register with OJK by June 29, but so far the agency had only registered three P2P lenders, with 25 in line, OJK said on Tuesday.

Analysts said, however, that the newly launched regulation would do little to prevent potential frauds from happening in the risky P2P lending vertical.

“Fraud will be inevitable, even when there is regulation,” said Aidil Zulkifli, CEO of, an Indonesian direct online lender. “However, I don’t think that it will be as rife as in China because the Chinese and Indonesian supply-side environments are very different,” he added, referring to the highly contrasting interest rates in both nations. Zulkifli predicted that Indonesia’s P2P lending sector would be as big as China’s in 5–7 years, depending on the country’s macro interest rate that highly affect the way investors seeking yield.

“It will take that amount of time for the Indonesian economy to create enough steam on the macro level for Indonesia to exhaust investment opportunities for yield seekers,” Zulkifli said.

$1 = 13,300 rupiah

Resty is Jakarta-based freelance journalist. She is former WSJ tech reporter in Indonesia, and now she strings for SCMP. Contact her on Twitter @restyworo or mail at