Amartha, Using Technology to Re-define Creditworthiness in Rural Indonesia

By Rico Setiawan

Photo Credit: Amartha

Every so often, there is a desperate need for a loan when running a business. If you’re living in a metropolis, a handful of lending institutions may present themselves depending on your credit history. If you live in a rural community, on the other hand, and have never banked with a formal institution: what are your options for borrowing?

In Ciseeng Village, Bogor, a mother running a small food shop (warung) found herself in such a situation a few years ago. Unable to maintain her shop, she was on the verge of calling it quits. And then, she met Andi Taufan Garuda Putra (Amartha’s founder and CEO) who agreed to lend her the money she needed. Blossoming from this and other initial loans into a financial technology (FinTech) start-up called Amartha, today, many people living in rural areas of Java rely on this peer-to-peer (P2P) lending institution for a way out of a tight spot.

Last month, I sat down with Amartha’s vice president, Aria Widyanto, to learn more about its business model and ambitions.

Q: What is Amartha?

Amartha’s focus is on advancing financial services to micro and small business (UMKM) through a peer-to-peer business model in rural areas of Indonesia. Based on our social research and experiments, we believe poor people in rural areas need an easy access to funding and financial mentoring. Those two things are the core principles of Amartha. Despite starting off as a microfinance institution in 2010, Amartha today has transformed into a FinTech player. Our peer-to-peer business model complements our vision, because the model can connect more resources from the funding side, that way borrowers can have more opportunities to be funded. Previously, all of the funding came from Amartha directly, hence the number of loans were also limited in value. With our transformed model, sources of funding can come from many registered investors. Investors can choose directly which applicant to fund. Through the concept of peer-to-peer lending, Amartha expects this micro segment to become more modern and expand rapidly.

Q: Who does Amartha target?

Amartha’s main target group is working age mothers with dependents. Before deciding on a target area, we conduct research in the community that we are considering. We typically bypass villages that have been largely served by other financial institutions. Amartha does a demographic survey and market validation in areas that are below the poverty line and under-developed (and, especially, not served by conventional banking systems). Through research and discretion, we come up with a list of eligible borrowers. At this stage, we divide borrowers into groups and provide some with financial-related coaching. We also use our own personal credit scoring.

Q: Can you describe the personal credit scoring?

We created a unique model to analyse unbanked financial transactions to measure the creditworthiness of an applicant. Bank credit scoring is traditionally based on transaction history, which does not exist in our target areas. Therefore we developed an approach that blends demographic profiling and psychometric tests to model risks and determine the probability of repayment. By analysing the risks, we can then directly generate credit scores. This determines how much money the borrowers are eligible for and the credit tenure. For applicants who pass the selection steps, their data are uploaded to the Amartha platform — our marketplace — to be paired with investors/lenders.

Q: How many investors do you have?

Amartha’s vision is to be an informal bridge between lenders and borrowers, enabling affordable access to finance. Right now, we have more than 5000 investors registered in our system. They usually monitor the “to be funded” group daily via our marketplace. On average, around 90 percent of borrowers receive funding within a day. Investors agree to a profit-sharing scheme, with a 15–17 percent return. So, from the investment side, our model is also attractive. However, our challenge as a FinTech business is how to scale up quickly, because our focus is now in rural areas and some villages in Indonesia are difficult to reach. We also need to move faster to cover more areas so that we can serve more people. Therefore, part of our solution was to create technology-based products to help us operate more efficiently.

Q: Is there any impact beyond the direct lending-borrowing model?

Yes, Amartha produces an annual Social Accountability Report that measures certain poverty indicators before and after Amartha’s engagement with a community. In one case, we noticed that a particular family’s income increased by about 41 percent a year after receiving a loan. If this could be replicated across the country, we could help to decrease poverty at a faster rate and at the same time promote entrepreneurship. Since we have already covered all the provinces on the island of Java, our plan is to expand our services to all of Indonesia. This is a long term process obviously, so we need to scale up and enable more financial access to people living below the poverty line.

Q: Any final words for social enterprises out there?

Look around your surroundings more broadly; do not become complacent with what you already own. If you have an opportunity to travel and expand your customer base, do it, because it may allow you to encounter new ideas that can be developed into new products and businesses.


Pulse Lab Jakarta is grateful for the generous support of the Government of Australia.

Our smart-up Indonesia series attempts to showcase the data innovators and entrepreneurs that are shaping the nation. The articles should not be interpreted as product or service endorsements by Pulse Lab Jakarta or any of its partners.

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