By order of the President, Indonesia is at war with online loan sharks
As Indonesia’s fintech ecosystem matures, criminals are also developing ways to do business in space. This has resulted in the victimization of ignorant users and the problem is widespread. The IT ministry blocked 1,856 unlicensed fintech loan platforms in 2021 and nearly 4,900 illegal platforms since 2018. However, this has not slowed the proliferation of illegal credit apps that exploit financially vulnerable Indonesians.
Online loan sharks offer quick loans in small amounts, typically around IDR 1 to 3 million ($ 70-210), with penalties and sky-high interest rates well above the OJK’s maximum daily rate of 0.8%. They access all the data on the borrower’s phone and abuse it to terrorize the borrower if he fails to pay off the debt. Debt collectors harass borrowers with threats of violence and humiliation, or say that they share personal photos and videos, or even fake compromising pictures of borrowers, with their contacts. As of 2019, OJK has received more than 19,000 complaints from consumers about illegal lenders.
This problem is so persistent that it has caught the attention of President Joko Widodo. On October 15, the president held a meeting with the relevant authorities – the OJK financial services authority, the IT ministry, and the national police chief – and ordered them to take stronger measures against illegal fintech companies that pose a threat to low-income communities .
The presidential order led to a massive investigation into the activities of online loan sharks. In the past two weeks, police have raided many cities including Jakarta, Yogyakarta and Surabaya and arrested dozens of employees from unlicensed lenders. For example, last week during a raid on a company called Ant Information Consulting, the police found pornographic photos that had been edited so that the people depicted resemble people who have taken out loans. An arrested employee said the photos were used for intimidation. The police are still looking for the company owner.
Bhima Yudhistira Adhinegara, director of the Center for Economic and Legal Studies (Celios), said the arrest of employees and debt collection agencies of illegal lenders was not enough to stop the practice. “Data from the IT ministry showed that 78% of illegal lenders work with servers abroad, for example in China, the USA or Singapore. I think international cooperation is needed to eradicate illicit lending, ”he said KrASIA.
The government and other stakeholders, including fintech companies, also need to develop ways to help consumers understand the pros and cons of online credit, as financial literacy is vital in using these services, Adhinegara added . “So far, efforts to educate the public have not kept pace with illegal lenders using SMS to market their products. The government must work with telecommunications providers to provide regular and large-scale alerts and education via SMS. “
In addition, the personal data protection bill needs to be passed as soon as possible, Adhinegara said, as many unregistered lenders illegally obtain data from potential customers.
As part of efforts to shut down Indonesia’s online loan sharks, the government will also impose a moratorium on licensing for fintech lenders. This allows the authorities to redirect resources to eliminate illegal platforms. OJK revoked dozen of fintech lenders’ licenses this year. According to the latest October 6 count, there are 106 registered and licensed fintech lending platforms in the country, up from 149 platforms that were on the list as of December 2020.
Adhinegara agreed to the government’s plan to deny fintech lenders new approvals. “We already have too many players at the moment so it’s difficult to monitor,” he said, pointing out that the oversight process requires a large budget and resources from the OJK. Adhinegara expects fintech lenders to merge or be taken over by larger players. “At some point we may only have about 20 platforms surviving and dominating the market,” he said.