Default, fraud turn Indonesia's e-lenders into unlikely allies

Indonesia’s online lending sector swelled from $180 million in loans disbursed at the end of 2017 to $5.4 billion by the end of 2019. But the sector has struggled with loan defaults and cases of identity fraud, forcing competitors to work together to find a way out

Ever since Indonesia legalised peer-to-peer lending in 2016, hundreds of platforms have sprouted to fill an estimated credit gap of $70 billion

Identity fraud is a big problem because some online lenders allow borrowers to apply for credit and loans digitally, with little or no human intervention

While regulators and banks support the sector, they’re also cautious. They’ve cut off fintech players from the national credit bureau and civil registry

Fintech lenders are now taking matters into their own hands by building a shared database to help them differentiate between good and bad online borrowers

In mid-2019, Dewi* suddenly found herself sitting on a debt of IDR 10 million ($736.30)—not a small amount for a Grab driver in Pontianak, the capital of Indonesia’s West Kalimantan province. More worryingly, she couldn’t even remember applying for a loan.

When several of her friends complained about receiving similar, inexplicable debt notices from a bank, it dawned on them that they had been scammed. Someone had borrowed money using their identities.

Dewi and her friends were eventually able to piece together what had happened. A few months prior, they had received an invitation via a WhatsApp group to a meeting where they were promised IDR 100,000 ($7.36) in exchange for an image of their identity cards and a photo of each person holding their IDs.

AUTHOR

Nadine Freischlad

Nadine is based in Indonesia. She covers Southeast Asia's super apps, the changing nature of work and employment, and other structural shifts happening as a result of digital disruption.

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