MSMEs Financing, P2P Lending

and Fintech Regulatory Framework

Sukarela Batunanggar
Deputy Commissioner for OJK Institute

ADB Seminar
Bangkok, 29 to 30 October 2018

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the
Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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 Outline
1. Key Opportunities and Challenges in Indonesian Financial Sector
2. Programs to Support Financial Inclusion and MSMEs
3. Fintech Industry and P2P Platform Landscape
4. Fintech Regulatory Framework

2
 Key Opportunities – Indonesia Today and in2030

Today: 16th World's Biggest Economy (8th Today: 55 million Indonesians are categorized as
Biggest According to GDP PPP); skilled workers;
Then: World's 7th Largest Economy (5th largest Then: It takes 113 million skilled workers by 2030;
by PPP GDP) in 2030;

Today: 45 million people are categorized as Today: The number of Internet users is
middle class (consuming class); 132.7 million users or about 51.5% of the
total populationof Indonesia;
Then: 135 million people categorized as the
middle class (consuming class) in 2030; Then: Together with China and India,
Indonesia became Top Innovators in the
development ofinformation technology.
Today: There are more than 50 million MSMEs in
Indonesia and 70% of all MSME sectors do not yet
50

40

have access to financing through banks As the world's 4th largest country, 30

Then: The Government's target will encourage 6 Indonesia will 20

million MSMEs to go digital and gain access to enjoy the peak of 10

demographic bonuses by 2030;

0
2018 2030

finance

S U M B E R : B A D A N P U S A T S T A T I S T I K ,H T T P S :/ / W W W .M C K I N S E Y .C O M / G L O B A L - T H E M E S / A S I A - P A C I F I C / T H E - A R C H I P E L A G O - E C O N O M Y ,A S O S I A S I P E N Y E L E N G G A R A J A S A I N T E R N E T I N D O N E S I A 2 0 16 D A N
H T T P S :/ / W W W .W E F O R U M .O R G / R E P O R T S / T H E - G L O B A L - C O M P E T I T I V E N E S S - R E P O R T - 2 0 17 - 2 0 18 3
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Key Challenges in Indonesia Financial Sector
1. Poverty and 3. Infrastructure
Inequality. Financing gap.
~40 mio (4% of 1 Financing need for
billion of people National Strategic
as extremely Projects 2015-2019
poor in the amounted to Rp4.197
world). trillion
(World Bank)

4. SME financing gap

2. Low financial
access. Financial
Inclusion Index
in 2017 is still
49%, rose from
36% (2016).
(World Bank)
SME bank loans (2014) :
• 11.6% of GDP and 18.7%
of total bank lending for
the region
• SME loans to GDP is 18.5%
in advanced countries and
5.3% in developing and
less developed countries.
(ESCAP)
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 Profile of Indonesian MSME
Existing Condition Financial Scheme
FEASIBLE TO GO PUBLIC Large Enterprises • Capital market
± 4.987
CLUSTER
CLUSTER 66 ± 4.8 (0.01%) • Bank
Thousand
(10%) • Others
Medium Enterprises
Total:*)
CLUSTER ± 53.34 ± 59.263 (0.10%)
CLUSTER 55
Thousand
(90%)
FEASIBLE BUSINESS AND BANKABLE • Bank (People’s Business loan/KUR)
Total:*) • Fund transfer from LPDB-KUMKM
± 430.14
Thousand
Small Enterprises
CLUSTER 4 (60%) ± 716.896 (1.20%)
Total:*)
CLUSTER 33
CLUSTER ± 286.76
Thousand
(40%) • MSME Empowerment through
FEASIBLE BUSINESS AND Total :*)
Ministry programme
UNBANKABLE ± 17.67 • Fund transfer from LPDB-KUMKM
Million
CLUSTER 2 (30%)
Micro Enterprises
NOT FEASIBLE Total :*) ± 58.92 million • Collective system for MSME business
± 41.24
BUSINESS AND women (MEKAR Programme)
UNBANKABLE
Million
(70%)
(98.68%) • MSME Empowerment Programme
• Government Social Fund
CLUSTER 1

Program Perlindungan Sosial

Poor society population Poor (Program Nasional Pemberdayaan
± 27,77 milion population (10,64%) Masyarakat/PNPM)
(BPS, March 2017) • Social Empowerment Program
• Social Empowerment Program for
Very poor Very Poor Society
Source: Kementerian KUKM & BPS 2017
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Current Gaps …

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 High MSMEs Funding Gap

8% of total 59 mio MSMEs (~3.78 mio) have already

SME Credit Gap
tried online business.
MSME Finance

MSME
FormalSupply 57 19 % of the GDP
(165 billion)
CREDITS Needs
165

59 mio
Based on World Bank dan IFC record, loan gap for
MSMEs in Indonesia is US$165 bio (19% of GDP),
currently available only US$ 57 miliar

*Source: MSME Finance Gap: Assessment of the Shortfalls and Opportunities in Financing *Source: Ministry of MSME of Indonesia
Micro, Small and Medium Enterprises in Emerging Markets

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Low penetration of consumer finance and retail payment

~9juta ~500,000 ~38,000 ~103,953

Credit card Unique Bank ATM Bank
holders Merchants branches
(EDCs)

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 Technology Vs Financial Access

For those who has not bank account For those who already has bank account

71% has paid through digital channel

(send and /or receive money)

20 million people still pay their bills and

other facilities by cash even though they
have bank account, mobile phone, and
internet access

69% ~ or equivalent to 60 million people who has 1 of 5 bank account holders still save
mobile phone (excluded mobile phone that owned by their money in other semi-formal
family members) institutions

(Source : World Bank Global Findex 2017) 10

 Outline
1. Key Opportunities and Challenges in Indonesian Financial Sector
2. Programs to Support Financial Inclusion and MSMEs
3. Fintech Industry Landscape and P2P Platforms
4. Fintech Regulatory Framework

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Indonesia Financial Sector Master Plan
and Programs on Financial Inclusion

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13
 Outline
1. Key Opportunities and Challenges in Indonesian Financial Sector
2. Programs to Support Financial Inclusion and MSMEs
3. Fintech Industry Landscape and P2P Lending
4. Fintech Regulatory Framework

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Indonesia Fintech

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 Indonesian Fintech Landscape
Fintech in Indonesia still dominated by payment system and followed by the deposit and lending which
most of them adopted the peer to peer lending business model

Number of company
As of July 2018 ± 350
4%
OJK:
39% 32%
 3 mutual funds agent
tech
3%
 2 insurance-tech
11%
11%
BI: 30 registered as fintech
 7 Payment Gateway
 14 Electronic money
Capital Raising Deposit and Lending Insurance Many others (no license)
Invesment Management Market Provisioning Payment

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17
 Outline
1. Key Opportunities and Challenges in Indonesian Financial Sector
2. Programs to Support Financial Inclusion and MSMEs
3. Fintech Industry Landscape and P2P Lending
4. Fintech Regulatory Framework

18
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 Peer to Peer Lending Business Models

Business Models Type of Loans

• Model 1: marketplace peer-to-peer • SME financing
lending
• Microfinance
• Model 2: institutional-to-peer lending
(bank or multi-finance as a lender) • Consumer & multi-purpose finance
• Model 3: agent based peer-to-peer • Payday
lending for multi-finance

Size, rate & fee, collateral/no~, term

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 Outline
1. Key Opportunities and Challenges in Indonesian Financial Sector
2. Programs to Support Financial Inclusion and MSMEs
3. Fintech Industry Landscape and P2P Lending
4. Fintech Regulatory Framework

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OJK Regulatory Strategy to Foster Innovation

Innovation
Centre

Market
Conduct

Principle-based
Regulation +
Regulatory
Balance Sandbox
(Customer
Protection +
Innovation)

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 Fintech Regulatory Instruments

High Disclosure Regulatory Sandbox

Customer Market Conduct

Protection & Supervision
Education

Business-Specific
Regulations
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OJK Strategic Initiative on Fintech

Publishing Provisions
• POJK No.77/2016 Regulation about Peer to Peer Lending
• POJK No.13/2018 Regulation about Digital Financial
Innovation in Financial Services
• POJK No.12/2018 Regulation) about Digital Banking
• OJK will formalize regulation about Equity Crowdfunding
• Regulatory sandbox : The testing mechanism performed
by OJK to assess the reliability of start-up business model
Forming OJK Fintech Centre
• As a coordination point among key regulators
• Developing appropriate Fintech industry to fulfill
society needs.
• As a consultation hub between regulators and Fintech
industry
• As learning centre about fintech to educate people
(public)
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 Stakeholders Collaboration to Empower the MSMEs

Financial Institution

Government
• Regulation & Policy
Collaboration • Financing
& Co-
creation • Technical Assistance
• Training, Consultation,
Marketing, Promotion

NGO, Community,
University, etc

Fintech, E-Commerce,
Startup Company
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 Innovative Approach to Finance the Unbankable
Model #1 : Bank’s New Business Model
• New strategy and unique customer value
proposition (people + profit + planet)
• Product-centric  Customer centric
• Digital platform

Model #2 : Fintech Financing

• Marketplace (P2P) Business lending
• Equity Crowd-funding
• Working capital related
– Merchant & e-commerce finance
– Invoice finance (Factoring)
– Supply chain finance
– Trade finance
Model #3 : Cooperation
• Banks + Microfinance institutions +
Community agents + Fintech startups 26
 OJK Regulation 13/2018 on Digital Financial Innovation
POJK No.13.03/2013, 16 August 2018
1. Scope of Digital Financial Innovation
2. Mandatory Recording
3. Regulatory Sandbox
4. Registration
5. Surveillance
6. Reporting System
7. Customer Education and Protection
8. Data Security
9. Anti Money Laundering & Terrorism
10. Innovation Centre
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 The Bali Fintech Agenda
I. Embrace the Promise of Fintech with its far-reaching social and
economic impact, particularly in low-income countries, small
states, and for the underserved, and prepare to capture its
possible wide-ranging benefits
II. Enable New Technologies to Enhance Financial Service
Provision by facilitating foundational infrastructures, fostering
their open and affordable access, and ensuring a conducive
policy environment.
III. Reinforce Competition and Commitment to Open, Free, and
Contestable Markets to ensure a level playing field and to
promote innovation, consumer choice, and access to high-quality
financial services.
IV. Foster Fintech to Promote Financial Inclusion and Develop
Financial Markets by overcoming challenges related to reach,
customer information, and commercial viability, and by
improving infrastructure.
V. Monitor Developments Closely to Deepen Understanding of
Evolving Financial Systems to support the formulation of policies
that foster the benefits of fintech and mitigate potential risks.
VI. VI. Adapt Regulatory Framework and Supervisory Practices for
Orderly Development and Stability of the Financial System and
facilitate the safe entry of new products, activities, and
intermediaries; sustain trust and confidence; and respond to
risks.
VII. Safeguard the Integrity of Financial Systems by identifying,
understanding, assessing, and mitigating the risks of criminal misuse of
fintech, and by using technologies that strengthen compliance with anti-
money laundering and combating the financing of terrorism (AML/CFT)
measures.
VIII. Modernize Legal Frameworks to Provide an Enabling Legal
Landscape with greater legal clarity and certainty regarding key aspects
of fintech activities.
IX. Ensure the Stability of Domestic Monetary and Financial Systems by
considering the implications of fintech innovations to central banking
services and market structure, while: safeguarding financial stability;
expanding, if needed, safety nets; and ensuring effective monetary
policy transmission.
X. Develop Robust Financial and Data Infrastructure to Sustain Fintech
Benefits that are resilient to disruptions––including from cyber-attacks–
–and that support trust and confidence in the financial system by
protecting the integrity of data and financial services.
XI. Encourage International Cooperation and Information-Sharing
across the global regulatory community to share knowledge, experience,
and best practices to support an effective regulatory framework.
XII. Enhance Collective Surveillance of the International Monetary
and Financial System and the adaptation and development of
policies to support inclusive global growth, poverty alleviation, and
international financial stability in an environment of rapid change.
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 Sukarela Batunanggar
Deputy Commissioner for OJK Institute, Indonesia Financial Services Authority (OJK)
Tel. +62-21-29601028
E-mail: batunanggar@ojk.go.id; batunanggars@gmail.com
http://sukarela-batunanggar.blogspot.com/

Lead various key units and strategic projects at Bank Indonesia and Indonesia Financial Services Authority covers front-
line bank supervision, regulatory and supervisory policy, macro-prudential policy, crisis management, capacity building,
organizational transformation and digital financial innovation.
• Currently serve as Deputy Commissioner OJK Institute, lead Department of Assessment and Learning Centre, and Digital
Finance Innovation and Microfinance Group. Previously, served as Deputy Commissioner of Banking Supervision I, lead banking
research and regulation department, banking licensing and information system department, and Islamic banking department.
• Visiting researcher on banking crisis resolution at the CCBS, Bank of England (2001) and on problem bank at the SEACEN Centre
(2008); and publishes papers on banking supervision and financial stability issues.
• Participate training at leading institutions includes banking supervision and financial stability courses at World Bank Institute,
IMF Institute, Bank of England, Toronto Centre; and leadership courses at Michigan University, Presencing Institute, Institute
for Mindful Leadership, Strozzy Institute and FranklinCovey.
• Develop and facilitate holistic leadership development program that integrates spirit, mind and action for personal and
organizational transformation. Practice Tai Chi Chuan and meditation.
• Hold postgraduate degree University of Nottingham, England (1996) and Bachelor in Economics, University of North Sumatera,
Medan (1987). 29
 infinity
Innovation Centre for Digital Financial Technology
OJKinfinity@ojk.go.id

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