The Impact of Peer to Peer (P2P) Lending: a Systematic Literature

Review
Agnieska Rouly, Anasthacia, Laksmita Febriyanti, Lidya Devina, Silviatul Maisyaroh
Faculty of Economics and Business, University of Indonesia, Depok, Indonesia

Abstract

Keywords

I. INTRODUCTION

Real Phenomenon Background

Peer to peer lending (P2P lending) was first introduced by Zopa in the United Kingdom
in 2005 (Atz and Bholat, 2016). P2P lending is a place to invest and borrow funds for the
community. Financial Services Authority Regulation (POJK) No. 77 of 2016 explains that P2P
lending is the organization of financial services to bring lenders together with loan recipients in
the context of entering into loan agreements to borrow in rupiah directly through an electronic
system using the internet network.
Therefore, P2P lending is a very practical alternative investment and funding source for
the community. Investing in P2P lending is quite a promising return for lenders (lenders).
However, there are risks that must be borne in the event of a payment problem by the recipient of
the fund (borrower). Magee (2011), the main advantage of P2P lending for borrowers is to obtain
loans at lower rates without collateral, while lenders can get higher investment returns.
On the other hand, Haewon et al. (2012) and Giudici (2018) explain that there is no
investment without risk, including investing in P2P lending. If a bad credit occurs, it is fully
borne by the lender (not a P2P lending company), in contrast to the banking system that will be
borne by the bank. Pokorna and Sponer (2016), the greatest risk that must be borne by lenders is
in the event of a default (bad credit) by the borrower.
 The convenience offered in obtaining cash loans makes P2P services increasingly
popular. The Chairman of the OJK Board of Commissioners, Wimboh Santoso, assesses the ease
with which it makes the risk of default (default) for borrowers and lenders. This risk must be
redeemed by the average loan interest rate above conventional bank credit interest in general. Of
89 fintech P2P lending that broke the rules, 25 of them have been registered with the OJK.
Fintech P2P lending who got autographs from OJK were SAMIR, Danon, MIKROKAPITAL.ID,
Optima, ArgaPro, P2P Lending Partners, BBX FINTECH, 360 credit, Cankul, Help me, Borrow
KAN, PiNBee, KFUND, Puhul Lending, Wells.id, Indosaku , Jayindo, IVOJI, Pinjamindo, and
Coin Box (Bisnis.com). The number of P2P lending in Indonesia that acts as a trust seller
service, has currently obtained permits from the OJK for several fintechs that have been
registered since the issuance of POJK No.77 / POJK.01 / 2016 concerning Peer to Peer lending.
In addition, the government has provided protection to users of financial technology
(fintech) with the issuance of POJK No. 13 / POJK.02 / 2018 concerning Digital Financial
Innovations in the Financial Services Sector. This rule is a provision that covers the supervision
and regulation of the FinTech industry, specifically the protection of consumers. The regulation
states that FinTech providers must implement the basic principles of consumer protection,
namely (a) transparency, (b) fair treatment, (c) reliability, (d) confidentiality and security of
consumer data / information, and (e) handling complaints and simple, fast, and cost-effective
consumer dispute resolution.
Indonesia has a large market potential in fintech lending with similar macroeconomic and
socioeconomic conditions comparable to the emergence of China's fintech industry in 2013.
Chinese markets and business models target hundreds of millions of low-income individuals who
do not have credit cards, resulting in the majority of Chinese offering P2P short-term consumer
loans. Indonesia, for its part, targets individuals and MSMEs that are not served, this provides a
mixed balance. From the start, Indonesia's regulatory framework has been taken through a
principle-based and collaborative approach, which aims to control the market and minimize the
proliferation of "rogue" platforms that operate in unethical ways, while allowing ecosystems to
continue to grow.

Background Theory
The development of financial technology users (fintech) continues to grow. Financial
technology / FinTech is the result of a combination of financial services and technology that
ultimately changes the business model from conventional to moderate, which initially had to pay
face to face and bring some cash, now can make long distance transactions by making payments
that can be done in a matter of just seconds (Bank Indonesia, 2020). According to statistical data
from the Financial Services Authority (OJK) as of January 20, 2020, there are 164 registered and
licensed fintechs in Indonesia. Statistics from the FSA also showed that the number of
accumulated lender accounts as of December 2019 increased by 192% while borrower accounts
increased by 325.95%. However, the existence of technological innovation does not eliminate
credit risk and financial risk (Gao et al., 2020).
Fintech Lending / Peer-to-Peer Lending / Online Loans is a loan service to borrow money
in rupiah directly between creditors / lenders (lenders) and debtors / borrowers (loan recipients)
based on information technology (OJK, 2020). P2P lending carry out loan transactions with an
electrical system through the internet network that can be accessed more widely and quickly.
With the technology-based money loan services - this causes many people to use P2P services
because they are considered to be easy and fast without knowing the losses that can occur.
Financial planner from Mitra Pendidikan Education, Andy Nugroho, said that borrowing money
through P2P lending channels is increasingly in demand by the public because it is easier and
faster, and is open to small nominal, which is difficult to obtain in conventional lending services.
(tirto.id)
Loan Shark or moneylenders are entities that lend money with very high interest rates and
often use the threat of violence to collect debts (Investopedia, 2020). Interest rates are generally
well above established legal levels, and often loan sharks are members of organized crime
groups (Investopedia, 2020). Such accounts have become increasingly common in recent years
because P2P lending has surged in Indonesia's largely unregulated microcredit sector (This Week
in Asia, 2019). Total loans distributed by registered P2P lenders since December 2016 reached
more than 15 trillion rupiah in October 2018, up 432.5% from January 2018, according to data
from the country's Financial Services Authority (OJK). Most of the illegal lenders are from
Indonesia, but up to 40 percent are from China. Some computer servers used by online operators
are tracked to Canada, Singapore and the US.
3. Methodology
3.1. Study Design
Systematic literature review follows the procedures consist of three stages: planning,
conducting, and reporting (Kitchenham, 2004; Kitchenham and Charters, 2007). The planning
stage identifies the need for a systematic review that gives deeper studies and summarizes studies
related to the topic. The impact of P2P lending in Indonesia has two contrasting perspectives,
pros and cons. Those being pro considered the technical advantages of online lending, while the
“cons” considered the risks that might arise from online lending, such as the existence of loan
shark in Indonesia. Thus, this systematic review aims to provide researchers with information
about the methodology used and results about the topic. The conducting stage referred to
building protocol review by analyzing the definition from research questions, finding inclusion
and exclusion criteria, choosing quality assessment criteria, and selection of data features that
will be included in this systematic review.

3.2. Question Formula

Research question(s) is a vital part of systematic review, showing how literature review
can be considered successfully accomplish their aim by answering the questions. The research
questions of this systematic review are presented below:
● How many recent research studies has been done, having the subject the impact of P2P
lending as a loan shark?
● What types of impact on P2P lending have been analyzed in the literature?
● What are the impacts of P2P lending that have been analyzed in recent research studies
and their significance?

3.3. Locating, Selecting, and Evaluating Studies

3.3.1 Selection of database
The first step in the search strategy involves the following searching methods: the broad
automated research by accessing several online libraries, the manual search by screening journal
titles and abstracts, the snowball backward technique by comprehensive analysis of collected
journals. The online resources that were selected in this systematic literature review are Remote
UI1, Science Direct2, and Google Scholar3.

3.3.2 Time Horizon for the selection of paper

In the year of 2014, there are more than 30 P2P sites worldwide, which allow consumers
not only to cut banks out of the process of raising funds for personal and small business projects,
but also offer lower interest rates than they would have paid evidence to support effectiveness of
P2P lending platforms at mitigating financial exlusion is scarce and often contradictory (Everrett,
2011; Klafft, 2008; Pope and Sydnor, 2008; Ravina, 2012). To be more relevant we chose
journals or articles that’s published in the range of 2015 to 2020.

3.3.3 Paper selection

This systematic review assesses all the searches from the aforecited online sources based
on the title, the abstract, and the keywords to avoid sources from irrelevant papers as search
results. The keywords used in this literature review are:
((“Impact of P2P” OR “Peer to Peer Lending” OR “P2P As Loan Shark” OR “Loan
Shark” OR “P2P To Economic Growth”)).
The backward snowball method was used to find related journals as additional references
to this systematic literature review. By this method, researchers screen and review iteratively
through the reference list from the initial set of papers. Thus, this method aims to cover the vast
majority of papers related to the research topic.

3.3.4 Inclusion and Exclusion Criteria

The second step of inclusion/exclusion selection criteria avoids misunderstanding of the
research as the literature review would be clear and well-defined, being one of the procedures of
the search study. The selection criteria of this systematic literature review are listed below:
● Inclusion Criteria:
- Papers that were published over the last 15 years and perform at least one study that

1
​https://remote-lib.ui.ac.id/menu
2
​https://www.sciencedirect.com/
3
​https://scholar.google.co.id/
 analyses the impact of P2P lending towards society.
- Papers that analyze the opportunities and risk of the use of P2P lending.
● Exclusion Criteria:
- Papers performing studies about a comparison of P2P platforms in different countries.
- Papers performing studies about impacts of factor X (venture capital) of P2P lending
The third step of quality assessment criteria reassures all studies included in this
systematic literature review has an appropriate standard of quality. The criteria to be included in
this systematic literature review are the availability and the description of data, the description of
method used, and the result.
The last step of selection of the data features in this systematic literature review are listed
below:
● Authors
● Publication source
● Year of publication
● Data source
● Type of study
● Result
● Significance of the result
Daftar Pustaka :
1. Darman. Financial Technology (FinTech): Karakteristik dan Kualitas Pinjaman pada Peer
to Peer Lending di Indonesia . 2019-137. Fakultas Ekonomi dan Bisnis, Universitas
Tadulako, Palu
2. Kitchenhan B. 2004. Procedures for Performing Systematic Review. Keele University,
UK
3. Kitchenhan B. Chartners S. 2007. Guidelines for Performing Systematic Literature
Review in Software Engineering. Keele University
4. PwC Indonesia. 2019. Indonesian’s Fintech Lending : Driving economic Growth
Through Financial Inclusion. Indonesia