Evolving Landscape

of Fintech Lending
in Indonesia
© Nov 2020

Finance
Technology
Future
Expansion

P2P
Lending

Digital
Process &
Adaption

Business
Models

Fintech

This report is downloaded by Surya (20233).

1

Forewords
The industrial revolution 4.0, marked by technological advancement, brought significant changes
in people’s lives. These changes occur in almost all sectors, in the social, economic, communica-
tion, education, and other fields. Financial service is also evolved, with new innovation emerged
to disrupt conventional methods.

In the last four years, a new business scheme, namely fintech lending, has changed the financing
landscape in Indonesia. It simplifies the conventional intermediation function by creating online
marketplace between lenders and borrowers.

This new business is quickly growing to serve the market that’s yet to be catered by conventional
financial service. As of today, 158 fintech lending are registered or licensed by OJK, Indonesia’s
financial service authority.

DSResearch, in collaboration with AFPI (Asosiasi Fintech Pendanaan Bersama Indonesia), proudly
present the fintech lending report in Indonesia. It explores the business landscape, business models
and focus, and future strategy of fintech lending companies.

This report is downloaded by Surya (20233).

2
Welcoming Remarks from Chairman of AFPI
Adrian Gunadi, also Founder and CEO of Investree
The presence of fintech peer to peer (P2P) lending or fintech funding in Indonesia has become clearly visible. This
is in line with the 4.0 industrial revolution which changes people’s behavior, that is shifting to digital financial ser-
vices. In addition, the existence of an access gap in financial up to US $100 billion for the micro, small and medium
enterprises (MSMEs) sector, is both a challenge and an opportunity for fintech funding.
In general note, the P2P lending fintech industry arrived in
the community to encourage increased financial inclusion.
The Indonesian Joint Funding Fintech Association (AFPI)
has been present since October 5, 2018, and has become an
organization that accommodates funding fintech business-
es in Indonesia. AFPI was also appointed by the Financial
Services Authority (OJK) as the official association of infor-
mation technology-based lending and borrowing services in
Indonesia, based on letter No. S-5 / D.05 / 2019.
AFPI members, which also registered and licensed fintech
funding providers at the OJK, can play a role in increasing
financial inclusion, including national economic recovery
and growth. This is because fintech funding is a non-bank
financial institution that offers digital financial solutions that
are part of the digital ecosystem by targeting underserved
people and SMEs which are yet to be reached (underpene-
trated) by banking sector capital.
Through collaboration with the digital ecosystem, fintech
funding organizers can take a more comprehensive picture
of the SMEs risk profile. Including collaboration with other
financial service institutions such as banks, BPRs, BPDs, fin-
tech funding providers can reach financing to more SMEs in
the country.
The SME sector is one of the most affected by the COVID-19
pandemic, even though SMEs are the main support for the
Indonesian economy, which contributes 57% to Gross Do-
mestic Product (GDP) and absorbs 97% of the workforce in
the country. The majority of financing from fintech players,
funding from AFPI members, goes to the productive sector,
the SME players, as well as to the underserved and under-
banked people.
The development of the fintech lending industry has been
very significant in recent years. To date, the total number of
fintech lending operators registered with the OJK and mem-
bers of the AFPI is 156 companies divided into three financ-
ing sectors, the productive, multipurpose (consumptive) and
sharia. Until September 2020, fintech lending has disbursed
IDR128 trillion with a significant increase above 100% ev-
ery year, and grew 113% this year on an annual basis, while
last year it grew 130%.
This is in line with the more flexible, safer, and more comfort-
able submission for loans and funding through fintech peer-
to-peer lending. This cannot be separated from AFPI role
which applied a consumer protection framework, through
the code of conduct (for AFPI members), then the ethics
committee (which oversees members business ethics), and
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the existence of a consumer complaints channel, JENDE-
LA. In terms of industry players protection, AFPI also has a
Fintech Data Center (FDC), a fintech data center, used as
part of risk mitigation and fraud anticipation.
In a survey conducted by AFPI in collaboration with Daily-
Social Research on the majority of participating AFPI mem-
bers (146 out of 156 members), it is expected that they will
know more about the development and needs of the fintech
P2P lending industry.
From the results of DailySocial research, 57 fintech P2P
lending operators are categorized as productive, then 30
are specifically for consumptive or multipurpose financing,
6 are specifically for Sharia financing, and the rest are a
mix of productive and consumptive and Sharia. For pro-
ductive sector fintech providers, the majority of financing is
for offline buyer/inventory financing, followed by invoicing
financing and online merchant financing. This productive
financing also invests in education, agriculture, fishermen
and property with a financing value of less than Rp 2.5
million to more than Rp 250 million.
Seeing the huge role of fintech funding for the national
economy, especially in developing financial inclusion and
financial access for SMEs,there are 3 things to be empha-
sized in the near future by AFPI as an association of peer
to peer lending fintech organizers .
First, continuously expanding the reach of community fi-
nancing to various regions in the country, especially for un-
derbanked people. Second, expanding the use of the latest
technology, especially for credit scoring analysis. Third, do
not forget to increase collaboration with various parties,
including financial institutions such as banks, BPRs and
BPDs to expand the reach of financing to all regions in the
country, because 91% of P2P lending fintech financing is
currently centralized in Jabodetabek.
It is the duty of all fintech funding organizers to expand
their reach throughout the country. With the advantages
of this industry that prioritizes digital financial technolo-
gy, it is expected that this financing target outreach will be
easier. It is our challenge for industry players to jointly build
this industry in order to increase its role for the recovery
and growth of the national economy.
Eventually, thank you to DailySocial for helping to map the
conditions of the fintech P2P lending industry in Indonesia,
which in the future is expected to be of great use to indus-
try players as a means of developing this industry.
3

Methodology
Evolving Landscape of Fintech Lending in Indonesia was conducted by DSResearch and AFPI in
October 2020. All respondents are members from AFPI which registered as fintech lending startups
in OJK. 146 fintech lending startups are being surveyed by fulfilling online questionnaires. This report
focuses on the 146 responses from C-Level of those startups. Respondents come from a range of
fintech lending sectors, including productive, consumptive and sharia lending.

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Asosiasi Fintech Pendanaan Bersama Indonesia (AFPI)
established on October 5th, 2018, and officially appointed as
the Association of Indonesia’s Peer-to-Peer Lending Platforms
by Financial Services Authority’s (OJK) letter No. OJK-D5/
IKNB/2019 on January 17th, 2019. As per August 2020, AFPI
consists of 156 Members engaged in: productive loan, multi-
purpose loan, and sharia.

AFPI has 3 Consumer Protection Framework:

Code of Conduct
Ethics Committee
Consumer Complaints Channel (JENDELA)

Mission
Support the target of reducing the access gap to USD 100
billion by increasing access 75% financial inclusion in 2020,
according to national strategy for financial inclusion pursuant
to Presidential Regulation 82/2016. AFPI follows 3 (three) main
indicators of financial inclusion: Access, Usage, and Quality.

Vision
Encouraging access to funding for inclusion through digital
financial services.

Architect:

Policy Advocacy
Code of Conduct
Literacy and Education
Knowledge and Data Intelligence
Collaboration
Research Validators
Stanislaus Tandelilin & Andrisyah Tauladan

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5

Contents

Forewords 1
Methodology 3
Contents 5
01. Fintech Lending Overview 6
A. Introduction 7
B. Regulations 8
C. AFPI 8
D. Players 9
02. Fintech Lending Profile 12
A. Business Profiles 13
B. Lender & Borrower Summary 15
03. Business Models and Landscape 19
A. Productive Lending 20
B. Consumptive Lending 26
C. Sharia Lending 31
04. Tech Adoption, Risk Mitigation, Other Expansions 34
A. Education Methodology 35
B. Risk Mitigation 36
C. Technology Implementation 37
D. Channel Funds & Collateral Information 38
E. Strategic Collaboration 39
F. Future Expansion 40
Closing Remarks 41

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01. Fintech
Lending
Overview

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7

Fintech Lending Overview

Indonesia is Southeast Asia’s largest economy with a population of more than 270 million people. With a
large youth population, burgeoning mobile phone and Internet penetration, Indonesia presents a unique re-
serve of untapped fintech opportunities. However, nearly 40% of Indonesia’s large and youthful population
remains unbanked. Geographical challenges and the unavailability of credit history have made it challenging
for banks to reach this unbanked segment profitably.

Within the unbanked segment, extending Indonesia’s financial inclusion challenge to individuals and small
businesses that are struggling to get loans at reasonable rates from commercial banks. It is estimated that
limited credit access to such SMEs. The expedited development of fintech in the last two years has increased
Indonesia’s GDP by Rp25.97 trillion. Though the attention in fintech has historically been on payments, in-
vestments have moved towards lending. There has also been a stark increase in the number of borrowers.
High mobile and internet penetration and a burgeoning demand from both borrowers and lenders has paved
the road to a boom of fintech lending platforms in Indonesia.

Conventional lending providers have certain limitations to provide sufficient financing access to the under-
served markets. This creates room for innovation via fintech to provide alternative solutions. Fintech lending
is able to address the challenges that conventional lending providers face by utilising a combination of
different business models, technology, and innovative approaches. Thus, allowing them to achieve wider
coverage within remote areas, solve infrastructure and risk management challenges that are typically
faced by financial institutions in serving untapped segments. Some players even leverage innovative
approaches to reach people who are “credit invisible”, such as an Online-to-Offline (“O2O”) channel as
an alternative means to drive loan origination and disbursements for non-mobile phone users.

A. Introduction
Fintech Lending is the practice of lending money to either individuals or businesses
through online platforms that functions as a match-maker for lenders directly to the bor-
rowers. The process takes place in an online platform, usually in the form of websites and
employs certain credit scoring or analysis tools.

The opportunity of fintech lending lies in its convenient solution that may not be provided
by conventional banks. Furthermore, its main strengths lie in its ability to perform basic
credit screening functions with efficient process. Approaches taken in the system are
varied between platform providers.

Indonesia fintech lending was started when the traditional scheme then became more
habitual especially for people in rural areas with lack of access, ability to meet loan re-
quirements, or prudent credit risk to formal banking services. This major issue is what
to be known as the main reasoning behind the emergence of fintech, especially fintech
lending in the country. The introduction of the fintech lending platform in Indonesia has
promoted a huge impact by bringing a large number of unbanked people into the financial
system rapidly. Since a large portion of the borrowing party comes from Micro and SME
business, the local government believes that this market mechanism will bring up the
economy. Nevertheless, due to the novelty of the business model and no prior business
configuration over fintech lending platform owners, the regulators were challenged to
consider the existing regulation.

Indonesia’s fintech sector is still in its infancy, however the risk of fintechs becoming
a magnet for criminality remains a very real threat for Indonesia. In larger economies
where fintech loan volumes have been growing exponentially, fintech platforms are now
failing nearly as fast as they grew. The reasons are manifold, ranging from information
asymmetry between players and platforms, to capital pool problems and illegal guarantees.
However, the most common cause has been the prevalence of operators who did not know
how to properly run a fintech platform and lenders who quickly jumped at the opportunity
for high returns without proper due diligence.

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B. Regulations
The Indonesia fintech lending market was observed to be at a nascent stage since
the market was established in 2016 driven by a need to serve the under-banked and
underserved businesses and customers in the remote regions of Indonesia. The regu-
lations brought out by the Indonesian Financial Services Authority in 2016 outlined the
operational and financial requirements for Peer-to-Peer lending platforms to operate.
The market is fragmented with more than 100 platform operators currently registered
with the OJK. The improvements in technology and internet connectivity will drive more
platforms to establish and reach more customers.

In line with the proliferation of fintech lending in Indonesia, OJK on 29 December 2016
issued a regulation for fintech operating in the peer-to-peer lending industry, namely
POJK 77/2016. According to OJK Regulation 77/2016, fintech is an information tech-
nology-based lending and borrowing service between Creditors/Lenders (Lenders) and
Debtors/Borrowers (Borrowers). OJK names the Information Technology-Based Lending
and Borrowing Service (LPMUBTI) which is fintech lending. According to this definition,
the Indonesian peer-to-peer lending process must have 4 steps, member registration,
loan application, loan implementation, to loan repayment (from Borrower to Lender).

The OJK limits fintech lending providers to Indonesian legal entities in the form of limited
liability companies or cooperatives provided that at registration the organizers in the form
of a limited liability company must have a paid-up capital of at least Rp1 billion and
cooperatives must have their own capital of at least Rp1 billion. Operators that have
been registered with the OJK, are required to apply for a license as an Operator within a
maximum period of 1 year from the date of registration with the OJK and must have paid-
up capital/own capital of at least Rp2.5 billion.

OJK has also set a maximum limit for the total loan provision of a maximum of Rp2 billion.
Registered operators are required to submit periodic reports every 3 months to the OJK
and operators that have obtained a license are required to submit periodic reports elec-
tronically to OJK, monthly reports, and annual reports.

OJK data shows that in January 2019 the distribution of fintech loans showed a figure
of Rp26 trillion. And as of June 2019, it has reached Rp44.80 trillion. The loan amount
flowed to 9,743,679 borrower accounts with a composition of 99.9% individuals and
0.11% business entities. Meanwhile, the accumulated lenders were 498,824 accounts.
The majority of lenders are individuals (99.83%) and only 0.17% are business entities.
As of August 5, 2020, there are 158 fintech companies registered with the OJK with 33
licensed companies.

C. AFPI
The Indonesian Joint Funding Fintech Association (Asosiasi Fintech Pendanaan Bersama
Indonesia-AFPI) is an organization that houses the fintech lending businesses in Indonesia.
AFPI was appointed by the Financial Services Authority (OJK) as the official association
of information technology based lending and borrowing service providers in Indonesia,
based on letter No. S-5/D.05/2019.

The Indonesian Joint Funding Fintech Association (AFPI) built a financial technology
data center or Fintech Data Center (FDC) for online loan service providers (fintech) in
the country. AFPI revealed that the fintech data center will make it easier for peer to
peer (p2p) fintech companies to conduct credit assessments of borrowers so that the
online fintech lending business in the country can grow healthy.

In general, the function of FDC is to make it easier for all online loan service providers
to conduct credit assessments when lending because the FDC system allows all data
between fintech users (who have been registered and supervised by the FSA) to be in-
tegrated with one another. The presence of FDC is one of AFPI’s innovative breakthroughs
that has a role and function as a self-regulatory organization that houses the online loan
fintech industry in Indonesia.

AFPI hopes that the presence of the association with the organizers can increase literacy
and community involvement through easy access to finance from fintech lending.

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D. Players
Initiatives to support the sector in Indonesia by the regulators include the setting up of the Fintech
Office, the launch of the National Payment Gateway, and the establishment of the fintech Regulatory
Sandbox for fintech lending services. There are already more than 100 fintech lending services reg-
istered with OJK. Furthermore, there are about 160 companies of fintech lending which registered as
AFPI members.

Based on 146 companies that we survey, 40% of them have registered their company in OJK since
2018. Once registered, fintech lending players are expected to open access to loans, both from
overseas and various areas in Indonesia. In addition, players have to register themselves prior to
submitting any applications. During the registration period, fintech lending players are allowed to
operate in full scale with counseling from the OJK.

Figure 01. Year founded

40.0%

22.1%
20.0%

8.3%
2.8%
6.2% 0.7%

Before 2015 2015 2016 2017 2018 2019 2020

Once fintech lending players get licenses, they will expand their resources. Based on 146 compa-
nies which have already surveyed, almost 60.0% of them have about 11-50 employees who support
their daily operational activities.

Figure 02. Number of Employee

Less than 10 people 15.2%

11-50 people 58.6%

51-100 people 10.3%

101-200 people 11.7%

More than 200 people 4.1%

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The various existing fintech lending players can be categorized based on their business model. Below is a
table of some fintech lending players in Indonesia categorized according to the financial product they offer.
Figure 03. Fintech Lending Category

Productive

57

Productive 57
Consumptive 30
Consumptive Sharia 6
48 4 Productive & Consumptive 48
Productive & Sharia 4

6
30

Sharia

Productive Category

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Consumptive Category

Sharia Category

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 02.
Fintech
Lending
Profile

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Fintech Lending Profile

Current financing needs in Indonesia reach up to Rp1,600 trillion. According to existing data,
only around Rp600 trillion has been fulfilled by the conventional financial institution sector such
as finance, banking, and venture capital. Therefore, fintech lending companies have a role to help
finance fulfillment.

Quoting from Kontan, the spokesperson for the Financial Services Authority (OJK) Sekar Putih Dja-
rot stated that the number of foreign lenders (unique lenders) as of April 2020 was 1,028 entities.
The total outstanding loans disbursed by foreign lenders reached Rp4.68 trillion.

As an illustration, the total outstanding fintech lending loans as of April 2020 are valued at Rp13.75
trillion. This value grew 67.27% year on year (yoy) compared to April 2019 valued at Rp8.22 trillion.
The accumulated lending grew by 186.54% yoy to 106.06 trillion in the first four months of 2020.
The fintech ecosystem in Indonesia is still relatively new. However, along with the development of
the fintech ecosystem in Indonesia, fintech players and investors from abroad have also shown a
desire to be involved in the fintech journey in Indonesia.

A. Business Profiles
The following is an overview of the business profile of fintech lending in Indonesia including
the OJK registration date for each company, coverage area, and total loan disbursed.

Registered in OJK
Based on the survey results, 2019 is the peak for fintech lending in Indonesia to be registered by the
OJK. 41.8% of registered fintechs were recorded that year. Around 5% are registered in 2020 alone,
including Optimaapp, Ringan, Pinjamindo, Tolongku, Fintek Syariah, Kfund, Mikrokapital, and Sumur.

Figure 04. Startups registered in OJK based on the time period

41.8%
37.7%

15.1%

5.5%
[n=146]

Before 2018 2018 2019 2020

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Coverage Area
The Financial Services Authority (OJK) noted that the value of fintech loans outside Java has continued to
increase since the beginning of the year. From the beginning of the year to May 2019, total fintech loans
outside Java increased by Rp2.23 trillion to Rp5.79 trillion. The data from the OJK is in accordance with
the results of a survey that shows that fintech lending products are now evenly present in almost all parts
of Indonesia. Although the numbers are not evenly distributed, the portions are still different for each
island. Java, especially Jakarta and its surroundings, is still dominant, with 91.1% of fintech companies
owning products in this region.

Figure 05. Coverage Area

Greater Jakarta 91.1%

Java 84.9%
Bali 56.8%
Nusa Tenggara 44.5%
Sumatra 66.4%
Kalimantan 54.8%
Sulawesi 58.9%
Maluku and Papua 37.7%

Defined based on fintech lending’ business models, coverage areas have been reached out nationwide.
More than 50% have been distributing their products to East Area (Sulawesi, Maluku & Papua).

Greater Jakarta Java Bali Nusa Tenggara Sumatra Kalimantan Sulawesi Maluku and Papua

Productive 92.7% 81.7% 58.7% 43.1% 67.0% 57.8% 59.6% 37.6%

Consumptive 88.5% 88.5% 52.6% 47.4% 61.5% 52.6% 53.8% 41.0%

Sharia 100.0% 90.0% 60.0% 50.0% 80.0% 60.0% 60.0% 30.0%

Total loan disbursed (accumulated)

Based on the survey 48.6% of fintech lenders in Indonesia had each channeled funds below Rp50
billion. Given the relatively young age of fintech, the potential for larger lending will continue. Mean-
while, there are 4.9% companies with total cash disbursed exceeding Rp3 trillion. They are Kredivo,
Pendanaan.com, Uangme, Kredit Pintar, Asetku, Investree, and Modalku.

Figure 06. Total loan disbursed (accumulated)

48.6%

12.5% 15.3%
11.1%
7.6% 4.9%

< Rp50 billion Rp50-100 billion Rp101-500 billion Rp501 billion-1 trillion Rp1-3 trillion > Rp3 trillion

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B. Lender & Borrower Summary

One of the significant aspects to describe the fintech lending business landscape is borrowers and
lenders. The following is an explanation of the total borrower and active borrower (monthly), total retail
lender and active retail lender (monthly), as well as the total institution lender or super lender of each
fintech lender.

Retail lenders are individuals who provide personal loans to fintech lenders. It could also mean that every
individual who donates a little or a lot of their money to fund a loan in P2P lending is automatically entered
into the retail lender category.

Figure 07. Total & Monthly Active Lenders

84.0%

Total
Monthly Active

30.1%
13.2%

11.2% 2.8%
7.7%

< 500 Lenders 500-10K Lenders > 10K Lenders

Based on survey data, out of a total of 146 fintech companies, 30.1% of them have total retail lenders
of less than 500 lenders. Meanwhile, for retail lenders who are active every month, 84.0% of these
fintech lenders have less than 500 retail lenders. For the 500 to 10,000 retail lender category, 11.2% of
companies claimed to have the number of retail lenders in this category. Whereas for the 500 to 10,000
retail lenders who actively provide loans every month, 13.2% of fintechs are in this category. Finally, as
many as 7.7% of fintech lenders claim to have a total of more than 10,000 lenders, while only 2.8% of
companies have 10,000 active retail lenders per month.

Institutional lenders are companies or corporations that ‘donate’ and/or invest their money in P2P lend-
ing loan products. These institutions can be in the form of financial institutions such as venture capital,
banks, foundations, or other financial institutions (for example Koperasi), or they can be ordinary com-
panies that are not engaged in finance. They collaborated with P2P lending to circulate the money in
funding products in order to get more optimal returns.

As many as 36.4% of fintech lending companies only have 1 institutional lender. Fintech lending which
has 2-5 institutional lender are 33.6%. Only 9.1% of companies have 5-10 institutional lenders. The
last category, fintech with more than 10 institutions is only 3.5%.

Figure 08. Number of Institutional Lenders

1 institution 36.4%

2-5 institution 33.6%

5-10 institution 9.1%

10+ institution 3.5%

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Even though fintech lending has a strong role in the financial ecosystem, it can be seen that their
lender profile shows a high level of involvement from the non-financial institution sector. As many as
51.7% of fintech lenders claim to have lenders with a non-financial institution profile. The rest is filled
by financial institutions such as Banking (16.8%), Multifinance (16.1%), BPR (9.8%), Koperasi (6.3%),
BPD (1.4%), and Insurance (0.7%).

Figure 09. Lenders Profile

Banking 16.8%

BPR 9.8%

BPD 1.4%

Koperasi 6.3%

Multifinance 16.1%

Insurance 0.7%

Non-Financial Institution 51.7%

Others 14.0%

In terms of loan disbursed to borrowers, there’s slightly different between Institutional lenders with
retail lenders. There are more percentages for retail lenders which disbursed the loan for range Rp1-
3 trillion (accounted for 12.9%), while at the same range, Institutional lenders’ accounted for 9.6%.

Figure 10. Total Loan Disbursed to Borrowers

< Rp50 billion 56.2%

41.4%

Rp50-100 billion 12.3%

12.9%

12.3%
Rp101-500 billion
17.1% Institutional lender
Retail lender
6.8%
Rp501-1 trillion
8.6%

9.6%
Rp1-3 trillion 12.9%

2.7%
> Rp3 trillion 7.1%

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Borrowers Amount
To date, 30.8% of fintech lenders have total borrowers of less than 1,000 borrowers.
Meanwhile, 71.3% of the companies have active borrowers every month with less than
1000 borrowers.

Figure 11. Total & Monthly Active Borrowers Total

Monthly Active
71.3%

30.8% 31.5%
11.2%
20.3%
9.8% 17.5%

7.7%

< 1K borrowers 1K-10K borrowers 10K-100K borrowers > 100K borrowers

As many as 31.5% of fintech lenders have total borrowers of 1,000-10,000 people. However, only
9.8% of the companies have 1,000-10,000 active borrowers per month. 17.5% of fintech lenders
currently have total borrowers of 10,000-100,000. In terms of active borrowers, 1.2% of fintech
startups have active borrowers of 10,000-100,000. Fintech companies with total borrowers of
more than 100,000 currently account for 20.3%. Meanwhile, only 7.7% of companies have active
borrowers of more than 100,000.

Borrowers Profile
According to borrowers profile, Full time workers dominates as the most common profile for con-
sumptive business models which accounts for 71.8%. Additionally, it’s differ with sharia business
models which mostly dominated by SME offline which accounts for 70.0%.

Figure 12. Borrowers Profile

22.0%
High School/University Student 33.3% Productive
10.0% Consumptive
19.3% Sharia
Government Employee/Teacher 42.3%
10.0%
32.1%
Homemaker 51.3%
10.0%
24.8%
Professional Workers 39.7%
10.0%
38.5%
Full time Workers 71.8%
50.0%
27.5%
Part time workers 55.1%
20.0%

35.8%
Labor/Farmer/Fisherman 37.2%
20.0%
35.8%
SME-offline 64.1%
70.0%
42.4%
SME-online 30.8%
40.0%
3.7%
Others 0.0%
0.0%

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As many as 45.8% of fintech lenders distributed loans of less than Rp2.5 million per user. In the
highest loan category, 13.9% of fintech lenders lent more than Rp500 million.
Figure 13. Average Loans Borrowed
45.8%

28.5%

15.9%
6.3% 5.6%

< Rp2.5 mill Rp2.5-25 mill Rp25-100 mill Rp100-500 mill > Rp500 mill

The loan term is quite varied with the highest number of 49.0% fintech giving a tenor of 6 months
to one year. Meanwhile, only 4.8% of fintech lending companies provide loan terms of more than 3
years: Maucash, Samir, Edufund, Gradana, Kawancicil, Trustiq, and iGrow Asia.
Figure 14. Tenor Option

< 14 days 7.6%

14-30 days 32.4%

1-2 months 35.2%

2-3 months 35.9%

3-6 months 49.0%

6 months-1 years 40.7%

1-3 years 17.9%

> 3 years 4.8%

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03.

Business
Models and
Landscape

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Business Models and Landscape

During the past 3 years, financial technology in In-
donesia has been gaining rapid development. Some
indications that justify the leverage of Indonesia’s
fintech industry can be seen by more and more fin-
tech companies employing the latest technology and
innovation to support their competitive advantages
against the traditional financial methods.
Fintech lending is a where the fintech company acts as
a connector between borrowers and lenders-essen-
tially becoming a marketplace for loans service. On top
of being a connector, the fintech company also runs a
risk management platform to assess credit worthiness
for the borrowers and to assign interest rates to bor-
rowers’ financing requests. The lenders can see the
risk level for a specific loan request and make a decision
whether to invest or not.
In the fintech lending model, the lenders are usually in-
dividuals who have access to money and the borrowers
could be an individual who needs consumptive loans or a
SMEs that needs additional working capital. Usually the
platform will pool money from multiple lenders to fully
satisfy the funding requirements. Due to the platform
only mediating the borrowing process, default risk is be-
ing carried by the lenders. Fintech companies using this
model generate revenue by charging service fees which
is usually deducted from the loan disbursed to the bor-
rowers. The interest payments from the borrowers would
all be given to the individual lenders for the project.

Figure 15. Fintech Lending’s Business Model

Borrowers make repayment to the financial institution for the

principal and interest of the loan
If the borrowers default
on payment the risk is
assumed by the financial
institution

Risk Loan application is

transferred to financial
institution after credit Borrowers apply loan to
assessment fintech company

Fintech Company

Fintech company act as a lead generator of credit worthy

Financial Institution borrowers and helps the financial institution company in Borrowers
underwriting process such as documents submission

Financial institution lends to the borrowers that apply

through the fintech company

Competing against the main players, including major banks and multi-finance companies, the Indonesian
fintech lending models are identified as below business models:

Figure 16. Business Models Type

74.7%
53.4%

6.8% [n=146]

Productive Consumptive Sharia

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The fintech lending business model in Indonesia is cur-
rently still dominated by the productive fintech business
model with a percentage of 74.7%. Productive fintech
can be interpreted as a loan from a lender that will be
used by business actors or borrowers to carry out loan
activities related to business activities. This means that
the funder can directly become an investor in develop-
ing the business of a business actor who needs fresh
funds or additional funds.
1 and 2), People’s Credit Banks (BPR) and others. Mean-
while, fintech Consumptive offers daily interest ranging
from 0.8% and even up to 300% per year.
From the aspect of productive fintech loan tenors rang-
ing from 1 (one) month to 6 (six) months even up to 12
(twelve) months. Consumptive fintech has a relatively
shorter time frame, usually starting from 7 (seven) days
to 30 days.

Meanwhile consumptive fintech can also be referred
to as payday loans which generally provide loans that
come from 2 (two) types of lenders, namely crowd-
funding and some from super lenders. Consumptive
fintech is in second place with 53.4%. Lastly, Sharia
fintech placed third with percentage of 6.8%
Apart from the above definitions, there are at least 3
criteria that distinguish productive and consumptive
fintech business models. In terms of interest rates,
productive fintech usually does not apply daily interest
but offers relatively low interest rates ranging from 5%
even to 31% per year. The reference for productive fin-
tech lending loan interest is usually the interest rate on
loans from financial institutions, such as banks (Books
In terms of risk assessment, productive fintech lending
operators consider the borrower’s financial condition by
conducting credit analysis to determine the overall bor-
rower’s risk. Consumptive fintech lending uses less con-
sideration of the customer’s financial condition.
Apart from these two types, there is fintech sharia with
the number of players at 4.1%. Fintech sharia puts for-
ward compliance with sharia principles by calculating the
returns obtained without deducting any costs, the funding
process is easy and can be managed through an online
platform. The lender does not determine the interest, but
rather from the result of the contract that has been mutu-
ally agreed upon, both the lender and the borrower.

A. Productive Models
Those who lend to businesses (SMEs) offer SME invoice financing, SME long term financing and equity crowdfund-
ing. Startups offering all of the above will take the inherent risk of each type of loan and generally, manage this risk
by balancing interest rates against their projected non-performing loans.

The first line of productive fintech type that most fintech lenders have is offline buyers or inventory financing. As
many as 45.9% of fintech lending companies own this type of product. Inventory financing is a form of asset-based
lending that allows business owners to take advantage of the inventory. As with invoice financing, this loan can
also help increase the company’s cash flow and provide funds to pay for business expenses or to purchase addi-
tional inventory. This type of financing is useful if users cannot get higher credit terms from a supplier/vendor, or if
they ask for earlier payment.

Invoice financing is the second most popular type. There are 43.1% percent of companies claiming to have
Invoice Financing products. Invoice Financing is a working capital loan aimed at business owners in the form
of bill financing. The invoice or invoice will then become the basis for borrowing and ranking by the borrowing
client, which is called Payor. By utilizing this loan, the company’s cash flow can be healthier. Borrowers can also
maximize their monetary assets. The term of invoice financing ranges from 15-90 days, according to the typical
invoice payment cycle.

Figure 17. Type of Productive Fintech Lending

Invoice Financing 43.1% [n=109]

Offline Buyer/Inventory Financing 45.9%
Online-Merchant Financing 22.9%
Agriculture Financing 17.4%
Livestock Financing 5.5%
Fishery Financing 8.3%
Education Financing 11.0%
Property Financing 6.4%
Group-lending 11.9%
Others 6.4%

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Next is Online Merchant Financing with 22.9% of companies owning this product. Quoted from data
from the Ministry of Cooperatives and Small and Medium Enterprises, as many as 3.79 million mi-
cro, small and medium enterprises (SMEs) have used online platforms to market their products. This
amount is only 8 percent of the total number of SMEs in Indonesia, which is 59.2 million. This fact
makes fintech lending open a new lending stream or what is called Online Merchant Financing. There
are several aspects as a requirement for an online shop to get a loan. For example, business length,
minimum total sales per year, the business has used an account and has a transaction history, has
complementary documents for loans.

The fourth place is filled with agricultural financing with 17.4%. The fifth position is group-lending
which has 12.1%. The sixth position is education financing which has 11.0%. Furthermore, fishery
financing amounted to 8.3%. Then, property financing and the accumulation of other types of pro-
ductive loans, both of which are at 6.4%. Last, there is livestock financing as much as 5.5%.

Around 58% of the players have registered their license since 2018.

Figure 18. Productive Fintech Lending Registered in OJK

40.4%
36.7%

18.3%

4.6%
[n=106]

Before 2018 2018 2019 2020

Lenders
In regard to retail lenders, there are more than 16.0% productive players who have a total
of more than 10K lenders.
Figure 19. Total & Monthly Active Lenders of Productive Fintech Lending

82.9%

61.7%
Total
Monthly Active

21.7%

16.7%
13.4%

3.7%

< 500 Lenders 500-10K Lenders > 10K Lenders

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23

As many as 35.2% of productive fintech lenders have 2-5 institutions as lenders.

Figure 20. Total Institutional Lenders of Productive Fintech Lending

1 institution 34.3%

2-5 institution 35.2%

5-10 institution 11.1%

10+ institution 4.6%

Institutional Lenders Profile

Based on the total lender institutions, the most current fintech lending funding scheme is supported by
banking, as many as 80.0% of fintech lenders have more than 10 banking as lenders. Multifinance is also the
main source of lender institutions for fintech lending. As many as 80.0% of fintech lenders also have more
than 10 multi-lender institutions.

Banking BPR BPD Economic Multifinance Insurance Non-Financial Others

Enterprise Institution
1 institution 5.4% 0.0% 0.0% 8.1% 5.4% 0.0% 48.6% 24.3%

2-5 institution 26.3% 13.2% 2.6% 13.2% 34.2% 0.0% 71.1% 2.6%

5-10 institution 58.3% 41.7% 8.3% 8.3% 33.3% 8.3% 66.7% 8.3%

10+ institution 80.0% 60.0% 0.0% 0.0% 80% 0.0% 40.0% 20.0%

Lenders’ Category

Lenders

Individual Institutional Lenders Individual & Institutional Lenders

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24

Borrowers
In regard to retail lenders, there are more than 16.0% productive players who have a total of more
than 10K lenders. In total, 40.7% productive borrowers are accounted for within 1K-25K borrowers.
Meanwhile, for active borrowers every month, as many as 74.1% of companies have less than 1000
borrowers.

Figure 21. Total & Monthly Active Borrowers of Productive Fintech Lending

74.1% Total
Monthly Active
40.7%

31.5%
20.4%
15.7%
7.4% 7.4% 1.9%

< 1K borrowers 1K-25K borrowers 25K-500K borrowers > 500K borrowers

Borrowers Profile
In accordance with the main objective, the profile of productive lending products is currently dominated
by offline and online SMEs. As many as 77.1% of fintech lenders have borrowers from offline SME and
42.2% of fintech lenders have online SME borrowers.

Figure 22. Borrowers profile of productive models

High School/University Student 22.0%

Government Employee/Teacher 19.3%
Homemaker 32.1%
Professional Workers 24.8%
Full time Workers 38.5%
Part time workers 27.5%
Labor/Farmer/Fisherman 35.8%
SME-offline 77.1%
SME-online 42.2%
Others 3.7%

Average loan value

In terms of the average value of money disbursed, 36.1% of fintech lenders distributed loans between
Rp2.5 million and Rp25 million. As many as 17.6% of fintech distributed more than Rp500 million.

Figure 23. Average Loan Value of Productive Fintech Lending

36.1%

33.3%

17.6%

6.5% 6.5%

< Rp2.5 mill Rp2.5-25 mill Rp25-100 mill Rp100-500 mill > Rp500 mill

This report is downloaded by Surya (20233).

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Total loan disbursed

In terms of total loans disbursed, as much as 45.4% of fintech lenders disbursed less than 5 billion
rupiah. Meanwhile, as many as 3.7% of fintech lenders with productive products have lent more than
3 trillion rupiah, Investree and Modalku.

Figure 24. Total Loan Disbursed of Productive Fintech Lending

45.4%

13.9% 16.7%
12.0%
8.3%
3.7%

< Rp50 billion Rp50-100 billion Rp101-500 billion Rp501 billion-1 trillion Rp1-3 trillion > Rp3 trillion

The current coverage area of the loan is mostly around Jakarta. It is recorded that 92.7% of com-
panies have provided loans in this area. Meanwhile, the least coverage comes from Maluku and
Papua. Only 37.6% of companies have provided loans to Maluku and Papua areas.

Figure 25. Coverage Area of Productive Fintech Lending

Greater Jakarta 92.7%

Java 81.7%
Bali 58.7%
Nusa Tenggara 43.1%
Sumatra 67.0%
Kalimantan 57.8%
Sulawesi 59.6%
Maluku and Papua 37.6%

Based on the type of loan products, all of the fintech companies that have educational loan products
have reached the Jakarta area, as well as fintech lenders that have property financing products.
Fintech lending, which has livestock financing and fishery financing products, has reached Java. In-
terestingly, 75% of fintech lenders, which have education financing products, have distributed their
products evenly throughout Indonesia.

Greater Jakarta Java Bali Nusa Tenggara Sumatra Kalimantan Sulawesi Maluku and
Papua

Offline Buyer/Inventory Financing 90.0% 78.0% 58.0% 50.0% 66.0% 60.0% 58.0% 44.0%

Invoice Financing 93.6% 72.3% 40.4% 19.1% 55.3% 44.7% 48.9% 14.9%

Online-Merchant Financing 88.0% 72.0% 52.0% 40.0% 72.0% 60.0% 56.0% 40.0%

Agriculture Financing 84.2% 73.7% 52.6% 26.3% 57.9% 36.8% 42.1% 15.8%

Group-lending 84.6% 69.2% 46.2% 30.8% 69.2% 30.8% 53.8% 23.1%

Education Financing 100.0% 91.7% 75.0% 75.0% 83.3% 75.0% 83.3% 75%

Fishery Financing 88.9% 100.0% 33.3% 22.2% 55.6% 22.2% 44.4% 11.1%

Others 100.0% 71.4% 42.9% 28.6% 71.4% 42.9% 42.9% 14.3%

Property Financing 100.0% 71.4% 57.1% 42.9% 57.1% 57.1% 42.9% 42.9%

Livestock Financing 83.3% 100.0% 50.0% 33.3% 33.3% 16.7% 33.3% 16.7%

This report is downloaded by Surya (20233).

26

Based on the survey, the tenor most widely applied to borrowers is 3 to 6 months. As many as 52.8%
of companies have products within this period.

Figure 26. Tenor Option of Productive Fintech Lending

< 14 days 7.4%

14-30 days 30.6%

1-2 months 36.1%

2-3 months 39.8%

3-6 months 52.8%

6 months-1 years 41.6%

1-3 years 15.7%

> 3 years 5.6%

B. Consumptive Models
Consumptive models is the type of funding in which the borrower is an individual who carries out
consumption activities using borrowed money, not a company or business actor tends to have higher
interest and risk.

Type of Consumptive Models

There are two categories in this model. An installment loan is a cash loan that is paid back with a fixed
and same regular payment amount for a certain period of time.

While cash loans are loans that are paid back from time to time with a number of scheduled payments,
usually at least two payments made for a loan. The loan term may be only a few months or days.

Figure 27. Type of Consumptive Models

80.5% 41.6%
Cash Loan (Pay- Installment Loans
day/Cash Loan) (Non-cash, in the
form of limit)

Products

Cash Loan Installment Loan Cash Loan &

Installment Loan

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Registered in OJK
In 2018, 42.3% of fintech lending consumptive players were registered with the OJK. In 2019 as many
as 41%, the remaining 11.5% before 2018 and in 2020 as many as 5.1%.

Figure 28. Consumptive Fintech Lending Registered in OJK

42.3%
41%

11.5%
5.1%

Before 2018 2018 2019 2020

Lenders

Retail Lenders
Consumptive fintech lending, as many as 92.2% of companies have total retail lenders of less than 500
lenders, while 92.3% of fintech lending have active lenders per month of less than 500 lenders.

Figure 29. Total & Monthly Active Retail Lenders of Consumptive Fintech Lending
92.2%
92.3%

Total
Monthly Active

7.7%
3.9% 3.9%

< 500 Lenders 500-10K Lenders > 10K Lenders

Institutional Lender
As many as 44.7% of fintech lending have 1 institutional lender. The second position is 34.2% of fintech
lending have 2-5 institutional lenders.
Figure 30. Total Institutional Lenders of Consumptive Fintech Lending

1 institution 44.7%

2-5 institution 34.2%

5-10 institution 6.6%

10+ institution 1.3%

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Banking and multi-finance are still the main supporters for consumptive fintech lending in the lender
category of more than 10 institutions. Meanwhile, for other categories, non-financial institutions oc-
cupied the main position. Respectively, as many as 48.6% for 1 institution, 71.1% for 2-5 institutions,
and 60.0% for 5-10 institutions.

Banking BPR BPD Economic Multifinance Insurance Non-Financial Others

Enterprise Institution
1 institution 5.9% 0.0% 0.0% 5.9% 2.9% 0.0% 48.6% 23.5%

2-5 institution 15.4% 0.0% 0.0% 11.5% 19.2% 0.0% 71.1% 11.5%

5-10 institution 40.0% 200% 0.0% 0.0% 0.0% 20.0% 0.0% 20.0%

10+ institution 100.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0%

Fintech as a distributor tends to focus more on lending strategies because the criteria have been
adjusted to the agreement with lenders. Lenders with a financial institutional background already
have a data center that contains a blacklist of borrowers. This list can be considered as an initial risk
mitigation effort.

From the lenders’ side, there are other alternatives to extend credit with different yields, different
business models, and different ecosystem approaches. This collaboration indirectly increases service
coverage to segments not yet covered by the lender network. This increase will encourage financial
inclusion and equitable distribution of financial services for the community.

Borrowers
Amount of Borrowers
Figure 31. Total & Monthly Active Amount of Borrowers

Total
58.4% Monthly Active

40.8%
34.2%
18.2%
17.1% 15.6% 15.8%
7.8%

< 1K borrowers 1K-25K borrowers 25K-500K borrowers > 500K borrowers

In terms of total borrowers, as many as 40.8% have around 25000-500000 borrowers. However,
monthly active borrowers, most of them have less than 1000 borrowers.

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Additionally, borrowers amount (total borrowers) can be categorized as follows:

< 25K Borrowers

> 25K Borrowers

Average loans’ amount that can be borrowed is approximately less than Rp2.5 million. These amounts
are disclosed by 70.1% among 78 fintech consumptive players.

Figure 32. Average Loans of Consumptive Fintech Lending

70.1%

20.8%

1.3% 1.3% 2.6%

< Rp2.5 mill Rp2.5-25 mill Rp25-100 mill Rp100-500 mill > Rp500 mill

This report is downloaded by Surya (20233).

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Meanwhile, almost 50.0% have been disbursed their loan up to Rp50 Billion. More than 23.0% of Con-
sumptive Players have disbursed loans for more than 1 Trillion. There are about 18 players in this category.
Additionally, there are 5 players who have already distributed more than Rp3 Trillion to their borrowers:
Pendanaan.com, Asetku, UangMe, Kredivo and Kredit Pintar.

Figure 33. Total Loans of Consumptive Fintech Lending.

46.8%

13.0% 16.9%
9.1%
7.8% 6.5%

< Rp50 billion Rp50-100 billion Rp101-500 billion Rp501 billion-1 trillion Rp1-3 trillion > Rp3 trillion

For demographics, borrowers of consumptive lending platforms mostly work as full time workers (71.8%),
SME-offline (64.1%) and Part Time Worker (55.1%).

Figure 34. Borrower Profile of Consumptive Fintech Lending

High School/University Student 33.3%

Government Employee/Teacher 42.3%
Homemaker 51.3%
Professional Workers 39.7%
Full time Workers 71.8%
Part time workers 55.1%
Labor/Farmer/Fisherman 37.2%
UMKM-offline 64.1%
UMKM-online 30.8%

Almost all fintech consumptive players’ already reach the Greater Jakarta and Java Island area. Maluku
and Papua are still the least covered areas.

Figure 35. Coverage Area of Consumptive Fintech Lending

Greater Jakarta 88.5%

Java 88.5%
Bali 52.6%
Nusa Tenggara 47.4%
Sumatra 61.5%
Kalimantan 52.6%
Sulawesi 53.8%
Maluku and Papua 41.0%

This report is downloaded by Surya (20233).

31

For coverage, there’s not much difference between cash loan and installment loan category. Outside
Greater Jakarta and other Java provinces, their largest presences are in Sumatra. The least covered area
is in Maluku and Papua.

Greater Java Bali Nusa Sumatra Kalimantan Sulawesi Maluku and

Jakarta Tenggara Papua

Cash Loan 87.1% 90.3% 53.2% 51.6% 59.7% 54.8% 53.2% 43.5%
(Payday/Cash Loan)

Installment Loans (Non-cash, 84.4% 87.5% 53.1% 34.4% 71.9% 50.0% 59.4% 34.4%
in the form of limit)

In terms of tenor options, as many as 51.3% provide a tenor option of 3-6 months for loan repayment
from borrowers.

Figure 36. Tenor Option of Consumptive Fintech Lending

< 14 days 9.0%

14-30 days 30.8%

1-2 months 37.2%

2-3 months 35.9%

3-6 months 51.3%

6 months-1 years 42.3%

1-3 years 19.2%

> 3 years 1.3%

C. Sharia Models
Entering 2020, some players in fintech lending are optimizing their sharia business. Currently, there are
10 players who put their contribution this sector. These are the sharia fintech players:

These days, sharia businesses which focus on fintech lending are believed to have great potential along
with the development of Islamic finance and is an attractive choice for actors or those who will have busi-
nesses, especially MSMEs. The advantage of Fintech Sharia Lending compared to usual is that it conforms
to the Islamic principles that are important for Muslims. The best thing about using this type of fintech is
there is no interest determination from the lender. Everything is determined through products that have
been agreed upon by the lender and recipient of the loan.

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In the Fatwa Dewan Syariah Nasional Majelis Ulama Indonesia (DSN-MUI) No: 1 17/DSN-MUI/
II/2018 concerning Information Technology-Based Financing Services, there are 6 technology-based
financing models, such as Mudharabah, Murabahah, Bil Ujra, Musyarakah and Ijarah. Most players
provide Mudharabah and Murabahah products.

For Mudharabah, there are 2 parties, lenders and controllers, whose profit sharing percentage has
been agreed from the beginning. But if there is a loss, the investor is responsible for it. For Murabahah,
the lender will buy an item needed to be sold to the borrower. The lender will buy the goods in cash,
while the borrower will buy the goods from the lender and then pay them in installments and with an
additional benefit that has been agreed upon. This product is useful for personal financing of borrowers
who do not have cash. For Bil Ujra, this product allows a person to authorize another party to take action
on behalf of the authorizer which later that person can get a reward.

For Musyarakah, this product regulates that two or more parties can participate in doing a certain
business by lending some funds to carry out joint funding. Meanwhile, the profit and loss will be shared
according to the agreement. Lastly, for Ijarah, this product describes a typical lease. Transfer of the
benefits of a certain item within a certain time where the borrower will pay the rent against the use of
what is in the agreement. But without being followed by a change of ownership of the goods.

Mudharabah

Murabahah

Products

Musyarakah

Wakalah

Those 10 players mentioned above are running their business still from a small size, which consists of
a maximum of 50 people. In future, these numbers will grow more since these unique products are in
high demand.

Growing sharia businesses with financial technology are facing some opportunities and challenges.
Below are some insights on those opportunities and challenges of sharia lending in Indonesia.

No Opportunities Challenges

1 OJK provides opportunities for sharia’ fintech The minimum capital requirements and license for
players to register their business license at OJK the establishment of sharia fintech are challenging,
thus it still a few of them registered with OJK

2 Easy technology implementation for investment Lack of digital literacy resources for sharia’ fintech
and donation activities business models

3 Conventional fintech business models can be Public can’t differentiate between conventional
developed to sharia scheme fintech and sharia fintech business models

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Lenders & Borrowers

Similar to other business models of fintech lending, sharia’s fintech lending also has lenders and bor-
rowers. Based on survey results from those 10 players, ALAMI, FintekSyariah, Ammana, DuhaSyariah
and Investree has a institutional lenders and the rest have retail/individual lenders. Instead of having
retail/individual lenders, the institutional lenders’ profiles also come from non-financial institutions. Fur-
thermore, there’s still only less than 500 active borrowers which most of them are workers and SMEs.

Sharia’s fintech lending players have different average loan values disbursed to their borrowers. For
those who targeted individual borrowers, such as workers, the average loan values are within Rp500K-
Rp10 Mill. For those who targeted SMEs, the average loan values are within more than Rp50 Mill. Tenor
options given are also varied, but mostly are more than 1 month.

In terms of technology implementation, sharia’s fintech lending players are using cloud and payment
gateway/virtual accounts. By using a payment gateway, it provides financing to sharia’s fintech lend-
ing players who are actively selling online through distribution channels that they manage themselves
and payments are made through online payment authority service providers (payment gateways) in
collaboration with the player.

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 04.
Tech
Adoption,
Risk
Mitigation,
Other
Expansions

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35

Tech Adoption, Risk Mitigation,

Other Expansions
The presence of fintech is closely related to technological developments, especially in the financial
institution sector. Apart from the application of technology that has been regulated by the OJK, in fact,
based on the survey results, more than 90% of fintech lenders have implemented big data scoring.
Big data technology is widely used for screening as an initial risk mitigation. Further explanation re-
garding the technology implementation that has been carried out by the fintech lending player will be
provided below.

A. Educating the Market

One of the big challenges for fintech is educating the market. Fintech products or services are not
disposable items that run out immediately after consumption. Some many procedures and conditions
require fintech players to provide complete information on the market to avoid various forms of crimes
and mistakes.

Based on the survey results, it can be said that fintech players in Indonesia use multi-channel to con-
duct education, both offline and online, and both for borrowers and lenders. According to the strategy
of educating lenders, more than 61.3% fintech players still use offline socialization.

Figure 37. Implementation of Education Methodology for Lenders

Offline socialization 61.3%

Online socialization 52.4%

Information features in website/apps 30.6%

Dedicated customer service for lenders 15.3%

Stated on agreement 12.1%

Lenders’ dashboard 10.5%

Most offline socialization such as direct socialization method with product presentations or demos
in the form of seminars, FGDs, workshops, EXPO, roadshows. This roadshow method is unique con-
sidering that the target market is usually quite specific, for example, students. Fintech, which has
educational loan products, for example, Cicil, often conducts roadshows on campuses.

Apart from offline socialization, more than 50% also consider online socialization, such as social
media, email, and chat applications. Furthermore, some fintech players also have their creative ways
in educating lenders by creating digital content, e.g. tutorial video. Not infrequently they published
content using advertorial engines to make it more targeted. During the pandemic, these industry
players also actively filled out webinars. Several fintech players also provide a dashboard for each
lender to make monitoring easier.

Instead of educating lenders, borrowers also need some methodologies to be educated for using
fintech products. Based on survey results, it can be also seen that more than 51.2% are using offline
socialization methods. Next, 40.7% information about fintech products are well explained in web-
sites/apps. Thus, people will clearly understand from websites/apps only.

This report is downloaded by Surya (20233).

36

Figure 38. Implementation of Education Methodology for Borrowers

Offline socialization 51.2%

Online socialization 41.5%

Information features in website/apps 40.7%

Product information by social media, ads, etc 23.6%

Dedicated customer service for borrowers 22.0%

Borrowers’ dashboard 13.0%

Product information by merchant’s player 12.2%

Especially for borrowers who are in remote areas, some fintech also implements a partner system. They
combine online and offline methods in this. This partner is also called the field team who conducts direct
education, either personal or certain communities. For example, Modalrakyat is available in-app within
the Payfazz application. Mekar, who from the start has worked together with cooperation.

B. Risk Mitigation
Until now, the most widely used risk mitigation method used by fintech is big data scoring, followed by
offline approaches or direct surveys, then legal and collateral. The big data used by each company is
also different. They combine many factors such as data from filling out forms, Dukcapil data, and even
non-governmental organizations such as telco providers.

Apart from the above methods, several current assessment models are Captive Market Analysis, Principal/
Bouwheer Analysis, Risk Financing Analysis, RAB Analysis, Marketing Plan Analysis, and Feasibility Study.
Some players also carry out cash flow assessments that still use traditional data, such as financial reports
and checking accounts, transactional data on digital platforms, invoices/SPK which are the underlying and
credit history of the borrowers.

Based on survey results, 78.6% companies use big data scoring as mitigation risk methods. Followed
by an offline/survey approach with 55.2% companies claiming to use this method. Third position filled
by emphasis on legal/collateral methods. Fourth position filled by two kinds of methods, which are joint
responsibility and psychometry, both of them have 13.8%.

Figure 39. Risk Mitigation

78.6% 55.2% 31.7%

Big-data Offline/survey Emphasis on legal/
scoring approach collateral

13.8% 13.8% 2.8%

Joint Psychometry Others
responsibility

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C. Technology Implementation
Article 24 paragraph 1 POJK No. 77/POJK.01/2016 requires all use of virtual accounts and escrow
accounts in the implementation of online loan activities. This is required to anticipate the deposition of
funds by fintech players. Escrow Account is a checking account in the name of the operator at a bank
that is used in receiving and disbursing funds from and to users of fintech services. A virtual account
is a banking service included in or part of an escrow account but in the form of an identification num-
ber for the service user (end-user) and can be made by the operator or bank.

Figure 40. Technology Implementation

90.4% 76.0%
Payment
47.3%
Cloud Big data
Gateway/Virtual
Account

42.5% 41.1%
Insurtech Biometrics
(Technology identity
Insurance) management

Under this direction, the survey shows that 90.4% of fintech players are already using both technologies
that involve payment gateway/virtual accounts. The second-largest technology implemented is Cloud,
as many as 76%. Considering a large number of storage-needs to process this, it becomes natural that
fintech companies use a lot of storage in the form of the cloud.

Big data implementation comes in third with 47.3%. Big data itself is widely used as a credit scoring
instrument including risk mitigation. In the next sequence, there is insurtech as much as 42.5% followed
by Biometrics with a difference of one point 41.1%. Insurtech is pretty much implemented in line with
increased credit insurance spending as a form of mitigating the risk of loan default. Biometrics is con-
sidered as a replacement for old methods of authentication with new, more secure standards. Previously
using knowledge-based authentication (KBA) and SMS, the innovation of software and hardware bio-
metric solutions was based on fingerprints, faces, iris, voice, palms, to match footprints.

Apart from those already mentioned above, as of May 2020 the OJK has issued a Decree on the license
to implement the digital signature. The implementation of the Digital Signature is as stipulated in Article
9 POJK Number 26/POJK.01/2019 concerning Electronic Licensing in the Financial Services Sector. With
the implementation of the digital signature, the decision letter documents in the licensing process will be
issued electronically and no longer use a wet signature, but instead use a Digital Signature in the form of
a QR Code which can be validated electronically.

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D. Channel Funds & Collateral Information

The disbursement method is currently dominated by the virtual account method with 84.2% of
companies. This becomes normal as regulations direct fintech lending to use virtual accounts as
a disbursement method. The second position is filled by the distribution method through partner
accounts, as many as 40.2% of companies use this method. This method is quite high due to the
fintech business model in Indonesia which currently uses partners in B2B business schemes.

Figure 41. Channel Funds

84.2%

40.2%

6.8%

Channeled/disbursed to the Channeled/disbursed via Channeled/disbursed by cash

borrower’s account directly transfer to partner accounts through an intermediary agent/
supporting branch

In the aspect of loan guarantees, currently most fintech lenders do not use any medium as collateral.
As many as 77.2% of companies have not used the guarantee method. Even if there are still there,
29.0% of companies choose to use the invoice bill. Followed by an electronic inventory of 11.0%.
Furthermore, land ownership is 9.0%. Last, proof of vehicle ownership is 6.9%.

Figure 42. Collateral

77.2%

29.0%

11.0%
9.0%
6.9%

None Invoice bill Electronic inventory Land Proof of vehicle ownership

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E. Strategic Collaboration
The biggest collaboration that has been done by fintech players are strategic partnership with
e-commerce startups. As many as 40.0% of companies that filled out the survey stated that they
had collaborated with e-commerce players. Through this collaboration, e-commerce companies
receive benefit from providing various funding/credit options to consumers. Meanwhile, the fintech
lending platform will get potential borrowers who match their risk profile and goals.
Figure 43. Non Banking Strategic Collaboration

40.0%

28.8%
24.0%
14.4%
12.8%

E-commerce/Marketplace Distributor Economic Enterprise PPOB Networks School/University

The second-largest collaboration is a strategic partnership (28.8%) between fintech platforms and dis-
tributors. One of the loan schemes that emerged as a result of this collaboration is invoice financing. For
example, Modal Rakyat cooperates with Ritase, a cargotech company that brings together shippers
and transporters. In this case, Ritase plays a role in aggregating cargo transportation owned by small
SMEs for shipping large quantities of goods. Modal Rakyat is present to deal with temporary payments
on transport as an operational cost before the shipper makes full payment.

The next partnership is collaborating with startups, communities, and other partners. Continue with
the PPOB or Online Bank Payment Point scheme, in the form of payment counters for various types
of bills. This PPOB collaboration with fintech is also unique. Fintech can fully empower these PPOM
agents. In terms of area coverage, to direct touchpoints to customers, which results in risk mitigation.

Figure 44. Banking Strategic Collaboration

Escrow (Legal agreement document) 89.7%

Virtual Account 89.0%
Lender Fund Account (RDL) 63.0%
Lender Channeling (Distribution of loans 25.3%
from institutions to fintech)
Business development 13.0%
Lead Generation (User acquisition) 4.8%

Collaborative strategies can lead to better outcomes for banks and for fintechs by helping both develop
and refine productive ways to evolve. And banks, in particular, should consider such strategies as viable
opportunities to grow revenues, optimize processes, and become more fully data-driven organizations.

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40

F. Future Expansion
The existence of fintech that offers several advantages over conventional financial services often raises
questions about the position of fintech in the future. Its ability to disrupt the financial industry makes it a
new hope that is considered worthy of relying on.

If previous financial services have not been able to reach people in remote areas, fintech will work to
reach them. The methods used by fintech to reach remote areas also vary. For example, the PPOB
scheme between fintech and payment gateway or POS. This collaboration takes advantage of histori-
cal transactions used by SMEs in remote areas.

Apart from its scope area, fintech also offers speed with big data technology, the use of algorithms,
and online processing. Credit decisions can be taken in a very fast period when compared to conven-
tional institutions.

Fintech services make comprehensive use of big data analysis. One of fintech’s strengths is the use
of data. Credit scoring is used from the start and in every phase of the credit decision. The use of big
data makes decisions faster and more accurate and saves operational costs because the process is
automated with minimal intervention.

Several things need to be underlined to understand fintech lending platforms. In the future, online
lending platforms will become a partner or support that will bring together third parties with banks or
conventional institutions, or between banks and customers. Fintech companies will be at the forefront
of channel distribution. This is also in line with POJK 77 which states that fintech ecosystem is an
intermediary or distribution channel. Fintech lending can complement the ecosystem for the financial
world, especially the lending and borrowing sectors. The more collaboration between existing financial
institutions and fintech players, the faster financial inclusion in Indonesia can be achieved.

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 Closing
Remarks

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42

Closing Remarks
Fintech lending existence is still nascent in Indonesia but it brings immediate impact to society as a
whole. The growth is massive and it embraces a new market, especially SMEs, that long cannot be
properly served by existing financial services.

This report brings to light how we categorize a variety of productive and consumptive fintech lending
companies, including the business models, the amount of loan disbursed, the management of institu-
tional lender, the coverage area, and the tenor option.

There’s also a movement to caters to the need of the Muslim market with sharia-based products. Al-
though the number is still limited, we expect the market to grow rapidly.

While there are some risks that need to be mitigated to create a proper ecosystem, we see a glimpse
of the future on how fintech lending platforms help realize the financial inclusion in the country. Fin-
tech lending provides products for market that yet to be catered by conventional financial services, e.g
online merchant financing or invoicing financing.

Furthermore, financial lending companies now collaborate with bank to provide loan channeling to
expand bank’s SME portfolio.

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