Catching up with Indonesia’s fintech industry (original) (raw)

The innovative use of technology in finance is posing challenges to many traditional business models. At the same time it is challenging regulators. The key issue they face is how to balance the desire to encourage new businesses so as to intensify competition and provide better customer services in the sector, while protecting the system and consumers from excessively risky behaviour and potential disruption. For Indonesia the opportunity is very large given the uneven availability of finance and low levels of financial inclusion. This paper explores the new Indonesian regulation of platform lending in the light of standard regulatory problems, international experience with regulating the sector, and the particular needs of Indonesian development. We find it is close to best-practice regulation. B. Platform (P2P) lending P2P lenders act as brokers, matching investors with borrowers, and made feasible by fintech. Compared to traditional brokerage activities, digital and communications technology enables: electronic contracting; divisibility of loan contracts across many lender/investors; investor diversification; use of more information in credit assessment and risk-based loan pricing; and algorithmic methods for matching multiple borrowers and lenders and determining interest rates involved. Compared to traditional banking, P2P operators do not take on credit risk (the investors do) and, by matching investors with borrowers, do not provide investors with liquidity nor take on interest rate risk (again, the investors do).