Indonesia P2P Lending Platform

Institutional investors such as banks and investment management firms are increasingly deploying funds in peer-to-peer lending platforms in Indonesia, as they hunt for higher returns amid lackluster and uncertain equity markets.

The key factors driving institutional capital into this fast-growing space are huge demand from Indonesia's largely under-banked population and higher returns they can get from borrowers. As of January 2020, there were a total of 164 P2P companies registered with market regulator Financial Services Authority (OJK), nearly doubling from 88 at the end of December 2018.

P2P platforms are attractive because they offer easy access not just to lenders but also those seeking to invest their money.

Apart from individual investors, P2P players have started registering more interest from institutional entities. Akseleran, an SME-focused lending platform in Indonesia, for example, said that 35% of its lenders are institutional investors by the end of last year. Akseleran closed an oversubscribed $8.55 million Series A funding led by Beenext late last year.

OJK started regulating P2P lending at the end of 2016. Its data showed that the number of P2P lender accounts rose 192% to 605,935 by December 2019 from a year ago. Of those, 82.5% were located in Java Island.

74% of Indonesia's mid- and small-sized enterprises do not have access to funding. Triodos Investment Management and Bank Central Asia were institutional investors that distributed loans through Modalku.

P2P are helping our "unbankable & underbanked clients" to grow the business. As their businesses are growing, they will then potentially, eventually migrate into the banking system, they will graduate into the banking system.

Indeed, aside from higher investment returns, institutional investors also look to P2P lending platforms as new distribution channels to connect with micro-, medium- and small-sized enterprises. 

For individual investors, participating or lending through a P2P platform can allow them returns of up to 10%, substantially higher than the prevailing bank deposit interest rate hovering around the sub-7% region.

Others said that P2P lending is on the rise as investment options in the country dry up. This was in part exacerbated by a scandal involving state-owned life insurance Jiwasraya. Due to financial mismanagement, Jiwasraya recorded a default on its JS Saving Plan, an event that dampened public investor confidence in the market.

However, P2P is still a nascent industry compared with the stock market in terms of risks associated with its operations. When the P2P industry says its default rate is low, we don't know if that's the real number. 

Akseleran agreed that the main challenge was to keep the default rate low. This will depend on the credit assessment capability from the P2P lending players. From August 2019, Akseleran implemented credit insurance for almost 80% of its loans, protecting 85% of lenders' principal in the event of default.