Indonesia Regulating Fintech Interest rate

Indonesia will in stages lower the maximum interest rates charged by financial technology (fintech) firms in the microfinance sector, amid complaints that overly high rates have been hurting borrowers, the country's financial regulator said.

Starting next year, fintech firms can only charge a maximum of 0.3% interest per day for a loan intended for consumption which will fall to 0.1% in 2026, the country's Financial Services Authority (OJK) said. Currently the maximum is 0.4% interest per day.

If the interest rates is not properly regulated, then the ones who suffer most are the consumers. Fintech lending has soared in Indonesia especially after the coronavirus pandemic, but it has been tainted by many illegal firms in the market and reports of borrowers unable to pay their loans.

The rates will be much lower if loans are for productive purposes. They will be capped at 0.1% per day starting January 2024 and less than that in 2026 as the government wants to shift the majority of loans from consumption to business activities, especially for micro, small and medium enterprises.

The authority wants 50% to 70% of loans provided by fintech firms channelled to productive activities by 2028, compared to below 40%. The regulation on interest rates is part of the authority's plan to develop the fintech sector from 2023-2028.