Maximizing the Potential of Fintech Lending in Outside Java
18 May 2022
Author by Nida Amalia

Maximizing the Potential of Fintech Lending in Outside Java

Maximizing the Potential of Fintech Lending in Outside Java

Fintech Lending aims to solve the financial gap in services from banks, especially for productive and consumptive loan products. There are many underlying factors, such as the increased needs of the early adopter (early users of financial services), Gen Z and Millennials, and those previously categorized as unbanked people (do not have a bank account).

As we already know, the existing loan services nowadays rely on customer transaction history data to assess their eligibility for receiving credit. For new users who want to enter the ecosystem of financial products, these prerequisites are sometimes a burden. Similarly, unorganized bookkeeping often makes MSME practitioners fail in applying for productive business loans in banks.

Technological innovators use these conditions to present more affordable loan products for the unbankable community (people who have not used the overall banking products). They take advantage of digital data records that are already possessed by the communities — especially the users of smartphones and internet-based applications.

However, the fintech lending business practitioners frequently face challenges when performing credit assessments. Some of the challenges are data aggregation and management and manual analysis of the data. Meanwhile, the fintech business is presently required to serve quickly. For this reason, various supporting technologies working in the background are needed to ensure that the lending and borrowing process is performed smoothly.

This article will talk about the conditions and potential of fintech lending business in Indonesia and how credit scoring technology helps businesses improve their service for huge potential customers in Indonesia, especially outside Java and rural areas.

High Interest in Fintech Lending Services

According to statistical data released by the Financial Services Authority (FSA), by March 2022, the number of loan disbursements by fintech lending had reached more than 23 trillion Rupiah. The number was double compared to the previous year’s record. Several things underlie the increase, including:

  • The fintech loan products are getting more diverse

Lately, the products of fintech lending serving users in Indonesia have been more varied in the type of service, the product target, and the loan facilities provided. These product variations provide flexibility to prospective customers and allow them to obtain appropriate credit products, loans, or financing.

The following is a mapping of the services that currently exist:

Mapping of Fintech lending services that currently exist
Mapping of Fintech lending services that currently exist
  • Supported by many players

As of March 2022, 102 fintech lending companies are registered and licensed by the FSA. Seven of them are the Sharia units. Of the existing players, the total assets reportedly reached Rp4.5 trillion. Some players provide loan products in general, while others focus on a specific sector. For example, some fintech lending companies only focus on providing productive financing for farmers and ranchers.

  • Laws regulate the fintech ecosystem

The regulator (in this case, the FSA) also has specific rules governing fintech lending services. Specifically, in the Financial Services Authority Regulation Number 77/POJK.01/2016 on Information Technology-Based Money Lending Services (LPMUBTI).

On the other hand, the regulator is also quite agile and can eradicate illegal fintech lending services that try to trap their customers. To take preventive and repressive measures, the OJK, in collaboration with the Ministry of Communication and Information and the Investment Alert Task Force, has screened and blocked fintech services operating without permission in Indonesia. Since the beginning of 2018, thousands of illegal fintech entities have been blocked by the relevant authorities.

  • The Increase in inclusion and financial literacy

The rising literacy and financial inclusion indexes also increase the number of fintech lending users in Indonesia. For example, MSME actors realized the importance of obtaining productive loans to increase their core capital to expand and win the market competition. Various parties also intensify socialization efforts, including industry players, the government, academics, media, and other elements.

Why fintech Lending should grow outside Java

In the present situation, most of the fintech lending services in Indonesia are concentrated around the island of Java. There is a striking contrast when comparing the recipient distribution numbers and the distribution of existing loans. Here's the data:

distribution numbers and the distribution of existing loans
distribution numbers and the distribution of existing loans

According to the results of the 2020 population census by BPS, 56.10% of the total population of Indonesia lives on the island of Java. However, beyond the population figures, there are various compelling reasons why the fintech lending perpetrators need to consider the market outside Java, including:

  • Potential Users

Although the percentage is less than half, prospective service users of fintech lending outside Java also have a lot of potential. First, the conventional types of lending services that accommodate communities outside Java are very limited in number — that means narrowing the potential for competition. Second, the relatively lower financial literacy and Inclusion Index makes for many unbanked people from outside Java. Finally, those areas are the potential for productive loan absorption from the MSME and agribusiness sectors.

  • Regulatory Push

For two years, the FSA has been discussing the renewal of the regulation for fintech lending. In addition to the tightening of the listed rules, one of the existing articles will require the fintech lending players to expand beyond Java. One of the goals is to accelerate economic equity.

Finantier Credit Scoring Platform helps Fintech expand beyond Java

In talking about expansion outside Java, there are many things to consider by fintech lending actors, including capital readiness, team/personnel, and advanced technological infrastructure to face various challenges in the future. One of the fundamental issues that are still a big concern is the credit assessment of prospective customers, especially when the institutions want to target areas in the 3T area (outer, remote, and disadvantaged).

Fintech lending developers require an ideal data collection and analysis mechanism to determine a person's eligibility to receive a loan. With the limitations of existing data sources, they also try to find alternative transaction data that is likely to be processed and provide valuable insight to form a person's financial profile.

Finantier Score is an alternative credit scoring platform, providing technological services that can help fintech lending developers perform a more comprehensive assessment of creditworthiness. Finantier utilizes digital data owned by users, such as transaction data in e-commerce applications, PPOB payments, digital wallet transactions, etc.

Finantier Credit Scoring Platform helps Fintech expand beyond Java
Finantier Credit Scoring Platform helps Fintech expand beyond Java

By utilizing artificial intelligence and machine learning capabilities, the data is processed to produce a complete picture of the creditworthiness of particular prospective fintech service customers. The process happens instantaneously, so it also provides an impressive user experience. The only thing developers need to do is connect the Finantier API (Application Programming Interface) to the backend of their developed application.

In addition to a reliable system, there are two important reasons why Finantier is worth counting on to become a partner of the fintech lending companies in providing credit scoring services. First, Finantier has entered the FSA Digital Financial Innovation list for the Credit Scoring cluster, following POJK no. 13-POJK.02/2018. This implies that Finantier's operations and technologies are compliant with the regulations. Finantier is also the first Open Finance platform listed in the regulatory sandbox.

Second, to provide better assurance of data security and privacy, Finantier has been certified ISO 27001:2013. This shows that Finantier has put into practice the best methodology of conducting safeguards (especially the preventive ones) to protect the information systems accommodated within its platform. The security aspect is important since the government strictly regulates the financial industry.

The support of qualified and secure technology infrastructures is expected to support the fintech developers' efforts to expand their market reach. Finantier is also helping the government's efforts to improve economic equity by providing affordable credit service facilities for the community's needs.

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