Indonesia fintech

Sector outlook

Sarina Lesmina, CFA The wave of fintech lending

sarina.lesmina@clsa.com Supporting government mission of financial inclusion
+62 21 5088 7820
Fintech lending, led by P2P (peer-to-peer), has grown exponentially since kicking
Handy Noverdanius off a few years ago. Though the base is insignificant versus conventional banking,
+62 21 5088 7831 the addressable market is huge. OJK is balancing growth while ring-fencing it. We
also believe there is room for collaboration with brick-and-mortar incumbents. The
Felicia Tjiasaka key is active involvement from all stakeholders to ensure sustainable growth while
+62 21 5088 7824 fulfilling the government mission of financial inclusion (especially for Micro SME).
Low base, fast growth
q Financing disbursed through P2P (from 2017 to August 2019) had risen 21x to Rp54.7tn
15 October 2019 (US$3.8bn) even though outstanding loan is still 0.2% versus banking system loans.
q For borrowers, the ease and speed of approval trump higher rates than banks. For
Indonesia lenders, the platforms provide an avenue to chase higher-yield investments.
q There is a huge market for fintech lending given 37% banking penetration. In Micro-SME
Financial services segment, only 44% has access to financing. Most P2P still target consumptive lending.
Regulator: balancing growth and health
q Since it first regulated P2P in December 2016, OJK has been balancing supporting the
government mission for financial inclusion and ensuring the ecosystem remains healthy.
q It has enforced a strict two-stage licensing process and shut down illegal platforms. A
lending limit (Rp2bn) is imposed, while a maximum rate for payday loan is encouraged.
q We believe the rules will continue to be updated to ensure healthy growth. Credit rating
infra will also need to be built. All in all, the key for OJK is to provide adequate ring-
fencing and enforce good governance of the industry.
Room for collaboration
q Fintech lending can be seen as disrupting conventional banking, but we believe there is
actually synergy. P2P platforms can penetrate markets quickly via technology, but banks
are usually better funded and have more robust credit and risk management.
q We have seen some collaboration with banks on funding or loan channelling. More
importantly, it also allows the platforms to tap into their captive market.
q With the rise of mobile banking, we also see some banks dipping into digital lending.

The quest for a sustainable model

q All stakeholders need to be involved, not just OJK. AFPI (Indo fintech association) is
playing an important role and has spearheaded the creation of a fintech database.
q The government should also be involved in educating the public on financial literacy.
q Given early days, the industry will still evolve, and it is too early to predict when
consolidation will come. Most important is the monitoring, safeguarding, and
enforcement from OJK – to ensure sustainable and healthy growth while fulfilling the
government’s mission for financial inclusion, especially for Micro SME.
P2P outstanding loan and compared to banking industry
12 Rptn Outstanding financing (Rptn) As % of banking industry 0.20%
0.18%
10
0.16%
0.14%
8
0.12%
6 0.10%
0.08%
4
0.06%
0.04%
2
0.02%
0 0.00%
Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19
www.clsa.com Source: OJK, Bank Indonesia

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 The wave of fintech lending Indonesia fintech

Low base, fast growth

21x growth in disbursement P2P (peer-to-peer) lending has grown quickly since it started a few years ago. Total
since 2017 financing disbursed was up 21x to Rp54.7tn (or US$3.8bn as of August 2019) from
Rp2.6tn in 2017.

Still 0.2% vs banking system
loan, but growing fast
Although rising rapidly, it is still insignificant compared to conventional banking
loans. Total P2P O/S loan (Rp9.6tn or US$680m) is 0.2% versus banking system loan
(US$385bn), but grew 92% ytd compared to 8-11% pa of conventional banking. For
hypothetical sake, if it grows 50% pa for the next 10 years, it will grow to c.4% of
banking system loan (assuming conventional banking grows 10% pa).

AFPI (Fintech association) mentioned target disbursement this year is Rp40tn. This is
likely to be exceeded as the year to August 2019 total was Rp32tn or Rp4tn/month.

Figure 1 Figure 2

Total financing disbursement (cumulative) P2P outstanding loan vs banking industry

60 Rptn 12 Rptn Outstanding financing (Rptn) 0.20%
54.7
49.8 As % of banking industry 0.18%
50 44.8 10
0.16%
0.14%
40 8
0.12%
30 6 0.10%
22.7
0.08%
20 4
0.06%
0.04%
10 2
2.6 0.02%
0 0 0.00%
Dec2017 Dec2018 Jun2019 Jul2019 Aug2019 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19

Source: OJK Source: OJK, Bank Indonesia

There are a few types of fintech lending, but official government data is on P2P,
which by definition is “a practice of matching borrowers and lenders through online
platform”. Platforms generally charge some fees to borrowers and/or lenders.

Matching borrowers and P2P lending can be broadly categorized into productive and consumptive loans.
lenders through online Borrowers are typically individuals or small businesses who are unable to secure
platforms loans through conventional channels (banks and multifinance).

Easiness and speed of For borrowers, the ease and speed of approval trump the higher interest rate
approval is the key charged versus the traditional financial system. For many borrowers, the platforms
often act as lifeline when they urgently need cash.

Higher return and
diversification for lenders
For lenders, the platforms provide an avenue to seek higher-yield investments
compared to banks’ offerings. Typically lenders only fund a portion of the loan and
can spread the “investment” across many borrowers with a range of interest rates
based on proprietary credit scores assigned by the platforms. This allows them to
spread risk.

Fast approval process

q Typical approval process for key “productive” P2P lenders in Indonesia takes
between 3 to 7 days (providing all docs are complete). If it is crowdfunding, it
will take another 5-6 days for the funding process (although some platforms
mentioned up to a maximum of 30 days).
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 The wave of fintech lending Indonesia fintech

q For consumptive loans (which are mostly “payday” loan), approval and
disbursement can be within a day. Some (eg, Kredit Pintar) claimed less than 1-
hour approval (and disbursement).

Huge market for fintech lending

37% banking penetration World Bank estimated that banking penetration in Indonesia is only 37%, and just
10% has access to loans from financial institutions.

Estimates unbanked
population of 78m
There are c.168m ATM/debit cards in circulation. Assuming two ATMs per person,
this means penetration is 32% (out of 264m population). If we assume the 37% are
all adults (>21 years) and compare to the adult population of Indonesia, it implies
the unbanked population is c.78m. If we take 21-60 years old, the figure drops to
c.55m. This may still be an understatement as having ATM/debit card alone does
not imply a person is “bankable”. Rising smartphone penetration also helps.

Meanwhile, the accumulated number of P2P borrowers is only 12.8m (from 4.3m in
2018). Young people (19-34 years) make up c.70% of lenders and borrowers. Most
platforms require minimum age of at least 17 years old; some ask for 21.

Figure 3 Figure 4

Cumulative borrowers and lenders (P2P) Age breakdown of borrowers and lenders (P2P)
14,000 '000 Borrowers Lenders 12,832 80.0% Lender Borrower

12,000 70.0%

10,000 60.0%

50.0%
8,000
40.0%
6,000
4,359
30.0%
4,000
20.0%
2,000
208 530 10.0%
0
Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 0.0%
< 19 19-34 35-54 >54
Source: OJK Source: OJK

ATM/debit cards have 9% Cagr since 2015, but credit cards are stuck at c.17m.

Figure 5 Figure 6

Cards in circulation Credit card penetration

200 m units 7.0%
Credit card ATM + debit card
180
6.5%
160
6.0%
140
120 5.5%
100 5.0%
80
4.5%
60
40 4.0%
20 3.5%
0
3.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Bank Indonesia Source: Bank Indonesia

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Room to penetrate Micro-SME

Platforms in productive P2P lending generally lend to Micro-SME segments (or
UMKM in Indonesian terms). Some of the key ones are Modalku, Investree,
Koinworks, Amartha, and Akseleran. Micro-SME (UMKM) is defined as below.

Figure 7

Segmentation of Micro-SME (UMKM) – from government

Segment Net worth (Rp) Annual gross sales (Rp)
Micro (incl. KUR) Up to 50m Up to 300m
Small 50m to 500m 300m-2.5bn
Medium 500m-10bn 2.5bn-50bn
Source: Government. Note: Net worth = gross business value – total liabilities. Excludes land and building

Gov’t pushing for loans to There are c.63m UMKM in Indonesia (latest in 2017), from 57.9m in 2013. 98% of
Micro SME… this is in Micro segment, which by definition generates up to Rp300m annual sales.

… as only c.44% has access
to banks (note: our
estimate)
We do not have official data of banking penetration in UMKM, but taking into
account total KUR, BRI’s Micro, BTPS’ borrowers, and some smaller players, we get
40% penetration (or a gap of 35m). BRI, as largest Micro lender, only has 10.3m
borrowers (including 5.8m KUR). Since KUR roll out in 2015, it has been disbursed
to 16.57m borrowers (as of June 2019). Separately, BTPN Syariah (BTPS) has c.3.6m
borrowers. Hence, the reason the government is pushing for loans to Micro-SME.

Large potential market Assuming new loan of Rp5m to each of the 35m currently unbanked, we are looking
at potential Rp175tn pa (3.2x current P2P total disbursement). If we further assume
that each of this unit needs more funding (say Rp20m pa) to upgrade to SME, then
the potential will be even larger (another Rp700tn).

P2P productive lending is There is no official data on the breakdown of the size of productive versus
insignificant consumptive P2P loans; the unofficial figure is 60-70% consumptive and 30-40%
productive. This implies outstanding productive P2P loan is Rp2.9-3.8tn (US$267m)
or 0.4% versus conventional bank’s Micro-SME (Rp1,018tn as of July 2019).

Generally lends to
Micro-Small segment
The key productive P2P platforms require potential borrowers to have minimum
annual revenue that ranges from Rp240m to Rp2.5bn and have been in operation
for at least 1 to 2 years. This means mostly play in Micro-Small segment. The
Medium segment of SME is generally served by banks. Loan size across different
platforms range from Rp400k (US$28) to Rp2bn (US$140k; by regulation). Investree
as a large one said average ticket size is US$40-50k. In contrast, banks’ SME loan
sizes are between Rp200m to Rp10bn (US$700k). Average outstanding SME loans
for BCA is c.Rp1.5bn (US$105k) from 45-50k customers.

Figure 8

Key productive P2P lending platforms

Platform Accumulated Borrowers’ min. O/S loan Accumulated Lenders Loan size (Rp) Avg. loan (Rpm)
Lending (Rpbn) annual sales (Rpbn) borrowers
Modalku: 9,230 (Indo, Sing, N/A N/A 1,039,138 N/A N/A N/A
Malaysia)
Indonesia only 2,300 Rp240m 218 20,184 12,994 5m to 2bn 114
Investree 2,640 Rp2.5bn 439 1,198 ~60,000 Invoice financing: 30m to 570
2bn. Online seller: Rp2m to
2bn. Buyer financing: 50m
to 2bn
Koinworks 1,163 N/A 234 3,573 207,786 0.4m to 2bn 325
Akseleran 733 Rp500m 231 2,000 ~300k 75m to 2bn 497
Amartha 1,250 N/A N/A 265,991 ~80k 1.5m to 12m 4.7
Source: Companies websites (at time of writing)

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Regulator: balancing growth and health

NPL still looks manageable, Gross NPL of P2P lending reached 3.06% as of August 2019. It can be considered
but denominator rising fast still healthy (versus 2.6% of banking industry). However, given the rapid rise of the
denominator, the risk of further rise in NPL should be mitigated.

Figure 9

NPL – P2P vs banking industry

3.50%
P2P NPL Banking industry NPL

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
18 18 18 18 18 18 18 18 18 18 18 18 19 19 19 19 19 19 19 19
Source: OJK. Note: P2P define NPL as >90 days due (TWP90)

There are no details of NPL between productive and consumptive loans. Some well-
known consumptive loans posted 0% NPLs in their websites. However, because
there are 127 registered platforms, some should be expected to post higher-than-
industry NPL.

Figure 10 Figure 11

NPL of key players Accumulated lending of key players

9.00% 7,000 Rpbn
8.00% 6,000
7.00%
5,000
6.00%
5.00% 4,000
4.00% 3,000
3.00%
2,000
2.00%
1.00% 1,000
0.00% 0

Source: Companies websites (at time of writing) Source: Companies websites (at time of writing)

Good credit scoring is The platforms generally rely on non-traditional credit risk models, using big data,
crucial and machine learning to do credit scoring. This includes quantitative and qualitative
data. The key is to be able to approve a loan quickly without creating NPL risk.

Credit rating infra is needed Note that P2P does not have access to SLIK (BI checking on debtors). One platform
commented that even if they do, it is not useful for this category of borrowers. Most
players that we talked to claimed they have access to the Pefindo Credit Bureau
and will also contribute data to them. Uang Teman (a P2P platform focuses mostly

15 October 2019 sarina.lesmina@clsa.com 5

 
  
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on consumer loan) mentioned that AFPI (P2P association) initiated Pusdafil (fintech
lending data centre), where each registered platform must be a member and allows
data sharing to mitigate NPL risk.

Tying up with BPJS Uang Teman has recently tied up with BPJS Tenaga Kerja (Social Security
Administrative bodies for workers) to enable a data mirroring scheme whereby a
potential borrower’s data will be verified against the BPJS database such as ID
number, address, etc. This will ensure viability of the credit data.

Using social media KoinWorks checks for connection between lenders and borrowers using social
media accounts to assign a credit score. For example, a score of 9 assumes that you
and borrower are classmates or colleagues; a core of 8 assumes that you and the
borrower live in the same neighbourhood or attended the same high school.

Productive loans: mostly Productive P2P loans are generally collateralized, although some do not. Typical
collateralized products are invoice financing of supply chain, pre-invoice, and SME financing.

q Akseleran mentioned that more than 98% of its loan is collateralized in the form
of either invoice, motorcycle, machineries, land and buildings, jewelry, stock, or
bond holding. This will be disclosed in borrowers’ details. Having collateral will
determine the grade of loan.

Lending to online q Investree requires collaterals, except for online seller financing (OSF) where it
merchants of partners’ collaborates with e-commerce partners to lend to their merchants.
platforms
q Typically the platforms lend to online sellers that sell on their partner online
- a way to reduce
NPL risk
platforms (the usual suspects such as Tokopedia, Bukalapak, and Lazada).
KoinWorks gives lower interest rates if borrowers apply loan through their
partner platforms.

q Required docs are usually a company’s legal papers, NPWP (tax ID), recent
financial reports, past three months’ bank transactions, identity of guarantor and
management.

Amartha’s unique model q Amartha is a unique platform that focuses on women-only group lending (15-20
to collectively guarantee each other’s repayment). 90% of loans are for
productive purposes.

Consumptive loans: un- Consumptive loans are uncollateralized with some platforms asking for proof of
collateralized income/salary (eg, Uang Teman and Julo).

After credit scoring, After credit scoring, collection is the next crucial thing. Collection is generally done
collection is next in-house, but pass to external collectors when the loan is more than 90 days unpaid
(note: this is required by OJK). As P2P is online-based, collection can be tricky.

Some insured Given the sheer size of the players, we cannot assess each of them on whether
insurance is used. One of OJK’s circular letters in 2017 only mentioned that the
company can work with insurance companies that are licensed by OJK. The
following includes some examples:

q Modalku: partially insured. Askrindo assessing the loans to be insured.

q Amartha: 1.5% premium if lender wants to insure. 75% coverage. The company
works with Jamkrindo and Asuransi Jiwa.

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q Akseleran: Insurance premium in some with invoice guarantees and all online
merchant loans. This is embedded in lenders’ yield. Coverage is up to 85% of
principal for invoice financing, and 80% for online merchant loans that are still
overdue on 90 days since maturity.

q Investree: Borrower has to participate in life insurance (in event of death).

q KoinWorks: Recovery of loans by third-party post default will be put in provision

fund. Loss of lender’s capital will be compensated for the fund. The coverage
depends on the grade of the loan (eg, Grade A will get 100% of capital loss).

q KlikACC (P2P platform focuses on productive loans, also does loan channelling
from BCA) mentioned that not all loans are insured. Moreover, coverage ratio is
based on scheme (and with limit).

Typical productive lending
charges average 20% rate
(range: 12-40%)
Banks’ SME at c.11-14%
Interest rates vary widely between productive and consumptive loans. Note the
industry uses flat rather than effective rate. In general, platforms of productive
lending charges average c.20% effective rate but ranges from c.12% to 40%
depending on credit scoring. KlikACC charges 32% effective rate. Separately, BCA’s
average price for its SME loans is 10.95%, while BRI charges 12-14%.

Consumptive loan is limited
to 0.8% rate per day
On the other spectrum, given the very short duration, consumptive P2P loans
quotes rates on a per-day basis. OJK does not regulate the rates charged in the
industry, but there is now a 0.8% limit (from 1% per day) that we heard was imposed
by APFI (the fintech association). Given the loans are un-collateralized, high
interest is to cover potential loss as well as operational costs. The rate is generally
still higher than credit card (limited at 2.25%/month of 0.075%/day).

There is also admin-related As mentioned earlier, platforms generally charge some fees to borrowers and/or
fee lenders – typically c.3% for productive loans. Some consumptive platforms charge
5% upfront fee for provision (eg, Julo), 10-12% for Kredit Pintar. Some (eg, Julo)
give cashbacks for early repayment.

Yield for lenders is ~16-22% It is to cover operation cost, besides for margin. In various websites that we came
across, yield for lenders is c.16-22% effective rate. This is definitely much higher
than typical time deposit’s rate (5-7%). This analyst invests in two platforms for
productive lending, where 18% and 20% effective rate is promised, respectively.

Figure 12

Rates and tenor (Key productive P2P loans)

Effective annual rate for borrowers Tenor (months)
Modalku Indo Average 20% (range: 12.7-40%) 3 to 24 (for invoice financing: 1 to 2)
Investree 21.5-35% 1 to 6 (invoice financing, buyer financing), 3-24 (online seller financing)
KoinWorks Average 21.3% (15-38%) 6 to 24
Akseleran 18-21% (range: 11.75-30%) 1 to 24 (avg. 4)
Amartha ~20-22% ~12.5
Source: Companies
Figure 13

Rates and tenor (Key consumptive P2P loans)

Flat rate for borrowers Tenor (months)
Kredivo free for 30 days, then 2.95% flat rate per month (for instalment) 1 3, 6, 12 months (no down payment)
Kredit Pintar 0.47-0.8%/day 14 days to 3 months
Julo 0.13-0.3%/day 1 to 6 months
Asetku 0.8% per day typical 15-22 days
Source: Companies

15 October 2019 sarina.lesmina@clsa.com 7

 

 

Interest rates based on
grading
Figure 15
Example of productive loan (KoinWorks)
Source: Company
Consumptive loan growing
There is also edu and
healthcare financing
15 October 2019
The wave of fintech lending Indonesia fintech
Figure 14
Sample of interest rates by credit scores (from Investree)
Source: Company
Figure 16
Example of productive loan (Amartha)
Source: Company
In general, consumptive loans are for online shopping, wedding expenses,
unforeseen expenses, etc. Prominent platform Kredivo has more than 1m
accumulated borrowers and has more than 250 online merchant partners. Akulaku
(collaborates with Asetku for P2P) has 90k associated merchants across three
countries in which it operates (Indonesia, Philippines, and Vietnam). Kredit Pintar
(started in May 2018) has disbursed Rp6tn loan to 1.6m borrowers (of which 400k
are active).
Some platforms also offer education and healthcare financing (for non-chronic
diseases).
sarina.lesmina@clsa.com 8
 

 
 The wave of fintech lending Indonesia fintech

Encouraging lenders to Most platforms encourage lenders to spread their funds across many borrowers
diversify with different grades. Platforms that we checked allows the lender to lend as little
as Rp100k (and the multiples of it) to one borrower.

The rise of PayLater from Separately, mega platforms such as Gojek (Gopay), Ovo (Tokopedia), Traveloka, and
mega platforms – tying up Shopee offering PayLater solutions. These were discussed in Felicia Tjiasaka’s
with P2P companies report The Komodo: Buy now, pay later.

By regulation, these platforms have to tie up with P2P companies to do PayLater

offerings.

Figure 17

Key PayLater offerings

Platform Interest Tenor Service/Con Late penalty Loan limit (Rpm) Note Others P2P
rate (months) venient fee partner
(monthly)
Shopee 2.95% 2 to 3 1% 5%/month (of 0.75 Instalment every 25th of Service fee or Their own:
merchandise the month. Late penalty convenient fee is Shoppe
value) is charged on monthly for using Credit PayLater
basis. If more than 2 Card or Shopee
months, the account will PayLater
be suspended
Traveloka 2.14-4.78% 1 to 12 None 5%/month (of 50 Account will be Danamas
amount due) suspended if unpaid
Tokopedia 3% 3, 6, 9, and 5% 0.1% per day (of 1 (OVO regular), Account will be Can be for Taralite
(with Ovo) 12 amount due) 10 (OVO Premier) suspended if unpaid offline
merchants too
Gopay N/A 1 Rp25k/mo Rp2k/day (case by 0.5 Findaya
case)
Source: Companies

Role of regulator
Not easy role for OJK The rapid rise of fintech lending means OJK’s role will be increasingly hard while
balancing support of the government’s mission and ensuring a healthy ecosystem.

OJK started regulating on Based on our channel checks, OJK is deemed supportive while being cautious. Since
29 December 2016 it first issued P2P lending regulation (No 77) on 29 December 2016 where it
required all platforms to register and apply for license within six months, it has also
released numerous circular letters.

Two-stage licensing process
OJK implemented a two-stage licensing process whereby those who have
registered need to apply for license – at most one year since registered. The reason
for these two steps is to ensure there is enough time for OJK to assess the
applicants and take action (if required). OJK also wants to prevent the same mistake
with banks (ie, easy approval in banking license in the past – resulting in too many
small banks).

Being registered but not licensed means the risk that the registration letter is
annulled after one year. The regulation stated that this means the company cannot
register anymore.

127 registered, 13 licensed As of now, there are 13 licensed platforms (up from seven last month), out of 127
(registered). From this total, 39 are PMA (foreign investment) such as Crowdo, Uang
Teman, and Cash Wagon. 122 operate in Greater Jakarta.

1,477 shutdown Reportedly, up to early October 2019, OJK has closed a total of 1,477 illegal
platforms since 2018.

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The 13 licensed are: Danamas, Investree, Amartha, Dompet Kilat, KIMO, Toko
Modal, Uang Teman, Modalku, KTA Kilat, Kredit Pintar, Mau Cash (Astra WeLab),
Finmas, and KlikACC. The additional six (from seven previously) are: Modalku, KTA
Kilat, Kredit Pintar, Mau Cash, Finmas, and KlikACC.

Figure 18 Figure 19

P2P platforms Registration status (as of August 2019)

140 Licensed 140 127
127 127
Licensed and registered
120 113 120 112

100 100
88
80
80
60
60
40
40 22
16
20
20 13
7 7 0
0 Total licensed and Registration Registration in Wanted to apply
Dec2018 Jun2019 Aug2019 Sep2019 registered application process
rejected
Source: OJK Source: OJK

Key procedures from OJK

Capital requirement q Minimum Rp1bn upon registration. Minimum Rp2.5bn when in licensing process.

Showing NPL on website q Platform needs to show NPL (above 90 days or TWP90) in a visible way on the
webpage.

No regulation yet on NPL q Unlike banks, which are required to have net NPL<5%, there is no regulation yet
limit from OJK. At the very least, NPL needs to be part of reporting to OJK.

Capping lending at Rp2bn q Lending limit Rp2bn (c.US$140k) per loan. OJK can revisit this maximum limit.
We heard some productive P2P platforms requesting OJK to raise the limit.

Encouraging max 0.8%/day q Initiated by AFPI, payday loan maximum rate is set at 0.8%.
rate
Periodic reporting q Quarterly report of operational activities, rates, and results. For licensed
platform, OJK requires a monthly report and also an annual report.

Be part of AFPI q Registered company must also be part of association appointed by OJK.

Sanction process q OJK can issue written warnings, monetary sanctions, limit operation, and revoke
licenses. Monetary sanction can be done on its own.

The use of escrow and q Must use escrow and virtual account to facilitate transactions. There should not
virtual account be a direct transaction between lenders and borrowers.

Education and customer q Platform must apply standards in transparency, fair treatment, data privacy, and
protection dispute settlement. It must not disclose users’ info to any third party. Every user
complaint must be reported electronically on a monthly basis to OJK and
resolved within 20 working days. OJK can be asked to facilitate in the event of
a court case.

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q Anti-money-laundering and anti-terrorist funding principles must be

implemented according to the Constitution. Electronic signature providers must
be registered in the Ministry of Telecommunications and Information.

q The platform must meet data centre and DRC standards.

The key is enforcement All in all, the key is for OJK to enforce good governance of the industry, especially
in terms of data accuracy. One instance is on reported NPL.

The role of AFPI is becoming more important as well with the growth of the number
of players. We will discuss this in the last section of this report.

Room for collaboration with brick-and-mortar

Fintech lending can be seen Fintech lending can be seen as a disruption to conventional bank lending, especially
as disruption to banks on Micro and Small segments. In reality, this segment is hard to be served by
conventional banks (except BRI, BTPS).

But, there can be synergy P2P platforms can penetrate markets faster with the use of technology, but banks
are generally better funded and have more robust credit and risk management.

Hard for P2P to scale up While the P2P platforms that we met mentioned that fintech lending is entirely
without funding different from e-wallet in terms of marketing strategy (eg, subsidies), funding is
needed to scale up and it will be increasingly difficult to raise just from the retail
Especially from just retail
market. More platforms are telling us they want to raise the ratio of
investors
institutional/retail lenders. Akseleran said 90% of its funding is from retail lenders
but aim for a 50:50 ratio, similar to Investree (80% retail-funded now). OJK’s data
showed that only 0.16% of all lenders are institutional.

We believe the right strategy for the banks is collaboration, either in the form of
acquisition, fund injection, or channelling.

q Akseleran has CIMB Niaga and Mandiri Tunas Finance as part of their
institutional lenders. They have c.300k retail or individual lenders.

q KoinWorks has 207.7k retail lenders (80% of funding is from retail).

Being licensed helps q Uang Teman mentioned that being licensed, it is easier to access banks for loan
channelling or funding.

Tying up with BPR (regional banks)

To reach beyond current Some P2P platforms are collaborating with BPR to reach more users beyond their
operation area current area of operation. Most aim to lend to Micro and consumptive segments:
for instance, Kredit Pintar (with BPR Kanti, etc) and Modalku (with BPR Bekasi, etc).

Some investments in fintech

Mandiri Capital: investment
in 11 fintech startups
q Mandiri set up Mandiri Capital Indonesia (MCI) in 2016 and has invested in c.11
fintech startups in payment, lending, and SMEs fintech solution. In P2P,
portfolio includes Amartha, Investree, and Koinworks. MCI claimed it has made
several exits and will continue to look for opportunities to add to its portfolio.
Please refer to the report Bank Mandiri - BUY (Another growth driver) for more
details.

15 October 2019 sarina.lesmina@clsa.com 11

 
  
 The wave of fintech lending Indonesia fintech

BCA has CCV q BCA followed Mandiri’s footstep and set up CCV (Central Capital Ventura) in
2Q17 with Rp200bn initial funding. Up to June 2019, it has invested in 14
fintech ranging from P2P lending, robo advisery, insurtech to cybersecurity. The
aim is to have synergy with its network while BCA learns about fintech.

CCV does not limit investment to Indonesian companies, investing in several

Singapore-based startups such as Wallex and Element (mobile biometric). For
P2P, CCV invested in KlikACC, Akseleran, and Julo. Note that by regulation,
banks cannot enter directly into fintech, but only multifinance.

BCA channelling KUR loan BCA uses KlikACC to help channel KUR loans (note: BCA is the decision maker
through KlikACC in approving the loan). KlikACC obtained its license recently.

More banks setting up VCs q BRI last year bought a 97.61% stake in BRI Ventura Investama that was
previously owned by PT Bahana Artha Ventura. This entity will be developed
into VC. BNI is still in the process of forming entity to invest in fintech (initial
funding Rp600bn). CIMB Niaga tied up with Genesis Alternatives (Rp300bn
funding prepared). Even Pegadaian (SOE pawn shop) is interested and preparing
a Rp500bn fund in 4Q19.

Astra and WeLab q Astra International set up a JV with WeLab (HK-based fintech unicorn backed
by Alibaba and TOM Group) in April 2018 and set up PT Astra WeLab Digital
Arta. The first product is P2P platform Maucash (launched 4Q18) – it has also
obtained license recently. Maucash focuses on consumptive loan. As of July
2019, it had disbursed Rp28bn since inception with 5.3k active borrowers. It
charges 0.50-0.54% daily interest rate (excluding admin fee) for Rp500k-5m
loan size.

Tapping into incumbents’ The investment in fintech by banks and Astra allows the players to also tap into
captive market their captive market.

Dipping feet into digital lending

With mobile banking transaction becoming the new trend – overtaking internet and
ATM transactions – some banks may (and have) dip their feet into digital lending.
This is also given banks have recently launched mobile banking account opening.

BRI testing ultra-micro q BRI launched Pinang (Pinjaman Tenang): digital lending of payroll loan (Rp20m
segment with digital maximum loan size) targeting blue-collar workers. BRI claimed 10min
disbursement process. Another product is Kredit Extra Cepet (KECE) in piloting
phase for maximum Rp5m loan size. It will use biometrics checking as well as
accessing BI database.

BCA: Bank Royal as digital q Bank Royal’s acquisition by BCA was approved in EGM on 20 June 2019 and is
test ground now awaiting OJK’s approval. This bank may be used to push online lending to
SME. BCA has mentioned that it will be different from P2P – ie, lower interest
rate. The bank is developing its strategy, but Royal will be its digital test ground
for products that may be disruptive if tried in the existing BCA platform.

15 October 2019 sarina.lesmina@clsa.com 12

 

 

Figure 20
Quarterly transaction volume (in million) for BCA
Source: Company
Needs involvement from all
stakeholders
AFPI plays important role
Pusdafil is a good initiative
Accessing ministerial data
Improving financial literacy
Google also plays a role
Monitoring and
enforcement is the key
Shifting trend to
productive?
15 October 2019
The wave of fintech lending Indonesia fintech
Figure 21
Digital transaction volume for Mandiri account (yearly)
ATM Mobile banking
m Internet banking
70
60
50
40
30
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Company
The quest for sustainable model
It is still early days, but for the industry to grow sustainably, we believe the task
should be responsibility of all stakeholders, not just OJK.
In the forefront is AFPI (fintech association). As mentioned previously, it initiated
Pusdafil, a fintech lending data centre for data sharing among platforms. Pusdafil is
still on trial phase, but all registered platforms in OJK must be a member. Latest
news mentioned that regulation to govern data usage and exchanges has yet to be
proposed by AFPI to OJK.
If Pusdafil is really enforced and accurate data be shared, we reckon Pusdafil could
be an effective tool for fraud and risk mitigation – especially for consumptive loan
where it is easier to forge documents (as generally only ID, and picture is needed).
We heard that AFPI found a borrower that borrows from 143 platforms.
Also, the industry has yet to get access to the Ministry of Internal Affairs’ citizen
data (dukcapil). This is still in progress.
Besides the P2P platforms themselves, the government should also educate users on
the risk-reward of P2P lending through Telecommunications or Education Ministry,
most importantly education about the need to save and spend/borrow within means.
Banks’ Laku Pandai (government initiative for financial inclusion) have reached 23.3m
customers from 1.07m agents (as of March 2019) with Rp2.5tn total savings.
As most platforms are available for download from GooglePlay, they must also comply
with Google’s policy on data posting and usage (ie, customer data protection).
But, as mentioned, proper monitoring and enforcement by OJK to maintain healthy
ecosystem is the key. Note that fintech lending is not guaranteed by LPS.
Prioritizing productive lending
We are seeing trend of players that are doing consumptive lending planning or
trying out productive lending given: 1) bigger size (of loan); 2) more measurable risk
level (generally collateralized or part of supply chain of large companies); and 3) low
penetration. For instance, this includes Akulaku and Uang Teman. However, this also
means the platforms need more capital to serve productive loans.
sarina.lesmina@clsa.com 13
 

 
 The wave of fintech lending Indonesia fintech

Large contribution to GDP
Micro-SME (UMKM) contributes 55-60% to GDP. This tallies with the data that
shows 57% of workers are in the informal sector. Average annual revenue per unit
is still much lower than what is set by the government as upper limit for Micro (ie,
Rp300m). Focusing on productive lending to this segment to raise their income is
in sync with the government’s and OJK’s missions.

Figure 22 Figure 23

GDP contribution by segment Average annual revenue by segment

50% 2013 2017 3,000 Rpm
44% 29,721
45%
39% 2,500 940,700
40% 37%
34%
35% 2,000
30% 1,630
25% 1,500

20%
14% 1,000
15% 13%
10% 9%
10% 500

5% 76
0
0% Micro Small Medium Large
Large Micro Medium Small
Source: Government Source: Government

Evolution and consolidation

Industry will still evolve We believe the industry model will still evolve given it is early days and the
fragmented nature. Largest productive lending P2P (Modalku, Investree,
KoinWorks, Akseleran, Amartha) combined accumulated lending since inception is
only 15% of total industry.

As the number of players grows and “easy money” from investors gets harder to
come by, platforms need to be increasingly competitive in operational efficiency as
well as rates. The model of just launching an app and charge exorbitant rates will
not work by then.

Consolidation will happen eventually, but predicting this inflection point is tough at
this infancy stage of the industry.

What is more important is ensuring that we will avoid a “boom and bust” scenario
as in China. Indeed, there should be many lessons to be learned from them.

The rise and fall of China’s P2P lending

Media reported that the size of China’s P2P lending is larger than the rest of world
combined US$218bn O/S loan. It grew rapidly between 2011 and 2015, with the
number of platforms at one point reportedly reaching 6,000. However, in 2016,
trouble started brewing when regulatory data showed that about 40% of platforms
were in fact Ponzi schemes. One of largest players had NPL of around 20%. Stricter
regulations were then put in place and triggered the collapse of thousands of
platforms. As of 1Q19, there are about 1,000 left. The government still expects the
number to drop to c.100-200 this year.

15 October 2019 sarina.lesmina@clsa.com 14

 
  
 The wave of fintech lending Indonesia fintech

Figure 24 Figure 25

Number of P2P platforms in China Cumulative failed P2P in China

2,500 5,000
4,500
2,000 4,000
3,500
1,500 3,000
2,500
1,000
2,000
1,500
500
1,000
500
0
1Q18 2Q18 3Q18 4Q18 1Q19 0
2013 2014 2015 2016 2017 2018
Source: Government of China Source: Government of China

Who is backing who

Below is a non-exhaustive list of investors behind the key platforms:

∑ Modalku (Sequoia, Softbank)

∑ Investree (Kejora Ventures, Mandiri Capital, SBI Holdings (Japan))

∑ KoinWorks (Mandiri Capital, East Ventures)

∑ Amartha (Mandiri Capital, Lynx Asia)

∑ Uang Teman (Alpha JWC, PPDAI China)

∑ Danamas (Itochu Japan, Sinarmas)

∑ Julo (Quona Capital, East Ventures, Provident)

∑ Akulaku (Ant Financial, Sequoia, Arbor)

15 October 2019 sarina.lesmina@clsa.com 15

 
  
 Important disclosures Indonesia fintech

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Companies mentioned
Akseleran (N-R)
Aku Laku (N-R)
Alibaba (BABA US - US$171.16 - BUY)
Alpha JWC (N-R)
Alphabet (N-R)
Amartha (N-R)
Ant Financial (N-R)
Arbor (N-R)
Asetku (N-R)
Askrindo (N-R)
Astra (ASII IJ - RP6,425 - O-PF)
Astra WeLab (N-R)
Bahana Artha Ventura (N-R)
Bank Central Asia (BBCA IJ - RP31,000 - O-PF)
Bank Mandiri (BMRI IJ - RP6,600 - BUY)
Bank Negara (BBNI IJ - RP6,925 - BUY)
Bank Rakyat (BBRI IJ - RP3,920 - O-PF)
Bank Royal (N-R)
BPJS Tenaga Kerja (N-R)
BPR Bekasi (N-R)
BPR Kanti (N-R)
BRI Ventura Investama (N-R)
BTPS (BTPS IJ - RP3,750 - O-PF)
Cash Wagon (N-R)
Central Capital Ventura (N-R)
CIMB Niaga (N-R)
Crowdo (N-R)
Danamas (N-R)
Dompet Kilat (N-R)
East Ventures (N-R)
Element (N-R)
Findaya (N-R)
Finmas (N-R)
Genesis Alternatives (N-R)
Gopay (N-R)
Investree (N-R)
Itochu (N-R)
Jamkrindo (N-R)
Julo (N-R)
Kejora Ventures (N-R)
KIMO (N-R)
KlikACC (N-R)
Koinworks (N-R)
Kredit Pintar (N-R)
Kredivo (N-R)
KTA Kilat (N-R)
Lazada (N-R)
Lynx Asia (N-R)

15 October 2019 sarina.lesmina@clsa.com 16

 
  
 Important disclosures Indonesia fintech

Mandiri Capital Indonesia (N-R)

Mandiri Tunas Finance (N-R)
Mau Cash (N-R)
Modalku (N-R)
OVO (N-R)
Pefindo (N-R)
Pegadaian (N-R)
Pinjaman Tenang (N-R)
PPDAI (N-R)
PT Astra (N-R)
PT Astra WeLab Digital Arta (N-R)
PT Asuransi (N-R)
PT Bukalapak (N-R)
PT Provident (N-R)
Quona Capital (N-R)
SBI Holdings (N-R)
Sequoia (N-R)
Shopee (N-R)
Sinarmas Group (N-R)
Softbank Corp (9434 JP - ¥1,508 - O-PF)
Taralite (N-R)
Toko Modal (N-R)
Tokopedia (N-R)
Tom Group (N-R)
Traveloka (N-R)
Uang Teman (N-R)
Wallex (N-R)
WeLab (N-R)

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19