Editorial Board (The Jakarta Post)
Fri 22 October 2021
The country’s leaders have declared war on the illegals pinjaman (online loan applications), or pinjol, that would have plunged borrowers – many of whom do not have access to finance – into financial disaster.
President Joko “Jokowi” Widodo himself ordered the Financial Services Authority (OJK) and the Ministry of Communications and Information to stop issuing new licenses to pinjol the operators.
According to Communications and Information Minister Johnny G Plate, 107 legal fintech lenders operate under the auspices of the OJK and have a turnover of some 260 trillion rupees ($ 18.39 billion) .
The ministry closed 4,874 pinjol apps since 2018, with 1,856 apps closed in 2021 alone.
Meanwhile, the minister responsible for coordinating political, legal and security affairs Mahfud MD told borrowers pinjol stop repaying their loans because they were not legally valid. He said debtors could seek police protection if digital loan sharks launch their well-known tactics of verbal abuse and threats.
Aggravated by the police crackdown on illegal financial operations in West Jakarta, North Jakarta, Tangerang in Banten and Yogyakarta, the government is showing its determination to crack down on digital usurers.
Jokowi even ordered public banks to increase their unsecured loans to Rs 100 million for micro, small and medium enterprises (SMEs) from a previous limit of Rs 50 million as part of efforts to combat the marauding digital loan sharks.
The reality is that most pinjol borrowers are people who need cash quickly for any reason, from family or medical emergencies to simple consumption and lifestyle purposes. The promise of low interest rates and easy access to money has lured unsuspecting borrowers into the trap of loan sharks.
Even if you pay your installments on time, loan sharks cut a good chunk of the “administration fee” before slapping you with interest rates of up to 0.8% per day or 24% per month.
Obviously, borrowers have access to the digital world but are not taking advantage of more secure options, such as the loans offered by traditional and legal digital banks. The vulnerability of people to digital moneylenders has shed light on financial illiteracy. An OJK study conducted in 2018 found that the country’s financial literacy rate was 38.03%, while the financial inclusion rate was 76.19%.
The pinjol saga proves that such disruptive technology – a favorite Jokowi slogan – can be a double-edged sword. On the one hand, it helps many MSMEs reach their customers, especially during the COVID-19 pandemic; on the other hand, many have fallen prey to cybercrime.
In addition to educating the public to improve digital literacy, stronger law enforcement is required to protect financially naïve borrowers from pinjol applications. Now that everyone can access a pinjol The operator indicates that it is possible for banks and other financial institutions to expand their services.
Indonesia has a range of institutions that provide financial assistance to the public, such as savings and credit cooperatives, as well as rural banks (BPRs). Bringing them into the digital world would allow more people to easily access microcredit while increasing their financial inclusion and literacy.