The Unspoken Truth Behind OJK's Public Appeal on Illegal Fintech Lending

Fintech, peer to peer lending (FP2PL) in particular, is still an on-demand sector in Indonesia. However, the industry exists with the presence of illegal fintech lending. Although law enforcement and authorities have been hunting it down, these illegal FP2PL keep surviving and multiplying.

The act against illegal practices took place on December 21th, 2019. An operation by Polres Metro Jakarta Utara uncover the fraudulent practice of online lending (fintech lending) office under the name PT Vega Data and PT Barracuda Fintech in Penjaringan, North Jakarta, specifically pinned at Mal Pluit Village. The police named 5 suspects of the total of 76 employees at that time.

The impact of the massive raid on illegal fintech lending is OJK's appeal letter. It is to appeal registered fintech to avoid the Pluit and Central Park area, West Java, for an office space.

OJK said some of that illegal fintech players were running as syndicates, therefore, they are most likely to move in one area. Appeals to not have offices in the two places mentioned, according to the FSA, are part of prevention efforts.

"Considering that illegal fintech can be very tricky for intimidating users, and in terms of protection for the public community, prevention steps are required, as well as to maintain the quality and reputation of registered and/or fintech lending licenses," OJK's Director for Fintech Managing, Licensing and Supervision, Hendrikus Passagi told DailySocial,

In fact, the illegal fintech termination wasn't just a one-time thing. Similar operations have been carried out before. There are some factors that allow those illegal firms to keep appearing and capture new customers.

Large market

Lending businesses grow big every year. In 2017, lending has contributed 15% of the total fintech transaction in Indonesia. Another indicator is the number of cash distributed to customers that keeps increasing.

Based on OJK's data during 2019, fintech lending has distributed up to Rp68 trillion. The number grew from Rp22.66 trillion last year. This is considered a rapid growth.

It is obvious that the business players are also increasing, both legal and illegal. OJK said, there are a total of 25 fintech lending players by December 2019, while the illegal ones are getting thousands.

Regarding the illegal fintech lending, they've been using various kinds of platforms. There's an app-based operation, websites, or through SMS blast that'll lead into instant messages platforms, such as WhatsApp. The Ministry of Communication and Information, as part of the OJK-formed Investment Alert Task Force, claims that there are 4,020 illegal fintech players have been blocked during the last two years.

The existing gap

Observing the government's effort in terminating illegal fintech is like trying to dodge a bullet. The acts are unstoppable because there's still a gap to be leveraged by the law gangsters.

The biggest one is, there's no exact law to avoid the rise of these illegal businesses. Passagi admitted the absence of regulations can be the main reason for the mushrooming illegal fintech lending.

Another hole that may be missed by the supervisory authority, especially by the Ministry of Communication and Information, is the SMS feature to outsmart the government systems supervision and operating system provider. Quoted from Kompas, the Pluit based office search by the police used random SMS chains. Start from the SMS, potential victims will be escorted to a site through the sent link. They will be asked for some data to process loans such as National Identity Cards, Family Cards, also the Tax ID.

On the other hand, prohibiting an area for fintech lending operation is a kind of unreasonable act. Seeing how dynamic the movement of illegal syndicates is, a place is just a place. With the existing passionate market and multiple gaps, they can be anywhere.

Room for Improvements

Aside from hoping the regulations for illegal fintech lending issued, the government has an "optimistic" plan coming.

The Kominfo, The Indonesian Telecommunications Regulatory Agency (BRTI), and the Directorate General of Population and Civil Registration are currently working on renewing the registration terms of prepaid cellular. This plan will later enable cellular operators to use the 'know your customer' mechanism as in banking.

It will involve biometric technology to make sure the prepaid cellular owner has a valid number. In reverse, when the data doesn't match in the Dukcapil's system, there will be sanctions.

"For example, with face recognition technology, fingerprint, or iris recognition. On the records, operators are fully responsible for the validity of their customers. In this way, hopefully there will be no misuse of other people's data to register prepaid customers," BRTI's member, I Ketut Prihadi said.

Basically, the new draft regulation will patch up the failure of the prepaid registration policy which was previously said to overcome SMS / telephone spam. The rest is yet to know whether the new policy is applicable. No doubt, as long as there is no policy intends to protect the industry from unlicensed organizers, the stories of illegal fintech lending with tens of billions of revenue like the one in Pluit will keep repeating.

– Original article is in Indonesian, translated by Kristin Siagian