As Indonesia’s fintech ecosystem matures, criminals are also developing ways of doing business in space. This has led to the victimization of unwitting users and the problem is widespread. The IT ministry has blocked 1,856 unlicensed fintech lending platforms in 2021 and almost 4,900 illegal platforms since 2018. However, this has not slowed the proliferation of illicit lending apps that prey on financially vulnerable Indonesians.

Online loan sharks operate by providing quick loans in small amounts, typically around IDR 1-3 million (USD 70-210), which carry penalties and sky-high interest rates well above the OJK maximum 0.8% daily rate. They access all the data on the borrower’s phone and abuse it to terrorize the borrower if they don’t pay off the debt. Debt collectors harass borrowers with threats of violence and humiliation, or say they will share personal photos and videos of borrowers, or even compromising images that are faked, with their contacts. Since 2019, OJK has received more than 19,000 consumer complaints regarding illegal lenders.

This problem is so persistent that it has drawn the attention of President Joko Widodo. On October 15, the president held a meeting with the relevant authorities – the financial services authority OJK, the IT ministry and the national police chief – and ordered them to take stronger action on illegal fintech companies that are a threat to low-income communities.

The president’s order led to a massive investigation into the activities of online loan sharks. In the last two weeks, the police carried out raids and arrested dozens of employees of unlicensed moneylenders in many cities, including Jakarta, Yogyakarta and Surabaya. For example, during the Raid from a company called Ant Information Consulting last week, police found pornographic photos that had been edited, making the people depicted look like people who had borrowed. An employee who was arrested said the photos were used as intimidation tools. The police are still looking for the owner of the company.

Bhima Yudhistira Adhinegara, director of the Center for Economic and Legal Studies (Celios), said arresting employees and debt collectors of illegal lenders is not enough to stop the practice. “Data from the IT ministry showed that 78% of illegal lenders operate by using servers abroad, such as in China, the US, or Singapore. I think international cooperation is needed to eradicate illegal loans, ”he said. KrASIA.

The government and other stakeholders, including fintech companies, must also develop ways to help consumers understand the ins and outs of online lending because financial literacy is crucial when using these services, Adhinegara added. “Until now, efforts to educate the public have not kept up with illegal lenders using SMS to market their products. The government should cooperate with telecom operators to provide advisories and education via SMS regularly and on a large scale. “

Additionally, the personal data protection bill should be passed into law as soon as possible, Adhinegara said, because many unregistered lenders obtain potential customer data illegally.

As part of the effort to shut down Indonesia’s online loan sharks, the government will also impose a moratorium on issuing licenses for fintech lenders. In this way, authorities can divert resources to eliminate illegal platforms. OJK has revoked the licenses of dozens of fintech lenders this year. According to the most recent count that took place on October 6, there are 106 registered and licensed fintech loans platforms in the country, from 149 platforms that were on the list in December 2020.

Adhinegara agreed with the government’s plan to retain new permits for fintech lenders. “We already have too many players at the moment, so it is difficult to monitor,” he said, noting that the monitoring process requires a considerable budget and many resources from the OJK. Adhinegara expects fintech lenders to merge or be acquired by larger players. “Eventually, we may only have about 20 platforms that survive and dominate the market,” he said.