Indonesia seeks to crack down on "unhealthy" peer-to-peer lenders

JAKARTA (Reuters) - Indonesia has launched a crackdown on peer-to-peer (P2P) lenders through a new regulation and capital requirements, in a move that industry sources say should help clean up a booming online lending sector beset by consumer complaints.

The rules, announced this month by Indonesia’s financial services authorities (OJK), set a minimum capital requirement for lenders at a 25 billion rupiah ($1.67 million), up from 1 billion rupiah previously, with an additional demand to maintain at least 12.5 billion rupiah of equity at all times.

The regulation took effect on July 4.

"This will create a natural selection and filter out which peer-to-peer firms are healthy or not", said Freddy Karyadi, a lawyer who has fintech clients.

P2P lending, internet-based platforms that link up borrowers and lenders, has become a popular way for small businesses to raise money and for under-banked individuals to get loans.

Since 2015, foreign online lenders, including many Chinese lenders, have targeted Indonesia's youthful market of 270 million people, but some "ghost" online lenders have not had physical offices and used aggressive debt-retrieval practices, such as calling the families and colleagues of clients.

Joel Shen, head of Asia technology at global law firm Withers, believes the tighter regulation would not deter any "serious players", though could reduce the number of new entrants.

"This (new regulation) will, on balance, be a good thing for the industry, which has been growing at a breakneck pace," he said.

Indonesia had around 150 registered P2P lenders before President Joko Widodo ordered last October a moratorium on permits for fintech lenders to clean up the sector.

The government identified a three-fold rise in illegal online lenders in 2019 to 1,493, according to OJK data.

Other requirements under the new rules include a three-year lock up of shareholder stakes after establishing a platform and for the senior executive at lenders to get OJK's approval.

The OJK's board of commissioners said on Wednesday they will monitor the implementation of the regulation and push all unregistered P2P firms to apply for legal permits.

($1 = 15,015.0000 rupiah)