The Online Lending Trap

5 hours ago 2

TEMPO.CO, JakartaOnline lending companies have turned into loan sharks. Their victims are poor people.

THE Business Competition Supervisory Commission (KPPU) is in the final stage of its investigation into the alleged monopoly over the setting of online lending interest rates by digital finance companies. The KPPU alleged that 97 credit companies have colluded in the setting of suffocating loan interest rates, meaning that their business practices are no different from those of loan sharks.

These online lending companies set interest rates of 0.8 percent per day. This means that borrowers have to pay the principal plus interest of 24 percent per month. This interest rate is eight times higher than the 3 percent that is charged by rural banks (BPR). And even the BPR interest rate had been considered as too high compared with the interest on credit from other financial institutions.

The online lending companies claim that the setting of their interest rates has the approval of the Financial Services Authority (OJK). In 2006, based on OJK Regulation No. 77 on Information Technology-Based Financial Lending Services, the setting of interest rates was handed over to the mechanism of the market, namely by agreement between those providing and those taking out loans.

The OJK did not take any action when the online lending companies agreed to set extremely high interest rates. Given the unequal power balance between debtors and creditors, together with the low financial literacy of the public, borrowers are unable to do anything about the interest rates set unilaterally by these digital financial companies.

The OJK should from the outset have ordered these online credit companies to refer to Law No. 4/1999 on the Ban on Monopoly and Unhealthy Business Practices. This law states that business entities are forbidden from making agreements with companies in the same business to set high prices for goods. This would give people the choice of requesting loans from companies offering more competitive interest rates.

It was only in 2024, after the KPPU began investigating the cartel and monopoly practices of online lenders, that the OJK set a maximum online interest rate of 0.3 percent for consumer credit or 0.1 percent for productive business loans. But the ease of borrowing through applications means that there are other risks from the euphoria of online loans. Although still below the safety threshold of 5 percent, the level of non-paying loans is at 2.9 percent and has been increasing every year.

It is not impossible that online loans will become a time bomb that will stifle the productivity of Indonesians. According to the OJK, 75 percent of online loans are used for consumption, with most of these for online gambling. Debtors with defaulted loans are usually poor individuals aged between 19 and 34 years who have taken up individual loans.

These figures are the value of legal online loans recorded at the OJK. As of February 2025, the Illegal Financial Activities Eradication Task Force received more than 15,000 reports. About 93 percent of the total reports were related to digital financial abuse. Although the value is not recorded because it is illegal, the number of loans is believed to be much larger.

The Indonesian law cannot touch these loan sharks who set interest rates above the permitted rates. However, with stricter loan regulations, particularly for consumer credit, it will be possible to exercise more control over loans obtained through apps. Without these regulations, online lending will be nothing more than a trap for poor people that is disguised as technological innovation.

Read the Complete Story in Tempo English Magazine



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