, and ,
In Indonesia 鈥� Southeast Asia鈥檚 largest economy 鈥� small and medium enterprises (SMEs) contribute to . However, while there are .
The COVID-19 pandemic has made the situation worse for these SMEs, as almost 50% (around 30 million SMEs) have been forced to .
That鈥檚 where can help. This term refers to a combination of financial services and technology that aim to make it easier for people to save, borrow and invest online.
Lending services offered by fintech companies like and could help these small firms to get loans at a lower cost with that outstrip conventional banks.
Peer to peer lending
Data from Indonesia鈥檚 Financial Services Authority showed almost of the country鈥檚 population doesn鈥檛 have access to banks.
SME entrepreneurs suffer greatly from limited access to banks, which makes it difficult for to obtain loans and fund business expansion.
Currently, there are about 157 fintech lending firms in Indonesia, with a total asset of almost Rp 3.2 trillion, according to the country鈥檚 .
One lending services offered by fintech firms is called peer to peer (P2P) lending. Under this loan mechanism, an individual or a company can lend money to others in return for an interest.
At least 54% of 12.8 million P2P borrowers are SMEs. The lending accounted for 55% from Rp 54.71 trillion of loans that the fintech sector .
A by Universitas Indonesia shows P2P lending helps SMEs scale up their business, eventually helping them qualify for bigger bank loans.
Online sellers that borrowed from the P2P lending platform were able to increase their income from the initial average of .
How the government can boost fintech expansion
The government needs to support the expansion of fintech so they can help more SMEs access loans and scale up their business. Supporting SMEs is important for the Indonesian economy, given their massive contribution.
Indonesia鈥檚 Financial Services Authority (OJK) also recently launched its .
This road map complements a 鈥溾�� operated by OJK, in which fintech startups can conduct live experiments to trial new products or business models in a controlled environment.
It also allows OJK to receive immediate feedback and test upcoming regulations. With a more diverse range of loan products, SMEs stand to benefit by finding products best suited to their business.
However, the government still needs to support this with the appropriate infrastructure, such as high-speed, affordable, and reliable internet connection.
The government must also ensure all SMEs are well informed about financial service options available for them, including those offered by fintech companies.
What鈥檚 needed is collaboration between all parties 鈥� including fintech firms, the banking industry and government 鈥� to support Indonesia鈥檚 SMEs during the pandemic.
, Tutorial Fellow, and , Consultant and Casual Lecturer,
This article is republished from under a Creative Commons license. Read the .
