Foe to friend: Fintech companies work with banks to reach unbanked

Posted by on 07 November 2019


When financial technology (fintech) start-ups began mushrooming in the country a few years ago, several economists and experts described the phenomenon as a disruption of the conventional banking business.

Fintech firms can provide loans to customers faster than banks by using their technology in determining a person’s credit rating. Banks find it difficult to compete with fintech’s speedy services, as they are bound to rigid regulations.

However, things seem to have changed recently as fintech companies are now collaborating with banking institutions to reach so-called unbanked people by given them access to financing while boosting financial inclusion in the country.

Peer-to-peer (P2P) lending platform Amartha, for instance, has received funds amounting to Rp 150 billion (US$10.67 million) from private lender Permata Bank and Rp 100 billion to Rp 200 billion from Mandiri Capital Indonesia, a subsidiary of state-owned lender Bank Mandiri, to provide loans for businesswomen in villages across Indonesia.

“Without having to invest much in technology, banks could engage in credit underwriting and reach many more people [by working with fintech companies], because many banks have not yet acquired [sufficient] technological capabilities,” Amartha chief and risk sustainability officer Aria Widyanto told The Jakarta Post recently.

Amartha’s borrowers will automatically become bank customers as the loans are booked at Permata Bank and Bank Mandiri.

“When the borrowers use our service, their loans are being booked at the banks, so they will have a credit history and have their profiles recorded in the banking system,” Aria said.

Amartha has channeled around Rp 1.49 trillion to more than 315,000 village women since 2016, with around 80 percent of the borrowers previously being disconnected from the banking system.

According to the e-Conomy Southeast Asia study released recently by American tech giant Google, Singaporean holding company Temasek and management consulting firm Bain & Company, 92 million of 181 million Indonesians were still unbanked, as they did not own a bank account and had insufficient access to credit, investment and insurance services.

“Digital financial services have the potential to solve many of these challenges. Enabled by technology and based on robust data, they can help to increase access, improve convenience and deliver more inclusive financial services,” the report stated.

Fintech lending platform Investree has received Rp 200 billion in funds from state-owned Bank Rakyat Indonesia (BRI) as of August. The bank plans to increase the funding to Rp 1 trillion to Rp 2 trillion next year.

“Through such cooperation, we can acquire debtors that are unwilling to access the banking system because they are more used to digital processes [than banking services],” said BRI director for micro-business development Supari.

Investree has channeled Rp 2.74 trillion in loans to more than 1,200 individuals and institutions since it was established in 2015.

While collaboration between fintech companies and banks typically revolves around banks channeling funds to fintech companies’ borrowers, P2P lending platform TaniFund takes a different approach to encourage its borrowers, mainly farmers, to enter formal financial services.

Farmers using TaniFund’s services can only receive the loans via bank transfers, forcing them to have at least one bank account. 

“Farmers should, at least once, supply their produce to TaniHub to be able to receive financing [from TaniFund]. The payments for the supply would be paid to the farmers through bank transfers,” TaniFund business administration lead Lutfia Aisya Lutfia told the Post recently.

“Should farmers’ businesses be handled professionally, they can have better access to finance through formal financial services,” she said.

TaniFund is a business arm of agriculture technology start-up TaniGroup, which also operates e-marketplace TaniHub. It has channeled around Rp 73.4 billion in funds to some 2,000 farmers involved in 986 agriculture projects since early 2017. Its investors range from Jakarta-based Alpha JWC Ventures to Singapore-based Golden Gate Ventures and individuals.

According to Bank Indonesia data, the amount of funding channeled by fintech companies totals Rp 60.4 trillion, with more than 14 million borrowers, as of September. That is based on 120 fintech companies registered by the Financial Services Authority (OJK).

Fifty-five-year-old carpenter Jaronah has found an Rp 8.5 million loan from Amartha helpful for developing her business that she built from scratch more than 20 years ago.

“I used the money to buy used wood from infrastructure projects for around Rp 400,000 a week. I could then receive around Rp 1.5 million per week by selling firewood and furniture, such as tables and chairs,” Jaronah said.

She has rejected credit offers in the past from Bank BRI due to demanding requirements for collateral, such as an obligation to provide a land certificate.

“At the time, I did not want to accept the offer, because it would be hard for me to lose my land,” she said, adding that a fintech company only asked for pictures of her national identity card (KTP) and family card (KK).

Meanwhile, food stall owner Marni, 55, told the Post that borrowing money from a fintech company had allowed her to buy groceries for her business as well as allocate some of the money to pay for her children’s school. 

“I decided to borrow some money from fintech because I do not have any savings to pay for my son’s education,” said the woman, who has been running her business for around 30 years. “The loan has helped me continue my business while paying for my sons’ education.”

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