Welcome to #Fintechft. One of the predictions in our first newsletter of the year was that China’s battles with risky online lending practices would be mirrored elsewhere in the region. It didn’t take long to come to pass, with India and Indonesia both stepping up oversight of the sector. But the conflict is far from settled.
Apps and websites offering quick loans have proliferated in India and south-east Asia, where hundreds of millions of people are unable to access the formal credit system.
Officials and executives alike agree that digital lenders can help address a chronic shortage of credit for the region’s fast-growing, young population — a need that has only increased during the pandemic. However, regulators are now grappling with the same mix of scandal and rising defaults that prompted a crackdown on digital lending in China in 2018.
A spate of suicides by vulnerable debtors in India — where effective interest rates on apps can be as high as 60 per cent a week — have sparked outcry. The fast-growing peer-to-peer lending sector in Indonesia has also been dogged by high default rates.
Now regulators are stepping in. The Reserve Bank of India in January set up a panel to strengthen oversight of the sector. The suicides also sparked police investigations and arrests in the country of 1.4bn.
Indonesia’s Financial Services Authority (OJK) has also ramped up its regulatory efforts. It drew up draft proposals late last year to toughen existing rules such as significantly boosting capital requirements.
Increasingly, tech giants including Google are being drawn into the fray. In India, Google has removed several lending apps from its Play Store following pressure from the Reserve Bank of India, the central bank. But shut down apps can re-emerge under new or similar names within days on the companies’ online app stores.
The recent trends in India and south-east Asia are not just reminiscent of earlier events in China, but are directly tied to them. The number of P2P lenders in China fell from a peak of more than 5,000 to just 29 by June 2020, but the crackdown from Beijing led many Chinese operators to set up shop elsewhere.
A 2018 OJK report found that half of the 227 unlicensed P2P lenders in Indonesia originated in China, and analysts in India say many of the illegal apps there are also run indirectly from China.
The tricky part now is weeding out illicit lenders without making regulated fintech companies collateral damage. Millions of people and small businesses in Asia rely on such services because they get overlooked by banks.
In India, 190m people did not have bank accounts as of 2017, according to the World Bank, along with 95m in Indonesia.
India’s FinTech Association for Consumer Empowerment, an industry body, is looking to pre-empt heavy-handed intervention by lobbying the RBI for a self-regulatory model.
Executives in Indonesia, meanwhile, are working to improve consumer and investor education. Eddi Danusaputro, chief executive of Mandiri Capital Indonesia, said:
“Regulators can’t solve everything. We have started an education about illegal lending. This can be as simple as [explaining] illegal apps will ask for personal details that legal ones will not.”
Mandiri Capital is the venture capital arm of Bank Mandiri — the country’s largest state-owned bank by assets — and has backed several legal, regulated lending start-ups.
One thing is certain. More collaboration is needed between tech companies and governments. The need is especially great in Asia, where education lags behind that in western countries. The problem is that tech companies globally have taken a hands-off approach to regulating their online platforms. Until there is greater collaboration, policing illegal apps is akin to playing a game of Whac-A-Mole.
If you are having thoughts of suicide please contact the hotlines listed below. In India you can reach Kiran at 18005990019. The US National Suicide Prevention Lifeline is at 1-800-273-8255 — a free, confidential 24/7 service for people that need help. Or in the UK, the Samaritans hotline at 116-123. More information can also be found at www.mind.org.uk, www.samaritans.org and www.save.org
Quick Fire Q&A
What’s your name? Moneyfarm
When were you founded? 2011
Where are you based? We’re headquartered in London, with offices in Milan and Cagliari.
Who are your founders? Paolo Galvani and Giovanni Daprá
What do you sell, and who do you sell it to? A simple and cost-effective way to invest with actively managed portfolios and qualified consultants, attracting experienced investors keen to delegate.
How did you get started? In Milan, believing technology can make investing affordable and transparent. We’re the original robo adviser, before it became a “thing”.
How much money have you raised so far? We’ve raised over £100m to date.
What’s your most recent valuation? Not disclosed
Who are your major shareholders? Allianz Asset Management, Poste Italiane, United Ventures and Cabot Square Capital.
There are lots of fintechs out there — what makes you so special? We offer great technology, but we don’t automate everything. Every customer gets active portfolio management and guidance from expert consultants.
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