Adrian Gunadi
Co-Founder and CEO,
Investree; Vice Chairman

On the growing role of financial technology (fintech) in Indonesia

In what ways are fintech players providing easier access to finance for small and medium-sized enterprises (SMEs)? 

ADRIAN GUNADI: Fintech is a revolutionary tool that is overcoming many of the pressing issues for Indonesian SMEs seeking access to credit. Not only is the rate of bank account ownership 49%, but sources such as the World Bank and the International Finance Corporation state that there is a minimum of $75bn of unmet credit demand not being served by the formal banking sector in Indonesia. A major reason for this is that it is quite difficult for SMEs in Indonesia to obtain financial statements. Fintech players are able to solve this issue because they have access to alternative credit data; for example, through invoice financing or inventory financing. This makes financing SMEs much more feasible and can really expedite the process. Thus, SMEs can become more efficient and have much better access to working capital, and those that are listed on e-commerce platforms can now improve their supply chains and sell more products. In addition – unlike conventional banks ¬– fintech is allowing foreign lenders from countries with low interest rates to operate in Indonesia, giving SMEs even more affordable access to funds. 

How are conventional banks responding to the growth of fintech? 

GUNADI: Banks are now implementing several strategies to work with fintech players in Indonesia, with the strategy employed dependent on the number of shareholders in the company. Many banks have started their own digital initiatives, which serve as an accelerator programme with the goal of nurturing smaller fintech companies. The larger banks, such as Bank Mandiri, have set up their own venture capital fund, indicating how serious they are about working directly with fintech players to acquire more customers and make lending processes more efficient for borrowers. Similarly, Bank Rakyat Indonesia, the biggest micro-loans bank in Indonesia, has been tied in with Investree as an additional channel for financing SMEs, and we are open to discussing similar opportunities with other banks or financial institution. TheMinistry of Finance is has also created a mandate for several chosen fintech players to distribute retail government bonds in addition to loans, providing an additional channel to traditional bank lending for lenders looking for alternative yields. 

What is the current relationship between the regulator, Financial Services Authority (OJK) and AFTECH, and how are they working together to create a more integrated digital financial ecosystem?

GUNADI: The OJK has been very proactive and supportive in stimulating the growth of fintech. As a regulator, they really listen to the players and truly understand their business models, how they manage risk and what initiatives are being taken to ensure consumer protection. The support has been exemplified by implementing POJK No. 77/2016, which has become the regulatory framework for peer-to-peer lending in Indonesia. 

This approach not only stimulates innovation, but further reinforces the mutual understanding between the OJK and AFTECH regarding the importance of legal governance in the fintech business. AFTECH even serves as its own self-regulator because the association has a strict code of conduct which governs pricing, disclosure, transparency, collection and consumer protection. 
As fintech players grew significantly, especially in fintech lending, OJK urged AFTECH and other players to set up a spin-off association focused such lending, and AFPI was inaugurated in the fourth quarter of 2018. At the beginning of 2019 AFPI began serving as OJK’s official associate governing peer-to-peer lending, and AFPI is responsible for implementing a code of conduct between fintech businesses and regulating different market players. In December 2018 AFPI houses had registered 88 fintech lenders.

How do you see fintech evolving in Indonesia over the next few years? 

GUNADI: Indonesia’s fintech sector is currently valued over $1bn. In the next three years the sector should grow about 16-20% annually. In the short term there will be even more growth: many new players are appearing and more investors are looking to take advantage of the potential 12-13% returns in the market. In addition to there being 88 fintech lending companies in Indonesia, fintech companies are also diversifying tremendously. Many of these focus on supplying micro-loans through digital-based community lending and providing working capital to farmers through agri-tech. 
For the sector to be more successful, however, a more integrated ecosystem is required. There needs to be a focused fintech accelerator and incubator, as this will help entrepreneurs who are attempting to build their own companies to launch their ideas and products in a much more sustainable way. Another goal is to build a centralised database, where real-time data for each segment can be easily accessible – especially as the sector diversifies. By learning from models of different countries, and given the current symbiosis between the OJK, AFTECH and AFPI, the sector is certainly on the path to success.