Two Types of P2P Lending in Indonesia

Business, Digital Business

When it comes to types of P2P lending, every website advertises itself so that it looks different from its competitors. For example, Crowde always associates itself with ‘helping Indonesian farmers’, Mekar always associates itself with ‘supporting Indonesian women’, or Ammana whose identity is very closely related to ‘Sharia lending’.

This article is an additional supplement to understand the business model of peer-to-peer lending websites in Indonesia and other countries, which are actually only divided into two major groups: the Shared Economy and the Consumptive Economy.

Shared Economic Model

Examples of websites: Modalku, Koinworks, Investree

The shared economy model is more common in Indonesia, where capital from investors is used to fund borrower activities related to business activities.

The advantages of this model:

Transparent: You choose who you want to fund, what business, and what activities. Almost all websites of this model provide fairly clear information about the loan that you will fund. Koinworks even provides financial data from the borrower for your consideration.
There is a social value: By investing in this lending model, you can be a little proud because it indirectly helps the country’s economic development, because all the loans are related to business activities carried out in Indonesia (except Modalku, for example, which has loans outside Indonesia).
Many options: If you have a concern for the Indonesian agriculture sector, you can choose to only fund in agricultural lending such as Crowde. Education? Many are also available on KoinWorks. SMEs? Moreover. Whatever industry you want to support, you can choose freely.
But there are also drawbacks to this Shared Economy model:

Liquidity tends to be slow because you have to wait for the loan you choose to be fully funded. For example, the loan is worth 50 million, you only fund 5 million, then it still takes 45 million before the loan runs. If the loan has not run, then your money has no interest and cannot be withdrawn. This is what I call ‘dead money’ – it can’t be used, it doesn’t pay interest either.
It is difficult to diversify if you do not know the basics of investing. There is quite a lot of information that needs to be processed in a lending model like this, such as tenor, interest, loan nominal, lump-sum loan installments or not, and what the loan will be used for. As a result, beginners will find it difficult with this lending model.

Consumptive Economic Model

Examples of websites: Kreditpintar, Asetku, Rupiahplus, Easycash

The second model offered by lending websites in Indonesia is in the form of a consumptive economy – a term that I coined although it is not entirely correct. This model is still rarely used in Indonesia and very common in China.

In this model, your money is spread along with other investors’ money to fund personal loans from many people at once. Usually, the ones who spread this money are robots (artificial intelligence). The robot also analyzes the risk of borrowers. The loans that are funded vary from buying pulses to car installments.

The advantages of this model include:

Liquidity is very, very fast because your funds are ‘matched’ automatically to various borrowers instantly at any time, without the need to wait for new loans to appear or wait for the loan value to be met.
Interest tends to be higher because personal loans do have a higher interest rate than corporate loans (although the risk is higher too).
Simple. You don’t need to choose a product that fits your criteria. You just need to choose a tenor without worrying about a lot of other information.

While the disadvantages are:

You support unhealthy consumption. Your money is borrowed for ‘non-essential’ purposes – eating luxury, buying credit, buying luxury goods, and so on. There is no pride because you do not contribute to the country’s economy.
You don’t know who your money is used for and for what because the website automatically distributes your funds without providing information to the borrower and the need for the loan.

So, Which is Better?

Both are good, depending on what you invest in lending for. If you want the highest profit, then it is more suitable to accumulate funds on a website such as Assetku, which currently offers the highest interest plus 100% capital protection.

However, if you invest also to have a social impact, maybe you can choose a website that supports MSMEs such as Amartha, agricultural supporters such as iGrow, or Investree.


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