NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, September 22, 2014

The Financial Services Authority (OJK) plans to set a cap on micro credit rates this year, a move that would put domestic lenders on alert as micro lending has been seen as the most profitable credit segment.

OJK chairman Muliaman D. Hadad said recently that his agency was working on coming up with a limit on the rate, which it deems is already too high. “The margin that is generated by micro loans is very high and this is something that is widespread among banks, big and small,” he said recently.

The cap, Muliaman added, would be similar to an existing cap applied in the credit card segment by Bank Indonesia (BI) to protect customers from high interest rates. At the moment, the maximum rate for credit cards is set at 2.95 percent per year.

“A high rate is burdensome for bank customers. So we are going to summon lenders to discuss this matter,” he said, adding that the implementation of the upper limit would be imposed before year-end.