This Indonesian Microfinance Startup Wants to Put Loan Sharks Out of Business
Thursday, October 1, 2015
In Indonesia, 203 million people are classified as poor, living on less than US$4.50 per day. This group of consumers is not the section of the economic pyramid that conventional banks and insurance companies tend to prioritize, despite their making up the majority of the archipelago’s population. This is a problem Aidil Zulkifli, co-founder and CEO of UangTeman, hopes to solve.
According to a 2014 study from the KPMG global network of firms providing audit, tax, and financial advisory services, roughly 105 million Indonesians still need access to formal or semiformal credit and finance programs to progress up the socioeconomic ladder. UangTeman (which translates toMoneyFriend) is an online short-term microlender looking to serve the needs of ordinary Indonesians. The startup lends no more than Rp 2 million (US$136) with a span of up to 30 days before it must be repaid. The firm claims to “crunch data” to assess people’s credit in places where there are no credit scoring agencies or bureaus.
“We compete directly with organized crime loan sharks, pawnshops, and traditional market lenders,” says Aidil, who also happens to be the founder of Singapore-based Loan Garage’s KreditAja, which was acquired by MoneySmartin late 2014. He adds, “We truly believe in being a socially responsible lender and harnessing big data technologies to deliver financial services in a safe and transparent manner. We do not engage in hard collections – we work with borrowers if they have difficulties.”
Bottom of the financial pyramid
With UangTeman, borrowers do not need a credit card or even credit history to get a loan, unlike in traditional banks. Aidil says the loan appears in your account within 24 hours if it’s your first time, but much faster if you’re a repeat borrower. Borrowers are at liberty to choose to borrow for any time between 10 and 30 days.
UangTeman asks that users pay back their loan at the end of their chosen tenor period, including the principal amount plus the accrued interest. For the first loan, the interest rate is one percent a day, and can decrease over time with good credit behavior, says Aidil. He also admits that UtangTeman’s interest policy has been the subject of controversy in Indonesia’s financial space recently. Many stakeholders like banks and traditional micro-finance institutions disapprove.