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Default on Fintech Lending: Who’s Responsible?

As providing the lending service, fintech lending could not avoid the potential default risk (resiko gagal bayar) which occurred by its borrowers and impacted most to the lenders.

Fintech Lending (“Layanan Pinjam Meminjam Uang Berbasis Teknologi” or “LPMUBTI”) or known as Fintech Peer-to-Peer Lending is one of the financial innovation with the utilization of technology that allows lenders and borrowers to make lending transactions through the system that operated by fintech lending’s operator. Specifically in Fintech Lending Frequently Ask Questions (Fintech Lending FAQ) which issued by Financial Services Authority (“Otoritas Jasa Keuangan” or “OJK”), OJK has mentioned the difference between fintech lending and the other fintech is found on its innovation limitation only for the lending service.

Fintech Lending (“Layanan Pinjam Meminjam Uang Berbasis Teknologi” or “LPMUBTI”) or known as Fintech Peer-to-Peer Lending is one of the financial innovation with the utilization of technology that allows lenders and borrowers to make lending transactions through the system that operated by fintech lending’s operator. Specifically, Financial Services Authority (“Otoritas Jasa Keuangan” or “OJK”) mentioned on the Fintech Lending Frequently Ask Questions (Fintech Lending FAQ) which said the differences between fintech lending and the other fintech that found on its innovation limitation only for the lending service.

Default Risk in Fintech Lending

As same as collectability status to measure the non-performing loan in the bank, fintech lending has its indicator measurement on the success rate of returns (“Tingkat Keberhasilan Pengembalian or “TKB90”) and default rate (“Tingkat Wanprestasi” or “TKW90”).  There is no specific provision concerning the TKB 90 and TKW 90. However, the indicator could be found in fintech lending operators’ website as OJK obligate the indicator appearance according to the transparency principle. The purposed of the indicator has addressed to the lenders as a reference decision in placing funds.

Furthermore, TKB 90 is a measurement of the operators to facilitate the settlement of lending obligation within 90 days since the due date. Otherwise, TKW 90 is a measurement of default or negligence in settlement of lending obligation within more than 90 days since the due date. TKB 90 and TKW 90 are counted based on the formulation below:

TKW 90 = Default outstanding > 90 days  x 100%

                        Total outstanding

TKB 90 = 100% – TKW 90

According to the indicator above, default risk will occur when the borrowers failed to make a repayment to the lenders within more than 90 (ninety) days since the due date of the repayment schedule.  

Responsibility in Fintech Lending Default Risk

According to AFPI fintech lending code of conduct per November 2018, the operators obligate to provide the disclaimers in their website. Moreover, one of the disclaimers must mention the following statement:

“there are no parties that could accept the default risk of loan or being responsible of the operator, lenders and/or borrower losses…..”

Furthermore, OJK also has emphasized that lenders must understand that lender bears all the lending risks in the operator’s application/platform. The operator is not responsible for all the late repayments and default by the borrowers, which is not caused by an error or failure of the operator’s system (Fintech Lending FAQ).

Therefore, the operators as an intermediary could not be responsible for the default which occurring, as the lenders are considered to know all the risk before placing funds for lending purposes.

However, the fintech operators have facilitated several mitigations regarding the default that could be occurred, which are;

  1. Disclosure of risks information for lenders through disclaimers and TKB 90 TWP 90 indicator.
  2. Verification and assessment of borrowers.

As for feasibility assessment of borrowers in receiving the lending, including financial condition, further, AFPI has provided integrated system namely Fintech Data Center (FDC) in detecting the excessive lending and borrower’s profile and fintech lending histories.

  • Procedures that will be taken in the event of late repayments and default in agreement which consisted of:
  1. Notification or warning letter to the borrowers.
  2. Rescheduling or restructure requirements.
  3. Desk collection through telephone, email, etc.
  4. Direct collection through certified internal collecting agents (below 90 days) and registered and certified of the third-party collecting agents (above 90 days). The collection must be conducted with good faith and the prohibition of physical and mental violence.

Author: Kristalia Andiani Puteri

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include capital market and financial services.

For further queries and information, please contact us:

+62- 21 50806536  | +62 – 811 877 216 |  info@gaffarcolaw.com | www.gaffarcolaw.com

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