Nailul Huda, an economic expert from the Center for Economic and Legal Studies (CELIOS) in Indonesia, stated that setting maximum limits on digital loan interest rates is essential for protecting borrowers, despite the need for some adjustments. He made these remarks during a phone call with Antara news agency from the capital Jakarta.
Huda pointed out that the interest rates imposed by platforms before these regulations were exceedingly high, placing a heavy burden on borrowers. These regulations were introduced after authorities noticed a legislative gap in this area, leading to the establishment of rules by the Indonesian Peer-to-Peer Lending Association (AFPI), which served as a reference similar to what Bank Indonesia, the central bank, had done.
Details of the Event
The Code of Conduct was issued by AFPI in 2018, which set the maximum interest rate cap at 0.8% per day. In 2021, this cap was reduced to 0.4% per day based on recommendations from OJK, the financial regulatory authority in Indonesia. In a new move, the authority issued a new decision that will take effect on January 1, 2025, setting the daily interest cap between 0.2% and 0.3%, depending on the type and duration of the loan.
Huda considers these steps to represent an ideal process, supporting the existence of clear regulations as a reference for digital platforms, but he noted the need to improve certain aspects related to the size of the interest and the model of its regulation.
Context and Background
These developments come at a time when the digital loan market in Indonesia is experiencing significant growth, with a substantial increase in demand for these services. However, the absence of strict laws had led some companies to exploit borrowers by imposing high-interest rates. Therefore, regulating the market is an important step to ensure consumer rights.
In this context, the Indonesian Competition Supervisory Commission (KPPU) decided on March 26 to impose fines on 97 digital loan companies for violating price-setting laws, with fines reaching up to 755 billion Indonesian Rupiah. The commission considered that ineffective interest rate capping could harm competition in the market.
Consequences and Impact
These decisions serve as a warning to companies operating in this field, as they will directly impact lenders' ability to raise funds. Huda indicated that these decisions could lead lenders to reassess the viability of investing in the digital loan market, which may negatively affect the flow of funds to borrowers.
If lenders are unable to raise funds, this will affect the platforms' ability to offer loans, despite high consumer demand. Thus, any changes in market regulation must consider the balance between protecting consumers and maintaining market sustainability.
Impact on the Arab Region
Indonesia's experience in regulating the digital loan market serves as a model for the Arab region, where many countries face similar challenges in this area. Regulating interest rates and protecting consumers can contribute to enhancing trust in digital financial services, thereby supporting economic growth in the region.
In conclusion, regulating the digital loan market is an important step towards protecting consumers and enhancing competition in the market, but it must be done cautiously to ensure that it does not negatively impact the flow of funds to borrowers.