Jakarta – The Jakarta Police have made one of their largest raids on illegal online lending operations this year, following up on President Joko "Jokowi" Widodo directives to curb the predatory lending practices, which undermine the country's legitimate and growing $18.4-billion fintech lending industry.
Chief Comr. Hengki Haryadi, the head of Central Jakarta Metro Police, said on Thursday that they had raided an illegal online loan syndication office in Cengkareng, West Jakarta, a day earlier.
The police detained as many as 56 employees from the company's payment and billing department for questioning. They also confiscated possible evidence, including 52 computers and 56 cellphones belonging to the employees.
"We followed up the report with our findings, and found a loan office in Cengkareng, West Jakarta as a result," said Hengki. After confirming with the Financial Services Authority (OJK) that the loan company was illegal, the police carried out the raid.
"We have secured some evidence and questioned dozens of employees from the loan syndicate office," he continued.
The Central Jakarta Metro Police continues to investigate the case to find the owner of the illicit loan company and will reveal further details once the investigation is complete.
The illegal online lending operation has grown exponentially in the past two years, riding on the growing popularity of financial technologies app during the pandemic. The illicit operators often promise easy borrowing shame to unsuspecting customers, who often lack financial literacy.
But, the loan often comes with a hefty interest rate, which trapped its customers in unsurmountable debts. When the customers cannot pay, the illegal lenders often use violent and abusive tactics to demand payments.
The practice was severe enough that it drove some of their customers to commit suicide. Earlier this week, a man in Bekasi, West Java, jumped from a shopping mall roof to death after finding himself unable to pay debts to illegal online lending.
The problem was severe enough that President Jokowi felt compelled to take action. He called the law enforcers to increase surveillance on the illegal lending practices.
"I've obtained reports that many fraudulent and criminal acts have occurred. I heard that underprivileged people are being deceived, trapped in high-interest rates by online loan companies, and pressured in various ways to repay their loans," Jokowi said in his speech at the OJK Virtual Innovation Day event on Monday.
Jokowi said the rapid development of digital finance must be maintained, supervised, and facilitated well to achieve healthy growth for the people's economy.
According to the president, financial technology development must also build a digital financial ecosystem that is strong, sustainable, and responsible. It must also have risk mitigation considering the possible problems (both legal and social) to prevent heavy losses and increase protection for the community.
"If we control it quickly and appropriately, Indonesia has great potential to become a digital giant after China and India, and can lead us to become the seventh-largest economy in 2030," he said.
Undermining fintech industry
Chief Comr. Ahmad Ramadhan, the head of the public information division at the National Police, said his office was currently focusing on eradicating illegal online lending practices.
As of October, the National Police Headquarters has handled 371 cases of illegal lending companies due to reports from the public and the cyber police patrol. Of these, 91 cases have been brought to court, while the rest are in the process of investigation.
"Almost all victims of this illegal loan do not understand the practice of fraud through online loans," Ahmad said.
"So, preventive efforts are critical. Together with other stakeholders, the police continue to provide understanding to the public so that they do not become victims of illegal lending," Ahmad said in the Zooming with Primus program, which was broadcast live on Beritasatu TV on Thursday.
Andi Taufan, the head of public relations at the Indonesian Joint Funding Fintech Association (AFPI), said illegal online lending firms not only harmed the victims but also damaged the financial technology industry. Their disturbing practices might undermine public trust in the financial services, Andi said.
"What the illegal lenders are doing is very disturbing and damaging to the fintech lending industry," Andi said.
"We as a legal fintech industry have disbursed loans of Rp 260 trillion ($18.4 billion) to 66 million people. Indeed, there are bad loans of around 1.7 percent, but the benefits provided are far greater for encouraging financial inclusion, helping MSMEs and productive businesses," he said.
From research conducted by AFPI, many people are victims of illegal lending because they don't know it's illegal. Then there is an urgent need amid economic difficulties due to the pandemic.
"Many borrow without thinking about how to pay it. That is a challenge for all of us to educate the public to be more careful and vigilant when getting offers of illegal lending," Andi said.