Nina A. Loasana, Jakarta – Nearly a quarter of Jakarta's 10.5 million residents owe money to online lending platforms, due in large part to ease of access, the Financial Services Authority (OJK) revealed recently, putting the nation's capital among the top two regions with the highest personal debts.
Around 2.3 million Jakartans owed a combined total of more than Rp 10.3 trillion (US$678.6 million) to various online lenders as of April this year, according to recently published data from the OJK. The figure is Rp 410 billion more than that recorded in April 2022.
Jakarta ranks second on the list of provinces with the greatest number of individual debtors, after West Java with 4.6 million active borrowers and personal debt totaling Rp 13.5 trillion.
Jakartan borrowers cited convenience among their top reasons for using online lending platforms.
One such borrower is Nis, a 24-year-old marketing manager who lives in East Jakarta.
Nis has been using the "buy now, pay later" (BNPL) facility on e-commerce platform Shopee and super app Gojek for some time, and pays between Rp 300,000 and Rp 1.8 million in installments to both platforms each month.
Often shortened to "pay later", the scheme works similarly to credit cards and is "a type of short-term financing that allows consumers to make purchases and pay for them over time", according to Investopedia.
Nis says she uses the feature because it helps her keep track of her monthly spending on travel and online shopping, but admits that using it requires self-control to prevent impulsive buying.
"When I started using [pay later], there was a time I racked up to Rp 3 million in debt for online shopping," she said.
"I'm better [now] at controlling and preventing myself from unnecessarily spending money."
Various studies found that the pay later feature can cause impulse purchases among consumers, leading to overspending and defaulting on existing debts.
Despite their convenience, online lending platforms can also be debt traps.
OJK data revealed that the average default rate in Jakarta for various online lending platforms reached 2.9 percent as of April, higher than 2.7 percent in March. The default rate in West Java for April was higher at 3.6 percent.
Dedi, a civil servant who resides in Bogor, West Java, is among those borrowers who have become trapped in debt they cannot afford to repay.
Dedi first used an online lending platform in 2021, at the height of the COVID-19 pandemic. He used the loan to pay installments on his car, which he used to earn money on the side as a driver with an on-demand transportation and delivery company. But his earnings dwindled as people stayed home during lockdowns and other nationwide pandemic restrictions.
"I didn't have any money to pay installment for my car, so I resorted to using an online lending platform to get quick cash," Dedi said.
But he struggled to pay back the short-term loan, which carried a high interest rate. He then turned to borrowing from various online lenders, both legal and illegal, to pay his debts, which spiraled into more defaults. At one point, he had to pay more than Rp 5 million, roughly half of his monthly paycheck, while trying to support his wife and children.
After that came the debt collectors, who threatened and humiliated Dedi by sharing his debt data with his colleagues. "I had to change my number," he said. "Even now, I'm scared whenever an unknown number calls me."
Dedi eventually put up his car, motorcycle and house as collateral to take out loans from a pawnshop to pay off his online debts.
Online lending platforms have become one of the most complained-about businesses, according to 2023 data from the Indonesian Consumers Foundation (YLKI), due to their high interest rates and aggressive debt collection.
The problem is exacerbated by the fact that 76 percent of all online lending platforms operating in the country are illegal, meaning that they are not registered with the OJK.
The OJK has promised to take stern action against illegal online lending platforms after the passage in February of the 2023 Financial Sector Development and Strengthening Law, which gives the body to bring criminal charges against illicit lending platforms and the people who run them.
The massive amount of loan defaults has also limited the growth of person-to-person (P2P) lending platforms. Some platforms have posted alarming delinquency rates for loans that are at least 90 days past due (TWP90) compared to total loans disbursed, roughly similar to the nonperforming loan ratio in the banking sector.
The OJK announced on Tuesday that the TWP90 ratio in the P2P lending sector reached 3.36 percent in May, the highest level since the pandemic, though it played down the figure as still "good", or below its tolerance level of 5 percent.