If you’ve ever fantasized about cosplaying as a banker and lending money on a P2P platform, you might want to check out the mess unfolding in Indonesia. (Hint: it’s a full-on dumpster fire.)
Investree, once a P2P darling, just had its license yanked, leaving investors fuming and begging for their money back. Indonesia’s Financial Services Authority pulled the plug, citing Investree’s failure to meet minimum equity and other critical rules.
It’s possibly worse than a few compliance issues. Adrian Gunadi, Investree’s co-founder and former CEO, is now accused of rerouting investor funds into his account. Word is, he’s laying low in Qatar.
Indonesian authorities told MONIIFY they’re working to bring him home to face fraud charges.
Investree was a big name in Indonesian fintech. It’s brokered nearly $1 billion worth of loans to nearly 94,000 borrowers since it was founded in 2015. And its flame-out has prompted some big questions about the fate of the whole business model because, well, it’s not even the first to hit the skids.
In the same month, KoinWorks’s subsidiary, KoinP2P, disclosed payment delays to some lenders, citing fraud worth $23 million by an intermediary borrower.
Indonesia has pulled the plug on four other P2P platforms this year alone. They include cash-rich TaniFund, which also lost its license and is now tangled in lender lawsuits.
So, does Investree’s collapse point to wider troubles for P2P lending, or is this an Indonesia problem? It’s a bit of both.
What’s P2P lending anyway?
Think of P2P lending platforms as marketplaces for loans, where regular folks—a teacher, a 9-to-5’er with a bonus—get to play banker and lend cash to small businesses or local farmers in need.
When it works, it’s easy to see the appeal. You’re loaning at rates banks can’t touch. In Indonesia, for example, lending on these platforms can yield up to 20% a year, compared to the measly 5% you’d get by parking it in a bank.
Most lenders on Indonesian P2P platforms are individuals, but they only make up 8% of the funds being loaned. A handful of big players, including banks, cover the rest.
For small business owners, P2P lending is a lifeline—offering loans they’d never get from a bank.
It’s a match made in fintech heaven, and the P2P market is booming. Globally, it’s set to skyrocket from $190 billion last year to a whopping $1.5 trillion by 2031, according to SkyQuest, a market research firm.
So why the mess?
But P2P platforms are just middlemen—if borrowers’ default, the platforms can only do so much. Worst case? Everyone’s money is on the line.
In countries like the US, strict regulations and reliable credit scoring keep things in check.
Platforms have top-notch credit scoring tools, making it easy to size up borrower risk, according to Zennon Kapron, former director at Kapronasia. “Plus, borrowers typically have stable incomes, lowering the chances of default.”
But in emerging markets like Indonesia, it’s a whole different story.
Standardized credit scoring is rare, economic stability is shaky, and nearly half the population doesn’t even have a bank account. With so much of the economy running informally, and on cash, it’s tough to know if borrowers can really pay up.
The informal economy really adds to the risk, Kapron noted, making it harder for P2P platforms to verify income or employment status. Without strong regulations like those in the US or UK, things can go sideways fast, and there’s little safety if they do.
Josua Pardede, chief economist of Indonesia’s Permata Bank, said Indonesian regulators are struggling to keep up with the rapid growth of the sector.
“Shortcomings persist in areas such as IT infrastructure, credit scoring, and the management of illicit platforms,” Pardede told MONIIFY.
So, is Indonesia’s P2P sector headed for collapse? It wouldn’t be the first.
Lessons from the North
China’s booming P2P lending scene crashed in the 2010s, brought down by waves of defaults. And all the same factors that fueled its collapse are in play in Indonesia too.
- Surging unpaid loans? Check.
- Market instability? Check.
- Panicked lenders? Check.
- Legal disputes? Check
- Under-regulation? Check.
- Spectacular fraud? Oh, yes. Even that.
Remember Ezubao? China’s P2P giant turned out to be a $7.6 billion Ponzi scheme, which finally went belly up in 2016, leaving investors burned and the market in chaos.
But hang tight—industry insiders don’t see a full-blown Chinese-style crash just yet.
What’s more likely is a regulatory crackdown. Indonesia’s regulator, watching the sector since 2016, began tightening the screws last year by raising the minimum funds P2P platforms need to hold.
Spoiler: not all are going to make it.
Roshan Raj, a partner at consultancy Redseer, told MONIIFY he expects the P2P lending industry to shrink over the next couple of years, as high-risk players with unpaid loans or shaky finances head for the exit.
Better regulation might give more of the big lenders the confidence to get involved, or stay, in the sector. But the little guy? You’d forgive him for being spooked by the mess.
Raj’s advice is to spread your bets—don’t throw it all into high-risk sectors like agriculture, where one bad season could tank your cash.
