Economist: Interest rate caps on online loans still needed, but adjustments required
Jakarta (ANTARA) - Economist from the Center of Economic and Law Studies (CELIOS), Nailul Huda, stated that provisions to regulate the maximum economic benefit or interest rate for online loans (pindars) are indeed necessary to protect borrowers, although adjustments are still needed.
“Current interest rate restriction rules are indeed necessary to avoid strangling borrowers, but some adjustments are required,” Nailul Huda said when contacted by ANTARA in Jakarta on Monday.
He explained that before these regulations, interest rates set by each pindar platform tended to be at higher levels.
“Due to a regulatory vacuum, there was a determination by the association (Indonesia’s Joint Funding Fintech Association/AFPI), which was advisory in nature, similar to what Bank Indonesia does with the BI-Rate. Based on that, this interest rate setting actually benefits consumers,” he clarified.
Based on guidance from the Financial Services Authority (OJK), AFPI issued a Code of Conduct in 2018 setting the maximum daily interest rate at 0.8 per cent.
Then in 2021, at OJK’s urging, AFPI further reduced the maximum daily interest rate to 0.4 per cent.
OJK then issued a new regulation effective from 1 January 2025, with daily interest rate caps ranging from 0.2 to 0.3 per cent, depending on the loan term and type.
Nailul assessed the establishment process as ideal and supported the rules as a reference for pindar companies, but acknowledged that improvements are still needed regarding the amount and regulatory model.
He also hoped that the Business Competition Supervisory Commission’s (KPPU) decision last Thursday (26/3) would not disrupt the operations of the national pindar industry, especially regarding fund collection.
He said that lenders (funders) would be the most affected by the decision. As a result, they might rethink the credibility of the national pindar ecosystem.
“When that happens, it will impact lending as well… If there are no lender funds, there will be no lending to borrowers, even though demand (for online loans) is high,” Nailul stated.
On Thursday (26/3), KPPU ruled that 97 pindar business actors violated Article 5 of Law No. 5 of 1999 regarding price-fixing in Case No. 05/KPPU-I/2025. For this violation, the business actors were imposed various fines totalling Rp755 billion.
The KPPU Panel viewed that setting an upper interest rate limit far above the market equilibrium level was not only non-binding and ineffective in protecting consumers but also potentially functioned as a mechanism facilitating price coordination among business actors.
In such conditions, the upper limit was seen as directing expectations and pricing strategies of business actors, thus encouraging alignment in interest rate setting behaviour.
Consequently, according to the KPPU Panel, the policy reduced the intensity of price competition and hindered competitive dynamics in the online lending market.
Head of the Literacy, Financial Inclusion, and Communication Department of OJK, M. Ismail Riyadi, stated that his side is observing and respecting the decision.
“OJK will continue to monitor industry developments and ensure that every peer-to-peer lending organiser conducts its business in accordance with applicable provisions, to maintain financial sector stability and increase public trust in digital financial services,” said M. Ismail Riyadi.