Governing the gold rush into emerging markets: a case study of Indonesia’s regulatory responses to the expansion of Chinese-backed online P2P lending

Abstract

Peer-to-peer (P2P) lending has the potential to boost financial inclusion in emerging markets. This paper contributes to the literature on fintech governance in emerging Asian markets. It examines the case of the Indonesian government’s approach in regulating the P2P lending sector using both primary interviews and secondary firm-level data. Driven by regulation tightening in China and regulatory gaps in Indonesia, Chinese investments became the largest in this sector contributing, however, to growing risks from illegal business practices. The Indonesian government responded by creating new regulations and institutions, mitigating risks without stifling the potential for financial inclusion. We conclude a proactive approach towards monitoring and regulating emerging high-tech industries should be sought by strengthening links with industry and civil society, and through international cooperation for policy and knowledge sharing.

Peer-To-Peer Lending in US and China: A Guide for Emerging Market Countries

“…8/2011 regarding Electronic Information and Transactions, as well as the Ministry of Communications and Information Technology (MOCIT) Regulation No. 20/2016 on Personal Data Protection in Electronic Systems in Indonesia [32].…”

Insights into financial technology (FinTech): a bibliometric and visual study

“…Specifically, (1) improving the modern regulation system and highlighting risk management methods help accelerate the realization of effective financial regulation and promote the stable operation of financial institutions legally. For example, under the mobile payment and artificial intelligence environment, ensuring consumer safety and avoiding information leakage is the main task of enterprises and banks at present and in the future (Tritto et al 2020 ); (2) as analyzed above, the transformation triggered by emerging technologies in the FinTech has been mainly manifested in the technology applications; however, it should dig deeper into more basic theories (Mao et al 2019 ); (3) with the assistance of artificial intelligence and machine learning, studying the predictive procedures with high accuracy, stability and robustness will benefit the financial market, like predicting capital markets (Alam et al 2020 ) and the stock market. Additionally, the corresponding fuzzy decision-making theories and methods are helpful (Liang et al 2017 ; Xu and Wang 2016 ).…”

Escaping the “devil's trap”: Exploring the role of online social support for fintech lending's over‐indebted Indonesian customers

“…In India, lending applications have also been under scrutiny for making many people, particularly students and young professionals, trapped into debt spirals and suffer from abusive collection practices (Reuters 2021; Sanghvi 2019). In Indonesia, Chinese investment made the most significant foreign investment in the fintech lending industry, yet they also contributed to the increasing risks from unlawful business practices (Tritto et al 2020).…”

“…The number of registered/licensed fintech lending companies also rose from 113 to 161 in the same period. Foreign investment has driven the growth of the fintech industry in Indonesia, with investors from China being the most dominant group of shareholders (making up 38 per cent of identified OJK-registered companies in 2018), notably following a "gold rush" due to stricter regulations at home (Tritto et al 2020). On the other hand, since Indonesia implements a dual financial system (one which considers both the conventional and Islamic financial frameworks) (Syarif 2019), which is an outcome of the aspired development of the "Islamic economy project" (Choiruzzad 2013) as in other Muslim societies (Burton 2021), the "Sharia-based" fintech lending has been made available (there were 10 already OJK-registered companies as of 2021) to cater for the Muslim majority population who prefers it to the "conventional" fintech service.…”