Evaluating the Regulatory Scheme on Mitigation Default Risk

through Insurance in Peer-to-Peer Lending

WARDAH YUSPIN1, ITA FITRIANA1, ARIEF BUDIONO1, ATA FAUZIE2,

ALFAN DZIKRIA NURRACHMAN1

1Faculty of Law, Universitas Muhammadiyah Surakarta

Surakarta, Jawa Tengah 57162

INDONESIA

2Faculty of Islamic Religion, Universitas Muhammadiyah Surakarta,

Surakarta, Jawa Tengah 57162,

INDONESIA

Abstract: Peer-to-peer lending (P2PL) can be a source for Small and Medium Enterprises (SMEs) to obtain

capital. As the public highly demands this method of capital obtainment, P2PL transactions have increased. The

increase in transactions impacts the increase in existing risks, including the default status of borrowers. This

risk is very detrimental to the lender as the owner of capital. The high risk will ultimately reduce the lenders'

trust in transacting through the P2PL platform. The article aims to examine the causes and consequences of the

risks challenged by lenders, and provide solutions by implementing the appropriate risk management. This

research used the descriptive qualitative method. The result shows that the primary causes of the occurring

problems are the lack of government roles in supervising, regulating, and being responsible for these activities.

An offered solution is protecting funds distributed by lenders with insurance to manage the default risk

challenged by lenders.

Key-Words: Legal Protection, Lenders, P2PL, Insurance, Risk Management

Received: April 8, 2022. Revised: November 21, 2022. Accepted: December 17, 2022. Published: December 31, 2022.

1 Introduction

For developing countries like Indonesia, the

existence of Small and Medium Enterprises (SMEs)

is essential, [1]. The presence of SMEs can help the

state by participating in increasing economic

growth, helping reduce poverty, creating economic

democratization, and creating job opportunities, as

well as several other things that help national

development, [2]. In addition, Indonesia is one of

the countries with the most significant number of

SMEs in the world. According to the Indonesian

Ministry of Cooperatives and Small Medium

Enterprises, as of March 2021, the number of

Indonesian SMEs has reached 64.3 million.

Considering Indonesia's gross domestic product

(GDP), SMEs are the most significant contributor to

this country's GDP, amounting to 61.07% or equal

to 8,574.89 trillion rupiahs. In addition, according to

the Indonesian Financial Service Authority (FSA) to

finance itself annually, the SMEs sector requires

around 1,000 trillion rupiahs, [3].

In addition, SMEs also contribute to national

development by absorbing labor. Based on data

from the Ministry of Cooperatives and SMEs,

employment in the SME sector increased. It

employed 2,584,212 people as workers or

equivalent to 2.21%. With this data, it can be

estimated that in 2022, SMEs’ contribution to

Indonesia's GDP will increase to 63%, and the

number of SMEs will increase from 2.5 million to

5.5 million. Then, in 2024 the total contribution is

expected to increase to 65%, [4].

Even so, from time to time, SMEs still need to

solve the same problem, which concerns the source

of capital. According to the Central Statistics

Agency data in 2020, as many as 69.02% of SMEs

experienced capital problems. From the complaint

reports to the Ministry of Cooperatives and SMEs,

39,225 SMEs experienced capital constraints.

Based on the results of a survey conducted by

PriceWaterhouseCoopers, it was also found that

74% of SMEs in Indonesia still need access to

financing. In 2016, SMEs obtained less than 20%

(or equivalent to 5.9 billion rupiahs) of capital from

the banking sector. SMEs should get a maximum of

29.8 billion dollars of funds provided by the

government through banks. The reason is that these

SMEs do not meet the requirements to become bank

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borrower. Based on data presented by an

exceptional staff of the Minister of Cooperatives for

Small Medium Enterprises, Agus Santoso, in 2021,

the number of credit disbursements only rotated at

22-25% or a maximum of only 30%. It is estimated

to take a very long time to reach the maximum rate

of 100%. From this, capital is the main factor in

increasing the success rate of SMEs. Therefore,

through the Minister, the government has tried to

undergo various efforts to overcome these problems,

such as by providing support programs. Such

supporting programs include interest subsidies,

placing government funds in partnering commercial

banks, working capital loans and restructuring of

SME loans, and SME working capital loans the

government bears.

In addition, after seeing the excellent

contribution of SMEs but with the challenges of a

relatively significant financial burden without

obtaining support from conventional financial

institutions, the government made efforts to protect

SMEs’ activities by providing them ease in

accessing funding sources. Furthermore, given that

it is challenging to obtain funds from conventional

financial institutions such as banks, the government

tried to develop more innovative and progressive

innovations in the financial sector by bringing up

financial technology-based activities (Fintech).

Fintech uses the concept of merging financial

transactions with technology. It aims to make

financial transactions easier for people who need

more time and are limited by long distances, [5].

The financial technology or internet-based

financial activity issued by the government to

address SMEs funding problems is the Peer-to-Peer

Lending (P2PL) scheme. Article 1 (3) of the

Financial Service Authority Regulation (FSAR)

No.10/POJK.05/2022 concerning Information

Technology-Based Loan Services states that P2PL is

essentially a process of lending and borrowing

money between the lender and the borrower without

a direct meeting of each party. This activity is

carried out through an internet-based platform that

tries to eliminate the role of banks. This method is

expected to help overcome financial problems

confronted by SMEs actors, [6]. In addition, the

emergence of P2PL is expected to help improve the

country's economic efficiency by resolving the

financing burden of SMEs, [7].

The emergence of this P2PL financing scheme

was very well-received by the community. It was

known that as of April 2022, 102 fintech lending

companies obtained P2PL licenses from the FSA,

[8]. Then, as of November 2021, P2PL assets

accounted for 4,160.87 billion rupiahs with

15,726.06 billion rupiahs of funds from domestic

and international lenders. Next, 12,977.52 billion

rupiahs of the funds were distributed to debtors, [9].

The P2PL scheme thrived due to its convenience in

conducting transactions, low operating costs, fast

and simple procedures, and collateral-free loans.

The first P2PL platform in the world was

founded in the UK in 2005 under the name of

Zopa.com, [10]. Meanwhile, in Indonesia, it only

appeared in 2015 under the Uangteman.id platform.

The emergence of this platform led the government

through the FSA to issue regulations in the form of

FSAR that serve as the legal basis for implementing

these activities. In addition, the FSA also issued the

FSA Circular Letter No.18/SEOJK.02/2017

concerning Information Technology Administration

and Risk Management in Information Technology-

Based Lending and Borrowing Services. However,

the regulations expected to become the legal basis

for P2PL activities have yet to fully accommodate

all components of the P2PL, especially concerning

lenders. A lender is a person who plays a role in

providing capital loans to borrowers.

Although the community strongly supports

P2PL activity, it does not necessarily reduce the

level of risk lenders face. Considering the culture of

Indonesian people who tend to be consumptive,

rather than using the debt to spend on primary needs

or to increase the value of their assets, they tend to

spend it on valuable goods. The model differs from

developed countries such as Singapore, where

citizens have a culture of only borrowing if it is

urgent. This cultural difference makes lenders in

Indonesia face a higher risk of default. The higher

risk is shown by the FSA's analysis results in

November 2021 regarding borrowers' behaviors on

installment responsibilities. It was shown that

borrowers could make reasonable installment

payments in the first 30 days. However, their

payments become irregular in the next 30-90 days.

Then, they experienced terrible credit after 90 days.

This data further strengthens the lenders' concern

about the higher risk of default. If this issue is not

resolved, it will impact the loss of lenders'

confidence in P2PL schemes. It will also lead to

other broader consequences.

If the lender enters a platform not legalized by

the FSA, the lender's risk for a loss will be even

more significant due to uncertainty, anonymity, lack

of control, and the potential for opportunistic

behavior. Eventually, it can be said that P2PL

transactions are higher risk investment, and lenders

will lose their trust in them. Ultimately, the number

of transactions will decrease, and the platform will

experience bankruptcy. Therefore, the FSA must

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pay attention to special rules to maintain lenders'

trust. The most important thing is providing

certainty to lenders by guaranteeing them long-term

benefits on their investments, [11]. Therefore, the

FSA holistically aims to achieve registration and

platform licensing stratification. They are

considering that many unlicensed platforms will

increase the risk of P2PL activities. The unlicensed

platform impacts the lack of accommodation for the

needs of P2PL components, in this case, protecting

lenders from all risks that may occur. P2PL

activities require legal certainty to avoid being

classified as dark bank or shadow banking activities,

[12].

The government must be careful in setting the

P2PL scheme to accommodate the community's

needs and reduce various risks. If the government is

not careful and does not adjust to the conditions of

its people, the regulation will negatively impact the

P2PL component. For example, China, the country

with the most significant number of P2PL platforms

in the world, has experienced a downturn due to the

need for more appropriate applications of P2PL

regulations. At that time, China tried to tighten the

rules for the P2PL platform, which then impacted

the platforms. As a result, many platforms needed to

meet the set-up requirements, becoming bankrupt.

Based on data as of June 2020, 60% of platforms, or

around 5,000 platform units, were affected by the

regulation, leaving only around 29 platforms, [13].

In addition, China experienced liquidity in this

event, resulting in the loss of lenders' financial

capital, [14].

Indonesia has issued regulations through the

FSA, considered inadequate to serve as legal

protection for lenders. P2PL activities are part of

civil activities, which means that the parties who

bind themselves to each other have responsibilities.

Unfortunately, the mutual responsibility is stipulated

in Article 18 of the FSAR No. 10/POJK.05/2022

cannot be used as a preventive measure for lenders

regarding the risks that occur. The contract

regulated in the FSAR applies is (1) the provider

and the lender and (2) the lender and the loan

recipient. This contract does not explicitly regulate

the contract between the provider and the borrower.

Eventually, the lender is the party who must bear the

most significant risk. This article attempts to find an

answer in how to regulate the legal protection for

lenders, thus it can provide a guarantee for lenders

in investing their funds in P2PL. Since the

regulation does not regulate the agreement between

the lender and the borrower, subsequently the legal

protection for the lenders is rather inadequate. Thus,

if the lenders' invested capital experienced liquidity,

based on Article 37 of the FSAR, the platform

should be responsible for its negligence.

Nevertheless, unfortunately, based on what has been

conveyed by the Supervisory Team, the platform

can only seek to collect from borrowers who failed

to repay the capital they borrowed. However, the

collection made by the platform needs to provide a

guarantee of success. The risk is worsened if the

lender invests in a bankrupt platform, it may cause

the capital never to return because, after the

platform's bankruptcy, no legal action can be taken,

[15]. Accordingly, activities in P2PL are dangerous

for lenders since the absence of the legal protection.

The lender must also bear these risks. The

arrangement contradicts Article 14 of Law No. 25 of

2007 concerning Capital Market Investment, which

states that investors have the right to obtain certainty

of rights, legal certainty, protection, and available

information concerning the business activity.

Although it does not mention compensation, there is

the phrase "certainty of rights ."It means that the

lender should be able to collect his rights to obtain

what he is entitled to, at least the capital he invested,

which is his personal property.

In addition, Article 30 of Law No. 21 of 2011

concerning the FSA (a) states that the FSA has the

authority to legally defend consumers of financial

services and instruct financial service institutions to

resolve all forms of consumer complaints as a result

of losses caused by financial institutions. In point

(b), it is stated that the aggrieved party can restate

several losses through the court. Through this

regulation, lenders should be able to obtain

protection for the risks they experience. The law has

been violated if the platform does not give the

lenders rights. Article 11 of Law No. 8 of 1995

concerning the Capital Market also states, "Any

party who suffers a loss as a result of the violation

of this law and its implementing regulations can

claim compensation." This law gives lenders the

authority to obtain their rights for the losses they

suffered, [16].

Unfortunately, based on FSAR No.

10/POJK.05/2022, the sanctions that can be imposed

on platforms for their negligence in managing their

businesses which causes losses to lenders, are

administrative sanctions. The sanctions are written

warnings, fines, business restrictions, and revocation

of business licenses.

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Fig. 1: How P2PL Works

It does not state the phrase sanctions for

compensating the losses suffered by the lenders.

Worse, if the FSA revokes the platform's license, the

lender can do nothing to re-obtain the capital he

invested, [17]. The risk is exacerbated by standard

agreements made by the platform in this activity. In

the agreement, it can be interpreted that the platform

does take responsibility for any losses that may

occur to the lender. It is evidenced by the various

warnings made by the platform on its main web

page, such as warning the lenders to be careful in

conducting transaction activities. In the event of

loss, all losses incurred will be borne by the lender,

[18].

Even though the activities carried out in this

P2PL scheme are civil activities, they should obey

the existing regulations. Such as, article 1754 Civil

Code states that as a person who gives a loan, a

lender is entitled to all receipts as much as he

spends. Followed, Article 1759 of the Civil Code,

which essentially means that if the platform rejects

it, lenders can carry out litigation efforts under

Article 1759 of the Civil Code. However, once

again, litigation efforts need to provide certainty

about the risks experienced by lenders.

China, a country with a high level of liquidity in

P2PL activities, has also tried various methods to

reduce the risks experienced by lenders. One is that

if a borrower declares default, the social approach

method is applied. The social approach method is

carried out by contacting social contacts on the

borrower's device to reduce the risk of default and

motivate the borrower to continue making payments

on the loan. Indonesia also applies this method,

though unlicensed platforms usually implement it.

This method violates the law, namely Indonesia's

Law on Electronic Information and Transaction.

In addition, China has also attempted to

implement preventive methods to reduce the risk of

default by borrowers. They tried to create

cooperation between the P2PL platform and state-

owned business enterprises (SOEs) in the form of

venture capital (VC). It was found that the

cooperation can reduce P2PL platforms' bankruptcy

risks. Data showed that 42.82% have avoided the

risk of default, 56.31% of platforms have avoided

losses, and 87.2% of platforms have proven to

become successful. Furthermore, the collaboration

between the P2PL Platform and SOEs has proven to

improve accounting performance, increasing the

amount of capital used to develop the

professionalism of the platform operations, [19].

Apart from that, China also has various

regulations that can be used as legal protection for

lenders in this P2PL activity, such as the Equal

Opportunity Act for Credit Reports, the Fair Credit

Reporting Act, the Debt Collection Practices Act,

the Electricity Fund Transfer Act, and the Consumer

Protection Act, [20]. These laws complement each

other. For instance, the law on the Debt Collection

Practices Act guarantees lenders their rights.

Therefore, lenders can use this law as a legal basis.

As the first country to establish the P2PL

platform, the UK has some regulations on P2PL.

The Financial Services Act is regulated by the

Financial Conduct Authority (FCA) and the Self-

Regulatory Industry Association, and the P2P

Financial Association (P2PFA) regulates the P2PL

implementation standards. P2PL schemes must be

applied based on the precautionary principle. In

addition, it must be transparent, fair, and orderly.

Then, the Consumer Financial Protection

Bureau (CFPB) supervises financial services in the

US. Any financial services found unfair, fraudulent,

or harassing customers can be reported to the

institution. All rules are preventive measures to

avoid default risk on P2PL activities.

Therefore, Indonesia must also seek similar

rules adapted to its citizens' culture to protect

lenders from the risk of default. The rules are also

an opportunity for Indonesia to advance the

country's economy. Based on the data from

Brandessence Market Research (2020), it was

estimated that in 2025, there would be an increase in

the P2PL loan market of US$589.05 billion with a

50.2% world growth rate. If Indonesia succeeds in

creating security for its lenders, Indonesia is

undoubtedly able to compete globally.

There need to be thorough studies, including

those on risk management, before making new

regulations to accommodate the needs of P2PL

components. Every financial institution must have

risk management to perform prudence financial

institutions. The better the risk management applied,

the better the company management will overcome

the existing risks, [21]. Some of them were done by

tightening the process of checking borrowers'

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identities, then forward to the lender for selection.

The criteria for testing the borrower's identity can be

standardized by the government, [22]. The

government can also apply a risk guarantee model to

P2PL where the responsibility for default is assigned

to the P2PL platform to protect lenders' principal

loan and interest rights. This method will later

increase the trust of lenders to provide loans

regardless of who the borrower is ultimately

increasing the number of transactions. Even so, this

policy may have a negative side. With guaranteed

profits for lenders, P2PL transactions will have

deprived quality. Considering there is no risk,

lenders will only think about lending and making

profits regardless of the borrowers' quality. This

P2PL model will be good if a more profound

analysis is carried out and combined with other

models that can cover its shortcomings. Another

model is to apply low interest to the borrower to

avoid default risk, [23].

The FSAR No. 6/POJK.07/2022 concerning

Consumer Protection in the Financial Services

Sector, Article 5 is a preventive method provided by

the government. It mentions consumer protection

measures, namely the platforms’ obligation to

provide updated and easily accessible information

on the platforms’ services for consumers. In

addition, a consumer can report cases of violation to

the investment alert task force. Similarly, Article

100 of FSAR No.10/POJK.05/2022 states that P2PL

activities must prioritize transparency, authenticity,

fairness, confidentiality, and data security. In

addition, the platforms can provide education that

can help parties avoid losses. One is helping lenders

make optimal decisions by providing information

about the borrower's credit history and financial

status, [24]. By recognizing the borrower's

information, risks of default can be avoided.

Unfortunately, Indonesia still needs to apply these

methods optimally.

In addition, regulations issued by the FSA have

yet to accommodate the needs of all P2PL

components. Since it is estimated that the growth

rate will increase, accompanied by the possibility of

more significant risks faced by lenders, more is

needed to use FSA regulations merely. This issue

requires regulations issued by the government,

namely the Constitution. The law can later act as a

lex specialis because, so far, existing P2PL

regulations are very general, where many laws and

regulations are used, such as the Civil Code, capital

market laws, and the Electronic Information and

Transaction Law.

Consumer protection for lenders is regulated in

the FSAR No. 6/POJK.07/2022 concerning

Consumer Protection in the Financial Services

Sector and the Code of Conduct for Responsible

Information Technology-Based Lending and

Borrowing Services. In addition, it is also contained

in the FSAR No.1/POJK.07/2014 concerning

alternative dispute resolution institutions in the

Financial Services Sector, which includes non-

litigation dispute resolution methods. This law is

very counter-progressive. It cannot be used as a

solution because if a non-litigation route is applied

to this activity, it could be more effective

considering the significant risks faced by lenders.

The FSAR only regulates three stages of dispute

resolution: Alternative Dispute Resolution, Decree

of the FSA complaint settlement, and dispute

resolution by the Alternative Dispute Resolution

Institution via mediation, adjudication, and

arbitration. However, it has yet to provide lenders

with certainty and confidence regarding the level of

risk they experience. Thus, in the end, the

assumption that P2PL activities are dangerous will

occur. Seeing the various facts that exist, the author

will elaborate further on the activities and protection

of lenders in the P2PL scheme and the regulations

that can be used to protect lenders from the risks

that occur. This article seeks to formulate the risk

management of lenders in P2PL fintech in Indonesia

using insurance, to reduce risks and make them

measurable.

2 Methodology

This paper used the qualitative descriptive research

method. Qualitative descriptive research is purely

data-derived in that codes are generated from the

data in the course of the study. The studies generally

are characterized by simultaneous data collection

and analysis driven by various regulations in

Indonesia primarily related to the Financial

Technology regulation. In addition, it used the

descriptive analytical approach to analyze

information about risk management by using

insurance as an alternative settlement.

3 Result and Discussion

3.1 The Risks of Peer-to-Peer Lending

P2PL is an innovation in the field of digital finance.

The percentage of the demand for P2PL activities

increases annually. However, it is undeniable that

the increasing interests and the number of existing

transactions are also accompanied by increasing

risks, especially for lenders/creditors. The lender is

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the party who has the most significant possible loss

in this activity, considering that in this scheme, the

lenders are the party who provides the capital. It is

stated in the P2PL platform that lenders may

experience the risks of default, fraud, recession or

economic crisis, and bankruptcy of the platform.

Lending and borrowing institutions experience

credit risk. A credit risk is the risk experienced by

the bank when customers fail to fulfill their payment

obligations properly, [25]. Meanwhile, in P2PL

activities, credit risk is commonly referred to as

liquidity risk. Liquidity risk arises due to the parties'

obligations to settle their short-term obligations.

However, if this risk occurs due to the default, it can

be resolved using dispute resolution efforts, namely

the litigation and non-litigation methods.

A risk is a state of uncertainty considered by

people in deciding whether or not they should

conduct online transactions. Risk is uncertainty and

unwanted consequences in carrying out a particular

activity. Perceived risk is defined as the uncertainty

consumers face when they cannot see the

possibilities that will occur from a decision to

purchase. Before choosing a product or service,

consumers will undoubtedly consider the risks of

using them. Similarly, in using financial

technologies, consumers will decide whether to use

online transaction-based services, considering they

may face significant risks. The risk arises because

consumers need help to make face-to-face

transactions. There is no direct interaction between

users and developers, [26].

To minimize the risks that may arise, the FSA

has released regulations related to information

technology (IT) for non-bank financial industry.

This is related to the issuance of the FSAR No.

4/POJK.05/2021 concerning the Application of Risk

Management in the Use of Information

Technologies by Non-Bank Financial Service

Institutions in March 2021. This regulation requires

non-bank financial service institutions to have a

Data Center and a Disaster Recovery Center (DRC)

as a backup that has a different location from the

primary Data Center.

The P2PL financial technology industry is

considered to have been provided with conditions

following the FSA’s new provisions regarding risk

management in using Information Technology for

the Non-Bank Financial Industry. The Indonesian

Joint Funding Fintech Association, a partner of the

FSA, always supports any regulations that can

strengthen the role of fintech funding in

contributing to the digital financial sector. This is

because the current presence of fintech funding is

increasingly relevant to facilitate the public and

business actors, especially SMEs, with access to

funding. This regulation is expected to positively

impact the fintech industry so that all platforms will

increasingly have solid guidelines for implementing

adequate risk management, especially in

information technologies.

Indonesia Fintech Association (AFPI) has

preventively formed an ethics committee that will

oversee the implementation of the P2PL code of

conduct (CoC). In the future, the fintech industry’s

efforts to fund and provide safe and comfortable

consumer services will keep developing well. In the

code of ethics, AFPI stipulates rules related to loan

interest, collection mechanisms, and access to

customer data. Moreover, the existence of a fintech

data center is one of AFPI's initiatives to help the

industry. It is to continue improving the funding

portfolio quality, mitigate data on problematic

borrowers better, and prevent excessive funding on

other platforms. Ideally, all platforms must integrate

with the FDC (Fintech Data Center) in real-time,

especially to indicate rogue borrowers. For example,

if the borrower does not pay off the debt within 90

days, that person will be recorded in the fintech data

center as a problematic borrower.

Peer-To-Peer Lending (P2PL) Fintech has

business risk management. P2PL fintech companies

function as platforms that bring together lenders

and borrowers, which allow lenders and borrowers

to carry out direct lending and borrowing

transactions through an electronic system.

The P2PL platform challenge several risks. First

is the strategic risk associated with

determining/deciding the company's strategies. The

failure to manage strategic risks will result in sub-

optimal company value. The company may even fail

on the way, then P2PL companies are in a

competitive (digital) ecosystem with a relatively

large number of players. As of 2022, there are 102

companies. The substantial market share can only

be engaged with the right strategy, including

synergizing with institutions/companies in the

ecosystem.

Second, operational risks can arise from system

weaknesses and platform resources. One of the

strengths of the P2PL platform is the information

system. Unreliable information systems, including

cybersecurity weaknesses, will result in the

platform's inability to provide optimum services.

They can even harm users. This operational risk can

also occur in the form of poor scoring quality and

sub-optimum and non-performing loan collection

capabilities. The requirement to have SNI ISO

27001 certification is one of the mitigations of

information security management. There are also

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provisions for cooperating with credit information

providers. Apart from that, a joint fintech data

center (FDC) for the P2PL industry association can

be an effective form of mitigation.

Third, the risk of fraud. This risk may arise from

the P2PL platforms or loan recipients. Some P2PL

platforms may practice Ponzi schemes or shadow

banking. Thus, there needs to be strict regulation

and supervision by placing funds in a time-limited

escrow account. The loan recipient may also

commit fraud by misusing the identity of another

party or intentionally not intending to repay the

loan. Using digital signatures and track records at

FDCs and other data sources can mitigate this

effect.

Fourth, reputation risk is in the form of negative

news that impacts the company's reputation. For

example, the P2PL fintech industry had a bad image

due to the actions of illegal fintech in 2019. These

illegal fintech actors are P2PL platforms that do not

have FSA-registered permits but still illegally

operate. They charge very high interest and fines

with unethical collection methods. The billing

method is carried out through threats or

irresponsible spreading of information/photos to

other parties. Reputational risk also has the

potential to arise from the inability of P2PL

platforms to provide services according to user

expectations.

Fifth, compliance risk can arise from P2PL

platforms’ non-compliance with laws and

regulations. There are special provisions in the

P2PL industry concerning access to personal data

from user devices. P2PL platforms can only access

the camera, microphone, and location. The

permitted access is contrary to other applications

(non-P2PL platforms), which are generally free to

access personal data, even accessing data unrelated

to their business. In addition, personal data has not

been specifically protected by law. Personal data

protection provides restrictions on accessing

personal data. With this Personal Data Protection

Act, personal data can be protected from misuse.

Sixth, the legal risk that raises the potential for

lawsuits can occur if the P2PL platform fails to

fulfill its promised obligations or is in default. In

running a business as a platform, there is at least an

agreement between the P2PL platform and the

lenders. The lender entrusts the distribution of loans

to the borrower according to the agreement. In

P2PL business transactions, there is one main risk,

namely credit risk. However, this risk is not borne

by the P2PL platform but by the lender.

In the risk assessment process, the platform

uses the TKB90 and TKW90 analytical instruments

to monitor the financing success rate's progress

regularly. This is part of implementing the

transparency principle stated in Article 101 of the

FSAR No 10/POJK.05/2022 concerning

Information Technology-Based Loan Services. With

transparency, investors will have a more precise

knowledge of the company's success in facilitating

the settlement of lending and borrowing obligations.

TKB90 measures the success rate of P2PL platforms

in facilitating the settlement of loan obligations

within a period of up to 90 days from the maturity

date. TKB90 is calculated from 100% subtracted by

the value of TKW90.

Meanwhile, TKW90, a non-performing loan

(NPL) to the public or default, measures the level of

default or failure to settle obligations more than 90

days from the due date. TKW90 is calculated from

the outstanding default of more than 90 days divided

by the total outstanding, multiplied by 100%. It

serves as an illustration so that investors can know

the possible level of financing failure. The default

rate of the borrowers indicates this through

information on the success rate indicated by the

TKB90.

If borrowers receive loans from more than one

platform (multiplatform), it will increase the risk

percentage in this activity, [27]. It will be more

detrimental for the lender if the borrower

simultaneously has more than one installment with

a small payment capacity. A borrower with more

than one installment increases the risk of default.

The risk of default is the risk experienced by the

lender if the borrower does not fulfill the loan

payments. The failure to pay can also be called a

non-performing loan (NPL). To call a borrower an

NPL, the borrower must already be late in fulfilling

the loan payments for more than 90 days from the

due date. These risks then raise concerns for lenders

in transacting using P2PL services.

Apart from the concerns caused by borrowers,

some concerns come from the platform's policies.

The platform does not bear any losses incurred in

the transaction. This policy applies to various

platforms. If there is a risk of default at any time,

the platform will only assist in billing according to

the platform's procedures. Even so, it does not

guarantee the return of the funds issued by the

lender. In fact, in this activity, organizers are

obliged to manage and operate the platform

correctly. They are responsible for the borrower

profiling system. All information organizers

provide in this activity must be honest and

transparent, [28]. The truthful information is so

lenders can later filter borrowers according to their

interests. Considering that P2PL activities require

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caution, all information provided on the platform’s

website must be clear and transparent to avoid

future risks, [29].

Through AFPI, the Indonesian government has

attempted to overcome occurring risks, such as the

risks caused by multiplatform borrowers. For

example, AFPI tried to limit each borrower to only

being able to borrow on a maximum of 5 platforms.

In addition, as explained by the Director of Fintech

Licensing and Supervision, Hendrikus, all actions

carried out in P2PL activities must adhere to FSA

decisions and regulations, including the billing

mechanism.

Apart from that, the FSA required platform

operators to build partnerships with insurance

companies so that the platform could transfer the

responsibility to insurance companies in the event

of a loss to lenders. However, before lenders can

apply for a transfer of responsibility to an insurance

company, they must follow the regulated

installment billing requirements.

In the applicable collection mechanism, if the

borrower is deemed unable to pay or if, 90 days

after the maturity date, the borrower fails to pay the

proper installment, the organizing company must

stop the collection. As conveyed by the Deputy

Chairperson of AFPI, Sunu Widyatmoko, if the

borrower fails to pay 90 days after the maturity

date, there is no need to collect the loan funds as

they are considered lost.

Then, to overcome borrower fraud, the

organizing company must track the borrowers' loan

records. Those who fail to repay the previous debt

will be prohibited from taking loans from other

platforms licensed by the FSA. Meanwhile, the loss

coverage can be requested by the insurance

company.

P2PL platforms should also develop several

procedures and mechanisms to anticipate the risk of

financing failure from the fund management

customer partners’ point of view. The procedure

protects investors' funds and increases investor

confidence while minimizing displaced commercial

risk. First, the platform should have a risk

protection program to ensure principal repayment

by collaborating with one of the Indonesian credit

guarantee insurance providers. In addition, each

lender will be covered with life insurance. There are

also additional options for further protection against

default due to certain factors.

Second, from the investors’ point of view, the

platform management should guarantee the security

of funds by organizing escrow and virtual accounts

as required by the FSAR. This regulation states,

"Every transaction and lending and borrowing

activity or implementation of an agreement

regarding lending and borrowing between or

involving providers, lenders, and borrowers must be

carried out through an escrow and virtual account."

If a provider violates this law, it must bear the

losses suffered by each user without prejudice to

the user's rights, according to the Civil Code.

Third, the platform should formulate steps for

the Business Continuity Plan (BCP) to ensure that

operational activities can continue to work under

certain conditions, including in cases of force

majeure. The force majeure policy is crucial,

especially during the 2019 Coronavirus Disease

(Covid-19) pandemic. The general policy applied in

such conditions aims to tighten financing approvals

and make the financing distribution process more

selective and measurable.

3.2 The Insurance Mechanism In P2PL

Platforms

Every company must cooperate with insurance

companies to protect invested funds in the financial

sector, [30]. Therefore, insurance companies will

cover the risks in P2PL activities, one of which is

the risk of default. However, the FSAR No.

10/POJK.05/2022 does not regulate the insurance

system in P2PL activities. Besides that, this

regulation also clearly states that it is not

permissible for a platform to guarantee the return of

lender funds for the risks that occur.

However, if this regulation is not reconsidered,

it will impact reducing the number of investments

and lenders. Platforms will become bankrupt.

Therefore, in reality, platforms continue

implementing a guarantee system and still cooperate

with insurance companies to maintain sustainability.

This decision was also supported by the Deputy

General Chairperson of the Indonesian Fintech

Association (AFTECH), Adrian Gunadi, who said

that fintech companies could cooperate with

insurance companies to bear the risk of default when

borrowers fail to pay 90 days after the maturity date.

Below is a sample that shows some of the policies

applied by platforms in running their business.

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Table 1. Mechanisms for implementing insurance and guarantees on several P2PL platforms

Platform

Insurance, guarantees, and other information

Investree

1. The total TKB90 rate is 98.01%

2. Collaborates with insurance companies, namely Sinar Insurance and BRIt insurance; 3. 3.

Askrindo Insurance, Jamkrindo, and Jamsyar.

3. Products that can submit for insurance claims are invoice financing, working capital term loans,

buyer financing, and online seller financing.

4. The insurance claim amount is 75-90% of the principal loan without interest, and the loss is at

least 10% of the principal loan.

5. Insurance claims can be made only 91 days after maturity if the borrower fails to pay installments.

6. The guarantees required by the Investree are in the form of invoices, demand deposits, and personal

guarantees as additional guarantees.

Amartha

1. The total rate of TKB is 97.52%.

2. Collaborates with Jamkrindo as an insurance partner.

3. Insurance claims are only 75% of the principal loan without including interest.

4. Insurance claims can be made starting from the fifth week after the borrower fails to pay the installments.

5. The Amartha platform does not regulate personal guarantees. However, in the case of a default, it will

be borne in groups, namely the group of borrowers. So, the system of joint responsibility applies to this

platform.

Koinwor

ks

1. The total TKB90 rate is 94%.

2. Cooperates with Bank Mega and Sinar Mas as life insurance and PT Lunaria Annua as guarantor of

funds in the case of default.

3. The amount of funds that can be covered by insurance depends on the size of the loan grade. There are

five types of grades, from grades A to E. The rate is 100% for grade A, 80% for grade B, 60% for grade

C, 40% for grade D, and 20% for grade E.

4. Default is considered to occur after 90 days of the payment due. Thus, the lender can make an insurance

claim the day after.

5. The collateral requested by this platform is an invoice.

Modal

Rakyat

1. The total TKB rate is 99.88%.

2. Cooperates with insurance companies, namely Asei, Intra Asia Insurance, and CIU Insurance.

3. Insurance claims can be made 90 days after the payment is due. The insurance only applies to the

principal loan without including the interest.

4. The guarantee requested by the platform is in the form of an invoice or invoice guarantee

Mekar

1. The TKB90 rate is 100%

2. This Platform collaborates with lending partners as parties that protect the funds to make insurance

claims. The lending partners are Dwi Tunggal Savings and Loans Cooperative, Mekarsari Savings and

Loan Cooperative, and Melania Credit Union Savings and Loan Cooperative.

3. The amount of funds that can be claimed by insurance is a maximum of 80% of the lenders’ principal

fund.

4. Claims can be made if the borrower does not make installments 14 days after the maturity date, while

the maturity is 90 days.

5. This Platform requests collateral in the form of houses, shophouses, or apartments.

The data shows that the average TKB rate is

more than 90%. TKB90 is a measure used to show

the P2PL fintech operators’ level of success in

providing loan settlement obligations within 90

days from the maturity date. The higher the TKB90

rate, the better the platform service. This TKB rate

must be displayed in the P2PL platform’s

application or website, as regulated in the FSAR.

Platforms may gain more investors by providing

exemplary service and implementing a guarantee

system. Some platforms apply guarantees in the

form of invoice financing or payment. Invoice

financing is an invoice for goods or services

provided to the payor to be used as collateral to

obtain funding from lenders. The payor is the party

who is responsible for the payment of the invoice.

There is also a platform that implements a

guarantee system.

Meanwhile, some other platforms try to

eliminate the guarantee system and instead use a

joint responsibility system. The Bank of Indonesia

dictionary states that a joint responsibility is the

joint, individual, or specific responsibility of the

debtor to bear the payment of all debts. The

payment of one debtor results in another being free

from the obligation to pay the debt. This system

forces third parties to bear debts from debtors.

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4 Conclusion

Let us look at the Indonesian GDP (Gross domestic

product or one of the essential indicators in

measuring a country's economy). SMEs are the

sector that gives the most significant contribution to

the GDP, amounting to 61.07% or equal to 8,574.89

trillion rupiahs. Seeing the excellent contribution of

SMEs, the government seeks to help develop them.

Through P2PL, SMEs can quickly obtain capital.

Therefore, through the FSAR No.

10/POJK.05/2022, the government has officially

permitted the establishment of the P2PL business.

There are already 102 official P2PL platforms in

Indonesia, and each has its respective system.

Realizing that many risks can occur in P2PL

activities, such as the risk of default to the risk of

platform bankruptcy, each platform seeks various

ways to avoid them. However, the lender protection

is not properly regulated in the Indonesia legal

system. Primarily because in P2PL, the agreement

is between the platform and the borrower, and not

between borrower and lender. Therefore, to protect

the lender investment, is to implement a system of

guarantees and insurance. Several platforms have

implemented an obligation system for borrowers to

provide collateral as requested by the platform.

Such as guarantees in the form of financing

invoices to guarantees in the form of buildings. In

addition, they also cooperate with insurance

companies, where every time there is a default, the

lender can claim the funds through the insurance

company. This system is intended to continue

providing trust and security for lenders in

conducting transactions in P2PL activities so that

the transaction process can continue to run

smoothly.

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

-Wardah Yuspin - conceived and designed the

experiments, analyzed and interpreted the data,

contributed reagents, material, analysis tools, or

data, and wrote the paper.

-Ita Fitriana - analysis tools, or data and assisting in

wrote the paper.

-Arief Budiono - performed the experiments,

analyzed and interpreted the data.

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-Ata Fauzie - performed the experiments,and

conducted the qualitative research.

-Alfan Dzikria Nurrachman performed the legal and

regulation search on financial technology.

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

This research received no funding from any sources.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

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