Indonesia’s Financial Services Authority (OJK) announced on Friday that it will implement a phased reduction of the maximum interest rates charged by financial technology (fintech) firms operating in the microfinance sector. This move comes in response to growing complaints about the adverse impact of exorbitant interest rates on borrowers.
Starting from the upcoming year, fintech firms will be restricted to charging a maximum of 0.3% interest per day for loans intended for consumption. This rate will further decrease to 0.1% by the year 2026, replacing the current maximum of 0.4% interest per day.
Agusman, the OJK commissioner overseeing financing firms, emphasized the need for proper interest rate regulation to prevent consumers from bearing the brunt of excessively high rates. He stated during a press conference, “Because if we don’t regulate the interest rates properly, then the ones who suffer most are the consumers.”
Fintech lending has experienced significant growth in Indonesia, particularly in the aftermath of the coronavirus pandemic. However, the sector has been marred by the presence of illegal firms and reports of borrowers struggling to repay their loans.
Agusman further noted that the interest rates would be considerably lower for loans directed towards productive purposes. For such loans, the maximum interest rate will be capped at 0.1% per day, effective from January 2024, and will decrease further by 2026. The government aims to shift the focus of a majority of loans from consumption to business activities, especially for micro, small, and medium enterprises.
The OJK envisions that 50% to 70% of loans provided by fintech firms should be channelled towards productive activities by 2028, a significant increase from the current level below 40%, according to Agusman.
The regulation on interest rates is part of the OJK’s broader plan to develop the fintech sector in Indonesia from 2023 to 2028.
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