In early August 2024, the public was alarmed by the blocking of 8,271 illegal online lending (pinjol) platforms by the Financial Services Authority (OJK).
This is a significant number, considering the increasingly widespread presence of illegal pinjol, which has become a cause for concern due to its often non-transparent and exploitative practices, including high-interest traps, unethical debt collection, and privacy violations.
Unfortunately, many Indonesians find themselves trapped in these schemes. So, how did this phenomenon arise?
According to Dr. I Wayan Nuka Lantara, Lecturer and Head of the Management Study Program at the UGM Faculty of Economics and Business (FEB UGM), the spread of pinjol reflects the urgent need for quick and easy access to financial services.
On one hand, pinjol offers an alternative for those who are not covered by conventional banking services, with faster and simpler procedures and more flexible loan amounts. On the other hand, its interest rates tend to be higher than borrowing from conventional financial institutions.
In terms of legality, Dr. Lantara explained that pinjol is divided into two categories: legal and illegal. Legal pinjol platforms are registered and supervised by the OJK, operating in compliance with regulations such as transparent interest rates, data protection, and ethical debt collection practices.
Legal pinjol generally contributes positively by providing broader access to financial services for the public. On the contrary, illegal pinjol operates outside the legal framework and is not monitored by the OJK, making it prone to abusing power and harming consumers through extremely high interest rates and intimidating collection methods.
The consequences of using pinjol need to be taken seriously. First, the obligation is to repay the interest and additional fees, which can become burdensome if not managed well. Legal pinjol typically offers clearer and more measurable interest rates, but interest and late fees can significantly increase if the loan is not repaid on time.
Second, for users of illegal pinjol, the risks are higher, as the interest rates are excessively high and not transparent. Their collection methods are often harsh and intimidating. Third, privacy violations are also possible, especially with illegal pinjol.
Lastly, if borrowers are unable to repay their loans, accumulating debt could affect their credit reputation.
“In some cases in Indonesia, this could even lead to depression or suicide,” Dr. Lantara pointed out on Monday (Aug. 26) at the UGM campus.
To avoid illegal pinjol, Dr. Lantara advises checking the legitimacy of pinjol providers by referring to the list of registered platforms published by the OJK. Second, transparency in the information regarding interest rates, fees, and loan terms should be ensured. Make sure the contract is clear. Third, observe the debt collection methods.
Legal pinjol must adhere to the code of conduct set by relevant associations, ensuring that their collection methods are neither harsh nor intimidating. It is likely illegal if a pinjol service does not align with these characteristics.
“If you have already been trapped by illegal pinjol, the first important step is to stop repaying the loan and immediately report the case to the OJK and the police. Avoid intimidation or threats from debt collectors by ceasing further communication and saving any evidence of abuse. Legal Aid Institutions (LBH) can also be relied upon for advice and support,” Dr. Lantara suggested.
Besides pinjol, there are safer alternatives for obtaining loans, such as borrowing from formal financial institutions like banks or cooperatives, which offer lower interest rates and more precise terms.
If a small loan is needed, government programs like the People’s Business Credit (KUR) could be an option, as they offer subsidized interest rates and more straightforward requirements.
In response to the rise of illegal pinjol, Dr. Lantara believes that the government needs to tighten supervision and law enforcement against unlawful pinjol providers and educate the public to be more cautious.
Financial literacy education also plays a crucial role in preventing people from falling into the traps of harmful pinjol schemes.
“People should ideally build an emergency fund for long-term solutions and be wise in managing their finances, applying a priority scale,” he concluded.
Author: Bolivia Rahmawati
Editor: Gusti Grehenson
Image: Freepik
Post-editor: Afif