NEGATIVE IMPACT OF FINANCIAL TECHNOLOGY: A CASE STUDY OF ILLEGAL PEER TO PEER (P2P) LENDING "PINJOL"

Abstract

Financial Technology (“Fintech”) is a new paradigm in the non-bank financial sector in Indonesia. One of the popular “Fintech” products is Peer to Peer (P2P) lending or called Online Loans (hereinafter “Pinjol”). There are two types of "Pinjol", namely legal "Pinjol" which is registered with the Financial Services Authority (OJK) and illegal "Pinjol" which is not registered with the OJK. According to OJK records, as of August 2022, the number of illegal “Fintech” companies was 3,786 platforms. This number shows that illegal "Pinjol" continues to proliferate, which has a negative impact on the development of “Fintech” and micro-economy. In 2021, "Pinjol" loan funds that have been disbursed amount to IDR 295.85 trillion with a total of 73.24 million borrowers. Legal "Pinjol" charges a daily interest rate around 0.3% -0.4%/day but illegal "Pinjol" interest rates are very high, around 0.8%/day. This study uses a qualitative approach using the case study method, which examines the negative impact of illegal loans on micro business and non-bank financial activities. The findings show that the negative impact of illegal "Pinjol" high interest rates has caused most borrowers to be unable to pay. As a result, there are many cases of forced withdrawals by illegal "Pinjol" operators using debt collectors or confiscating valuables belonging to borrowers who fail to pay. Therefore, the OJK needs to carry out tighter supervision of illegal "Pinjol" organizers.The existence of illegal "Pinjol" is due to the lack of public understanding of “Fintech”, weak regulatory oversight and law enforcement.