Reynold Wijaya, CEO and Co-Founder, Modalku: Interview

Interview: Reynold Wijaya

How do you foresee blockchain and distributed ledger technology impacting financial inclusion?

REYNOLD WIJAYA: Blockchain related technologies, if utilised properly, will help enhance access to financial services by enabling transparent and accurate banking transactions. These will serve as a source of legitimate underwriting, particularly for underbanked and underserved segments of the population. However, despite these apparent benefits, it is still too early to tell whether the industry is ready to adopt such technologies widely and effectively.

To what extent are custodian agreements between peer-to-peer (P2P) lenders and banks helping micro-, small and medium-sized enterprises (MSMEs)?

WIJAYA: Custodian agreements between P2P lenders and banks create a synergy that serves to protect the customers and investors of P2P lenders, as well as MSMEs. These agreements reduce the risk of entrusted funds being misappropriated. Moreover, this enables stricter control and governance of money flows through P2P lenders. In so doing, this can prevent the committing of criminal acts such as money laundering and terrorism. Furthermore, MSMEs will feel more secure knowing that their funds are kept in escrow accounts or custodian bank accounts.

Given that illegal P2P lenders in Indonesia have servers located in other jurisdictions, how can enforcement and transparency be enhanced?

WIJAYA: The Financial Services Authority (OJK) has been very clear that only registered and licensed platforms are allowed to conduct P2P lending business in Indonesia. We believe that a strong partnership between the regulator and government is key to ensuring that only trusted and quality players are allowed to provide the market with P2P services.

We are supportive of OJK’s initiative to collaborate with the Ministry of Communication and Information Technology to close down illegal P2P lending platforms. This protects investors from scams and illegal activities that they may not have originally been aware of. Furthermore, OJK and the other authorities are active in educating the public on how to differentiate between legal and illegal fintech lending platforms. Hopefully in the future, when the P2P lending industry has become more mature, a specific regulatory framework can be established in the region for the purpose of strengthening and guarding the industry. This is not only to prevent illegal practices from taking place, but also to settle complex jurisdictional issues.

In what ways can P2P lenders improve their data analysis in order to curb a rise in non-performing loans (NPLs) and minimise risk?

WIJAYA: There is a general misconception that P2P lending platforms require low NPLs. In fact, the spirit of P2P lending is to support and help underbanked parts of the population, which means that P2P firms will naturally serve developing MSMEs and segments of society with a higher level of risk.

Without taking steps to better calculate risk, it will be difficult to expand financial inclusion. A centralised, real-time data centre and credit bureau accessible to all registered P2P lending platforms will be key to preventing fraud and providing access to the credit records of potential borrowers.

What are your expectations for P2P loan growth in the agriculture sector, considering the risks and variables at play in this industry?

WIJAYA: Greater collaboration between P2P platforms, microfinance providers and commercial banks operating in the agriculture industry will be key. By working together these players can share expertise and best practices in areas such as selecting borrowers and collecting on loans. This will ensure only sustainable financial products are provided to the sector.