Indonesia credit concerns put P2Ps in the spotlight

Indonesia’s once-buoyant peer-to-peer (P2P) lending sector is facing a reckoning. After years of rapid growth, a string of high-profile defaults, fraud cases, and tightening liquidity have thrust the country’s fintech lenders into the spotlight, raising questions about the resilience of digital credit platforms and the broader risks lurking beneath Southeast Asia’s largest digital economy.

For much of the past decade, Indonesia’s P2P lending sector was the poster child for financial innovation in emerging markets. Platforms promised to bridge the credit gap for millions of small businesses and consumers overlooked by traditional banks. The same is true in other Southeast Asian markets, but Indonesia’s size has made it a magnet for fintech startups, while several of its existing banks have been acquired and refashioned into digital-first lenders.

The Covid pandemic, followed by a wave of global monetary tightening, tested these promises. P2P lending exists at the riskiest end of the spectrum, so it is the most directly impacted.

Kelvin Teo (pictured), co-founder of Funding Societies, one of Southeast Asia’s largest digital lenders, says the past few years have delivered crises, one after another: the COVID-19 pandemic, aggressive interest rate hikes in the US in 2021, and now the fallout from global tariffs.

“The market has consolidated,” Teo says. “Many players have quietly shut down or blown up in Indonesia. We’ve seen exits in Vietnam and Singapore as well.”

Big fintech market

Indonesia remains a big arena for fintech. There are 97 licensed platforms in P2P, among 153 licensed finance companies, according to OJK, the Financial Services Authority.

P2Ps, which facilitate unsecured loans to small businesses and consumers on behalf of banks, investors, or other lenders, include Modalku, the local arm of Funding Societies; Validus; Amartha; Danamas (Sinar Mas Group); AdaKami (Akulaku Group); and Finmas (Sinarmas and Oriente).

At a broader consumer level, digital multi-finance companies include buy-now, pay-later specialists like Kredivo and Ant Group-backed Akulaku, while Home Credit, an international player, specializes in digitizing point-of-sale financing.

Some players are doubling down on Indonesia, including Validus, which has cut its footprint from four Southeast Asian markets to two, Indonesia and Thailand, which have the scale to make its business work.

Domino effect

The trend, however, has been consolidation within Indonesia’s P2P space. The number of licensees has fallen from 150 five years ago to 97 today. And the past 12 months has seen the best-capitalized platforms get bigger while others are struggling.

Several have closed, notably Investree, which failed to meet equity requirements or secure investors. OJK has ordered its liquidation. OJK has also recently revoked the licenses of TaniFund and Ringan, while others including Dhanapala and Jembatan Emas have voluntarily returned their licenses.

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Others have scaled back, including Funding Societies, Akseleran, and KoinWorks (aka KoinP2P). In the case of Funding Societies, it is making a strategic move to reduce its reliance on Indonesia, but it is a unique case as it is the only regional P2P player with five markets to balance. Other cases have more to do with struggling businesses and governance concerns.

These issues come on top of an unrelated scandal around a digital-agricultural company, eFishery, which has admitted to inflating its revenues by $600 million, while telling investors it was profitable while in fact it was losing money. This was a unicorn (a startup valued at more than $1 billion), and the nonchalance of its founders, who have taken a “but everybody’s doing it” stance, has unnerved venture investors and fintech partners.

Teo says more problems are likely to make headlines, including in the area of supply-chain finance. “Customers are defaulting, and the domino effect is real,” he told DigFin.

Bad luck or bad actors?

An executive at a digital bank with business in Indonesia is concerned about the consequences of P2Ps ceasing business.

“If people borrowing don’t think they’ll get another loan, they stop paying,” he said. “It creates a domino effect. Four or five SME lenders are under stress, and the knock-on effects are only just being felt.”

The psychological impact is hard to measure but could be material. “If people think it’s okay to default, it creates a structural dysfunction,” the banker said.

He sees the turmoil as an opening for his business, which is a recent entrant. “If you come in clean, there’s huge demand.” For now, the turbulence remains limited to fintech lenders, which creates opportunities for others. But in theory, were defaults to cascade, those problems would affect banks that outsource their balance sheet to these platforms.

Big is better

The regulators at OJK have been walking a tightrope. On the one hand, they are helping the P2P business mature. It increased limits on single-borrower loan sizes from IDR2 billion ($123,000) to IDR5 billion ($308,000), which helps the established players. It has also lowered caps on the interest rates that fintechs can charge borrowers, which can squeeze the fintechs (again, supporting the largest players) but encouraging new consumers and SMEs to borrow via fintechs.

But licenses in Indonesia come with strings attached. Compared to the Philippines, Vietnam or Malaysia, the compliance requirements and administrative costs are higher. The rules are also vague compared to neighboring countries, executives say. This forces fintechs to add headcount, and slows them down.

Some of this is just the way things are in Indonesia, rather than signs of a crack in the P2P industry.

But what this means is that there’s less room for fintechs and digital providers than meets the eye. One of those ‘the way things are’ is the fact that Indonesians have a worse record of paying back loans to platforms compared to other Asean markets.

“You need a dominant position,” said a former executive at Home Credit. “You need to have the right to score first when a customer is looking for credit. Otherwise you get somebody else’s reject.”

Beneath the surface

At the macro level, Indonesia’s credit is in good shape. 

Bank Indonesia’s decision to lower its policy rate to 6.0 percent in late 2024 has supported private sector credit growth, and corporate bond issuance reached record highs in the first half of 2025. Major banks report improving NPL ratios, with Bank Mandiri’s NPLs falling to 1.1 percent at the end of 2024, down from 1.2 percent the previous year.

Sovereign and top-tier corporate credit ratings remain intact, with Moody’s, S&P, and Fitch all maintaining Indonesia’s investment-grade status and stable outlook. Tariff woes could yet impact Indonesian GDP, but so far that has yet to materialize.

However, SMEs and micro SMEs are a different story. These are the companies that borrow from P2Ps. Non-performing loan (NPL) ratios for MSMEs remain relatively high, at around 3.7 percent, compared to 2.9 percent for large corporates. Sectors like construction, accommodation, and wholesale trade report NPLs as high as 4.9 percent. One reason for their problems is that last year the government ended loan forbearance due to Covid, and it’s these small businesses that are more likely to be exposed.

This could lead to problems in BNPL and unsecured lending. Late payments have been on the rise since October 2024, coming on top of a spike in P2P lending. The growth in the industry may look healthy, but lending money is the easy part.

“Unsecured lending is always going to have high NPLs,” says the former Home Credit executive. “You need a strong collections department, and that’s expensive.” The digital nature of many fintechs allows them to reach more borrowers, but it also makes it harder to enforce repayment. “If you’re just a small team in Jakarta, you won’t be able to collect,” he said. “You can be fully digital on the front end, but not when it comes to operations.”

If P2P defaults increase, it will be those leaders with an on-the-ground presence that will outperform fintechs that either lack this capacity, or who outsource it – perhaps to partners that may not be effective.

The winners: fewer but stronger

For fintechs, the path forward is one of adaptation. The days of easy money and unchecked growth are over. Survivors are those with diversified business models, strong risk management, and the ability to navigate regulatory and market turbulence.

“We’ve avoided trouble by reducing dependence on Indonesia,” says Teo of Funding Societies. “Indonesia went from 50% of our total book to just 25%. We’re more diversified, while local players are stuck.”

The leading platforms are finding ways to diversify: new products, new partners. Funding Societies, for example, is moving into secured lending, while Validus is exploring SME insurance and employee loans. As SME credit conditions weaken, traditional banks are likely to pull back, which creates new opportunities for fintechs and for digital banks.

And in terms of partnerships, the litmus test now is collaborating with a digital bank. As licensed banks, these players have high levels of capitalization, both in the form of equity and debt, and they straddle the divide between traditional borrowers and the bleeding edge of the un-banked. This is especially true of SMEs in global supply chains.

Expect to see more agreements as the most robust P2P players look to add the balance sheet of digital banks to their platforms, while digital banks will continue to seek new forms of distribution.

Other P2Ps should expect the investors on their platforms to be taking a very close look at their financials and operations.

The difference between a rough patch in a messy emerging market, and a systemic breakdown, is founder integrity. A culture of impunity and so-what-ism is corrosive. The best thing the industry can do is demonstrate that the eFishery and Investree cases are the exceptions, not the rule.