Stringent laws by the Chinese Government to regulate cash loan companies have forced several fin-tech players to shift focus beyond its home market. Indonesia, with high consumption levels and similar market dynamics, has come about to be a perfect fit for them.
In January 2018, there were 30 cash loan companies operating in Indonesia and more than half of those were Chinese firms, including Wecash, Weshare, and Mintq. Several of the Chinese fin-tech firms present in Indonesia have also entered partnerships with local firms to gain market share.
Entrepreneurs, The Passage reached out to, say that China’s new regulations for loan disbursal has significantly eroded revenues in the home market. For instance, Alibaba's Ant Financial gave USD 3.5 billion in loans during the first quarter of 2018. This about 75% less than the previous quarter, a Bloomberg report said.
The Chinese government started regulating cash loan companies in November last year, when it also stopped granting licenses for fin-tech operations, with a view to mitigate risks of small-ticket and short-term loans. The socialist government is especially wary of high risk loans because it threatens social stability. The new law also forbids lending with an annual interest rate higher than 36%.
This is not the first time when the government has intervened to regulate the sector. A few months ago, a knee-jerk reaction from the government prompted violent episodes of debt collection from car loan companies in Zhengzhou city and Guangdong province. A series of such incidents has led Chinese firms to explore other markets beyond China.
Indonesia, with a population of 260 million, has become the El Dorado for Chinese fin-tech firms. According to Max, co-founder of Bluepay, a Chinese company focused on mobile payments in Southeast Asia, Chinese firms started looking at Indonesia as a potential market back in 2016. "At the beginning of 2017, there were few Chinese companies present in Indonesia. It was only in November an December of 2017 when businessmen started to flock to Indonesia", says Max. According to the Chinese portal Utan News, there were 15 Chinese fin-tech companies in Indonesia in October 2017. Now, the number has reached 40 and more than 100 new companies per month are waiting to be licensed by financial service authority.
Indonesia is a heavily populated country with low wages and a higher consumption level than China.
According to the Indonesia's Statistics Agency (Badan Pusat Statistik), the country's GDP grew by 5.07% in 2017. Domestic consumption accounted for 70% of the country’s GDP before the economic crisis of 2008. However, wages in Indonesia are lower than China. Still, the price of some core products is equivalent to that in China.
Despite these impressive consumption levels only 37% of Indonesian adults have a bank account, only 27% have deposits, and only about 13% have taken a formal loan ever in their life.
Because Indonesia’s credit system is still underdeveloped, payday loans in Indonesia attractinterest rates as high as 365%. Indonesia’s online payments ecosystem is also nascent, in contrast to China’s prolific payments sector.
The Chinese fin-tech firms are filling this gap in financial inclusion. One of the most lucrative sub-segment for the fin-tech firms in Indonesia is motorbike loans. In Jakarta, motorbikes is a preferred mode of transport, due to chaotic traffic. However, bikes can cost anywhere between USD 1300 and 4700. While the national average wage was USD 183 per month at the end of December 2017, according to the The Ministry of Manpower and Transmigration.
Smartphones and electronics is another segment that the Chinese fin-tech firms are cashing on. Two Chinese firms - Homecredit and Tangbull - have set up shop in a smartphone mall in Indonesia to disburse loans for buying hand-held devices that cost anywhere between USD 150 to 470.
Additionally, favourable regulations and low cost of customer acquisition in Indonesia makes the country an attractive proposition for Chinese firms. According to Aftech, the Indonesia FinTech Association, there were 235 fin-tech companies in Indonesia in 2017. Of this, 39% are online payment companies and 32% are cash loan companies.
However, Indonesian government is treading carefully. The country recently published consultation to regulate the fin-tech companies, with an aim to avoid repetition of the 1998 financial crisis. Moreover in Indonesia, which has a significant Muslim population, usury is frowned upon. The regulations around fin-tech may get stricter in Indonesia in near future, considering these factors. Chinese fin-tech firms are however, going all out to establish a market in the country, in order to scale up business as China ecosystem closes in.