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Balancing Innovation and Regulation for Financial Inclusion: The Future of P2P Lending in Indonesia

Author

Listed:
  • JIANZHENG SHI

    (School of Business, Singapore University of Social Sciences, Singapore)

  • YUE WANG

    (School of Business, Singapore University of Social Sciences, Singapore)

Abstract

This comprehensive analysis delves into Indonesia’s burgeoning Peer-to-Peer (P2P) lending sector, focusing on its transformative potential for financial inclusion and the inherent challenges of customer protection. The article scrutinizes the exponential growth trajectory of P2P lending platforms, a phenomenon propelled by escalating internet penetration, widespread smartphone usage, and a substantial unbanked population in the country. It also sheds light on the risks associated with the proliferation of illegal platforms outside the regulatory framework. The article underscores the need for robust regulatory compliance and effective risk management strategies to ensure customer protection and maintain market stability in this rapidly evolving sector. It delves into the regulatory measures established by Indonesia’s Financial Services Authority (OJK). It discusses the necessity for these regulations to be continuously reviewed and enhanced to keep pace with market developments. The article further explores the potential of P2P lending platforms in promoting financial inclusion by providing an accessible and convenient avenue for individuals and small businesses to access credit. It discusses how these platforms leverage alternative data for credit scoring, thereby enabling those without a traditional credit history to gain access to loans. In conclusion, the article emphasizes that striking a delicate balance between fostering innovation and ensuring stringent regulatory compliance is crucial for Indonesia’s sustainable growth of the P2P lending sector. It advocates for a regulatory environment that nurtures innovation while safeguarding customer interests and maintaining overall market stability. The article posits that achieving this balance will enable Indonesia to fully harness the potential of P2P lending, thereby driving financial inclusion while simultaneously ensuring customer protection and market stability.

Suggested Citation

  • Jianzheng Shi & Yue Wang, 2023. "Balancing Innovation and Regulation for Financial Inclusion: The Future of P2P Lending in Indonesia," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 9(2), pages 38-42, June.
    • Handle: RePEc:mgs:ijoied:v:9:y:2023:i:2:p:38-42
    DOI: 10.18775/ijied.1849-7551-7020.2015.92.2003
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    References listed on IDEAS

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    1. Liu, Aiping & Urquía-Grande, Elena & López-Sánchez, Pilar & Rodríguez-López, Ángel, 2023. "Research into microfinance and ICTs: A bibliometric analysis," Evaluation and Program Planning, Elsevier, vol. 97(C).
    2. Wu, Bao & Liu, Zijia & Gu, Qiuyang & Tsai, Fu-Sheng, 2023. "Underdog mentality, identity discrimination and access to peer-to-peer lending market: Exploring effects of digital authentication," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
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    More about this item

    Keywords

    Peer-to-Peer (P2P) lending; Financial inclusion; Regulatory compliance; Risk management; Indonesia; Financial services authority; Unbanked population;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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