Last modified: 2019-03-13
Abstract
Abstract
The situation has been difficult for peer-to-peer lending to be widely accepted by the public if the risk for loan default is high. The paper will seek to explore what factors might influence loan creditworthiness in Indonesian P2P lending. It will examine the 5C credit model, regression analysis, business model canvas, industry analysis and how it pairs up with an unconventional financing method such as P2P lending. Primary research using interview and case study is conducted, with XYZ Indonesian lending platform as research focus. The result will be beneficial to develop P2P platform as well SMEs development in Indonesia.
Keyword: P2P lending; 5C credit model; creditworthiness
Introduction
Debt-based crowdfunding or peer-to-peer lending is byproduct of the information revolution that began over 20 years ago. The development of information technology has transformed the financial services industry and enable to created innovative business model. The rise of cloud-based computing has made it possible for peer-to-peer businesses such as Uber, Airbnb, and Go-jek to operate (Einav, Farronato, & Levin, 2016). Essentially, businesses have found a way to bring its consumers closer to the end product with minimal costs, as well as equity-based crowdfunding and peer-to-peer lending.
Peer-to-peer lending refers to the practice where financial technology firms connect those who have money to invest with businesses who seek to raise its funds. P2P lending platforms act only as an intermediary between the investor and the borrower. This type of lending is traditionally only possible with banks (Baeck, Collins, & Zhang, 2014).
Because it replaces banks as the intermediary, both investor & businesses reap the benefits. P2P lending offers a competitive Return on Investment for its investors, and it offers a competitive and convenient financing for its borrowers.
The loan is processed through a website owned by the P2P lending firm. The investors are able to set the amount, a desired interest rate, length of loan, and where they’re lending their money to. Some P2P lending platforms diversify the investor’s portfolio automatically[1].
As of January 2017, around 60 million of Indonesians possesses a bank account, while the registered investment account in the Indonesian Stock Exchange is around 1 million, or around 0.59% owns an investment account (KoinWorks, 2017). Compared to other leading ASEAN countries, Indonesia has the lowest investment participation, percentage-wise.
[1] http://www.peerinvestments.co.uk/automatic-diversification-p2p-lending-services-compare/