2016-04-19-奥纬咨询-Time_For_Marketplace_Lending_10页_1mb

Summary of "TIME FOR MARKETPLACE LENDING: ADDRESSING INDONESIA'S MISSING MIDDLE"

Core Content

Marketplace lending is identified as a significant opportunity to address the credit gap for Indonesia's "missing middle" – businesses with monthly revenue between IDR 10 million and IDR 100 million. These businesses, which make up the majority of Indonesia's micro and small to medium enterprises (MSMEs), face challenges in accessing credit due to structural imbalances in the financial system and the limitations of traditional banking models.

Main Points

• MSMEs in Indonesia:

  • There are over 57 million MSMEs, with 99% being micro-enterprises.
  • Only about 1% of these micro-enterprises grow to become sustainable SMEs.
  • The "missing middle" segment is not well-served by either traditional banks or financial institutions.

• Economic Impact:

  • Limited access to credit for the missing middle is estimated to cost Indonesia around US$130 billion annually, equivalent to 14% of GDP.
  • The MSME financing gap is expected to reach US$54 billion by 2020, with a large pool of return-seeking investable assets (US$210 billion) available.

• Market Failure:

  • Traditional banks are not meeting the needs of the missing middle due to mismatched expectations and loan structures.
  • The missing middle typically requires short-term working capital and cash flow management, which is not aligned with the long-term term loan structures banks offer.

• Role of Marketplace Lending:

  • Marketplace lending can provide improved access to credit for these businesses.
  • It is seen as a transformative force, similar to its impact in China.

Key Stakeholders and Their Roles

Fintechs

• Should focus on sustainable lending practices and not just on growth.
• Must raise customer awareness and provide value beyond lending (e.g., business networking, supply-chain solutions).
• Invest in customer experience, underwriting capabilities, and anti-fraud analytics.
• Train front-line staff and align incentives for better fraud prevention and credit risk assessment.

Banks

• Need to collaborate with fintechs, not just compete.
• Leverage core advantages such as low-cost funding and access to credit bureaus.
• Use new data sources and risk assessment innovations to improve credit decisions.
• Consider referral arrangements and innovative products (e.g., credit insurance) to support marketplace lending growth.

Regulators

• Must equip the industry with protective mechanisms before it grows too large.
• Should maintain comprehensive vigilance while keeping regulatory costs low.
• Foster industry growth through focused regulation (e.g., digital account opening, P2P investments).
• Define industry standards for transparency and investor appropriateness.
• Encourage improvements in credit data infrastructure by reporting marketplace lending to credit bureaus and creating new ones.

Key Insights from China

• China's Experience:

  • Structural imbalances led to a huge MSME financing gap (over US$700 billion) and surplus demand for investable assets (over US$2.3 trillion).
  • Marketplace lending platforms have grown rapidly, becoming the largest in the world.
  • These platforms often use a mix of online and offline models and are mainly funded by retail investors.

• Similarities with Indonesia:

  • Both countries have a large number of MSMEs and limited access to credit.
  • There is a significant opportunity for marketplace lending in Indonesia.

• Differences from China:

  • Banks in Indonesia may be more interested in marketplace lending due to regulatory focus on financial inclusion and digital initiatives.
  • Market development may be slower initially due to the relative newness of Indonesian players.
  • The e-commerce ecosystem in Indonesia is still urban-focused and lacks the scale of China's home-grown players like Alibaba.

Conclusion

Marketplace lending can play a transformative role in Indonesia by addressing the credit needs of the missing middle. However, for this to happen, fintechs, banks, and regulators must work together to ensure sustainable growth, competitive differentiation, and regulatory support. This will be crucial for the long-term success of the industry and the economic development of Indonesia.

Exhibit Overview

• Exhibit 1: Compares the number of micro, small, and medium enterprises across emerging Asian countries.
• Exhibit 2: Highlights the mismatch between banks' expectations and the needs of the missing middle.
• Exhibit 3: Provides examples of marketplace lending platforms in developed and developing markets.
• Exhibit 4: Details the dynamics of marketplace lending in China, including the role of SOEs, retail investors, and e-commerce.
• Exhibit 5: Shows the marketplace lending outlook in Indonesia, including demand and supply side dynamics.

Authors

• Jason Ekberg – Partner, Oliver Wyman
• Ritwik Ghosh – Principal, Oliver Wyman
• Iwan Kurniawan – Chief Operating Officer, Modalku

Contact Information

• Oliver Wyman: info-FS@oliverwyman.com or phone numbers for Asia Pacific, EMEA, and Americas.
• Modalku: www.modalku.co.id or info@modalku.co.id

Disclaimer

• The report is not investment advice.
• No liability is accepted for any loss arising from the use of this report or its sources.
• The report may not be reproduced or redistributed without written permission.