Peer-to-peer lending, sometimes abbreviated to P2P lending, is the practice of lending money between individuals. The act of lending from one individual to another has existed for many years, and often done through informal agreements.
With the advent of technology and the spread of e-commerce, this lending activity is brought to another level by leveraging the marketplace platform common in e-commerce. With that, one individual borrower can access funding from many individuals.
The lending takes place online on peer-to-peer lending companies’ websites using various different lending platforms and credit analysis tools. The borrower and the lenders do not meet physically and are often strangers.
Peer-to-peer lending does not fit cleanly into any of the 3 traditional types of financial institutions: banking term-deposit, investment or insurance, and is often described as alternative financial service.
Many peer-to-peer loans are unsecured personal loans, though some of the larger amounts are lent to businesses. There are also other forms of peer-to-peer lending which feature student loans, commercial and real estate loans, payday loans, factoring and leasing.
In a few of the platforms they also offer secured loans, often with luxury goods such as jewelry or property as collateral. However, these models are not prevalent due to scalability issues.
Peer-to-peer lending is a relatively new product in Indonesia and other countries in South East Asia. Hence, the government has not put into place regulations specific to the industry. However, they are acknowledging this as an industry that has potential and are preparing the groundwork for a proper regulatory oversight.
Hence, existing platforms tend to design their businesses and products based on existing regulations. A few may even design their processes based on loose interpretations.