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INVESTIGATING THE RISKS OF INVESTING IN “PEER TO PEER LENDING”

In the era when everything is digital as it is today, our life has been easier in almost every way, including to obtain a loan and make investment as reflected in technology-based lending. One of the most popular form of lending today is peer to peer lending.

At a glance, extension of loan through peer to peer lending system is quite easy and fast. Generally, the service provider company will only require the prospective debtor to fill in a form provided on the website on an online basis and to attach some documents.

The data will then be evaluated by the service provider company to find out whether or not the debtor meets the requirements to be given a loan. If the prospective debtor is considered suitable, the service provider company will find an appropriate prospective creditor.

From the debtors side, they can obtain a loan with relatively easy terms in a short time. As for the creditors, they can get returns in a relatively short time with a fairly high interest. This simplicity has pushed peer to peer lending business to grow very rapidly around the world, including in Indonesia. However, behind the ease of transacting, we must also understand the potential issues of the peer to peer lending system, especially for creditors.

Unlike investments in conventional banks –such as deposits which are guaranteed by the Deposit Insurance Corporation (LPS) or stock investments that are also guaranteed if the funds are taken away by the securities company– investments in peer to peer lending are neither guaranteed by LPS nor protected by special guarantees if the company takes away the investment funds.

Another risk that must be calculated is the status of the investor if the service provider company is declared bankrupt and the funds from the investor have not been disbursed to the debtor. In this case, it is necessary to consider if the investor’s status is a creditor or not since there is no legal relation between the investor and the company providing the peer to peer lending service.

In addition, as the creditor has a direct relation with the debtor, the risk is fully borne by the investor if the debtor fails to repay the loan. Moreover, there is no collateral or security deposited on the debtor’s assets in this lending resulting in the absence of guarantee of repayment of the investment funds from the creditor to the debtor. On the other hand, the service provider company is not involved in the lending and borrowing relation as it only acts as the intermediary. The company will only facilitate the settlement process of debt repayment.

With regard to some potential risks in investing in peer to peer lending companies, it is highly recommended to survey and
select trusted peer-to-peer lending companies registered with the FSA before making investments.

-ADP-