Indonesians belonging to the lower middle class are likely to be uninsured and have to get by with a monthly income of US$400. For them, bank loans are definitely not an option when they are in an emergency. They have a choice to either borrow from loan sharks, who are widely known for their criminal tendencies, or pawn valuables which they scarcely own.
And then, there is still the problem of high interest rate and how it traps those who struggle to pay them.
What UangTeman has developed may just be the solution to end this vicious cycle.
What is UangTeman?
Launched in April 2015, UangTeman – Indonesian for ‘friend’s money’— offers unsecured micro loans online to Indonesians in the Greater Jakarta Area and several cities in Central Java.
UangTeman has a team of less than 30 members with experience in tech, risk management and finance.
It is backed by Alpha JWC Ventures and a the co-founder of an undisclosed UK payday lending agency.
The fintech startup’s customers can usually borrow up to US$150 with less than 30 days deadline, with an interest rate of one per cent per day for the first loan. And, they only have to pay interest for the number of days the loan has been borrowed.
Complemented with an easy application mechanism on a desktop site that resembles airline ticket reservation, the startup directly transfers the money into customers’ bank accounts in less than 24 hours.
“Banks have perfected the art of persuading customers that an 18 per cent per year unsecured loan is a cheap source of credit. If consumers do a side-by-side comparison … you are actually paying about 30 per cent plus on your loan principal,” says Aidil Zulkifli, CEO and Co-Founder of UangTeman, explaining the problem that the startup aims to address.
“UangTeman wants to promote that transparency to the consumer. We are very clear about how much you borrow and how much is due,” he adds.
Zulkifli further explains that what sets UangTeman apart from conventional banks or payday lenders is this flexibility and product innovation.
For its underwriting process, the company does not rely on conventional credit database checks as in other banks and financial institutions. The startup’s credit verification process are driven by its own proprietary algorithms, developed by its team of data scientists.
“Our vision is to help Indonesians in the lower classes to move into more mainstream finance channels,” says Zulkifli, stating that 30 per cent of the clients use the money to fund small businesses such as setting up Facebook shops (small businesses in the country who can’t afford to buy a domain name usually set up an e-commerce on Facebook page) or a baking business.
“This segment really appreciates the value of our loan, as their previous alternative was to turn to a wet market lender with 20 per cent per day plus fees,” he adds.
Digital loan shark?
UangTeman is fully aware of the potential criticism that the startup is basically a digital form of the usual loan sharks.
Regarding this, Rio Quiserto, Director of Risk Management, responds with an example of the company’s flexibility in dealing with its customers.
“Our customers can choose the duration of their loan up to 30 days. They can pay us back early and only pay interest for the days they borrow. There is no penalty whatsoever. More importantly, if a customer has difficulty paying us back, unlike other lenders and banks, we stop the interest from accumulating and try to work out a payment plan with the customer,” he explains.
“We reward good credit behaviour of our customers by offering a step-down in interest rates for subsequent loans,” he adds.
Since many of their customers use the funding to operate small businesses, e27 wonders if UangTeman has any plans to branch out into microfinancing for businesses.
Zulkifli is open to the idea. “We may be working on something in this space,” he says. “The key thing about this business is to continuously innovate in such a way that we align the interests of all stakeholders. Only then can we have a sustainable business,” he concludes.