Indonesia Watchdog blocks cryptocurrency lending platform


The Indonesian Financial Services Authority, known as OJK, has identified and blocked nearly 300 illegal peer-to-peer lending platforms, including a cryptocurrency company.

According to Nikkei, OJK’s investment alert unit has partnered with the IT ministry and local police to launch a crackdown on unlicensed FinTech platforms. Investigations revealed that most of the unregistered lending platforms had servers located in Indonesia, but a few of them operated from outside international borders. Nonetheless, OJK did not disclose the names of the licensed entities, especially the one that facilitated the lending of cryptocurrency between Indonesians.

“Once a fintech platform has been verified as illegal, we will block it directly. By blocking these illegal platforms, we hope to protect consumers and the public, ”said Anthonius Malau, Acting Director of Computer Application Control at the Indonesian Ministry of Informatics.

The backdrop

The crackdown follows years of development in the cryptocurrency-enabled lending industry. Unlike traditional mechanisms, in which people rely on bank approvals to obtain loans, a decentralized funding approach allows people to follow a short cycle approach. A borrower can connect with potential lenders through web portals and collect funding in the form of decentralized cryptocurrencies, such as bitcoin, ether, or native tokens compatible with the portal.

The exercise, while transparent, also creates opportunities for fraud. Fintech startups could attract funds from small investors to run P2P lending platforms and default at later stages, as evidenced by the many cases stemming from another Asian economy, China. Some cryptocurrency platforms, in particular, have a habit of disappearing with investor money. BitConnect, a very active cryptocurrency lending platform in Indonesia, disappeared with around $ 250 million in donor money.

OJK decided in December 2016 to include P2P lending in its FinTech regulatory law. The watchdog said it would allow platforms with at least 1 billion rupees ($ 75,000) in the capital and 2.5 billion rupees (nearly $ 200,000) to apply for an operating license. The costly legal process has discouraged many fintech startups from even seeking an operational license, which has led to the formation of an illegal lending industry.

“Fraud will be inevitable, even when there is regulation,” said Aidil Zulkifli, CEO of UangTeman.com, an Indonesian direct online lender. “However, I don’t think it will be as prevalent as it is in China because the Chinese and Indonesian supply-side environments are very different.”

Repression

Tongam Lumban Tobing, head of the OJK’s investment alert unit, said they had so far blocked 1,369 illegal lending platforms in 2019. Many of them were working directly or indirectly with cryptocurrencies and acted as loan sharks while charging excessive interest rates to unbanked Indonesians.

Authorities grabbed 1,773 unlicensed lending platforms last year.


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