In Indonesia, services paid later leave some drowning in debt | debt news

Ubud, Indonesia – Nadhea Putri’s growing debts began with a single cell phone purchase.

Putri, who lives in Kuala Kapuas, Central Kalimantan, about 1,000 miles from Jakarta, had dreamed of upgrading to a newer model for months but didn’t have enough money.

Then, earlier this year, the 21-year-old college student noticed a Buy Pay Later (BNPL) option being offered on the checkout page of her favorite online shopping app. It took her less than 24 hours to activate the payment method, and by February she owned the phone, which cost nearly five times her monthly earnings.

More than four months later, Putri is still struggling to pay off the balance along with rising interest rates.

“I’m too scared to even use my new phone right now,” Putri told Al Jazeera, asking that a pseudonym be used to protect her anonymity. “Every day collection agencies call me more than 20 times. I feel terrorized but I can’t tell my parents. I don’t want to burden them.”

BNPL, which allows customers to pay for goods in installments at different interest rates, has helped fill a significant credit gap in Indonesia. Credit card penetration in the country is notoriously low, standing at a meager 6 percent in 2021, with nearly 65 percent of Indonesia’s 275 million residents still unbanked.

As the country’s population has increasingly moved online in recent years, digital payment methods such as BNPL have seen a surge in usage. Mobile internet penetration in Indonesia is now among the highest in the region at 68 percent in 2021 and is projected to reach 79 percent by 2025.

Smartphone users like Putri are drawn to BNPL because of its quick and easy way to purchase items they might not otherwise be able to afford.

“I took a picture of my ID card and uploaded it to Shopee to activate my SPaylater,” Putri said, referring to the BNPL service offered by e-commerce platform Shopee.

“It’s very simple. After it was verified, I was able to use the funds to make payments on the platform.”

credit barriers

Credit card applicants in Indonesia are typically required to show monthly income and a healthy credit score, with the exception of many low-income earners like Putri, who earns $95 to $300 a month between college and writing for a content provider website.

Headquartered in Singapore, where Putri shops regularly, Shopee is one of Indonesia’s most visited e-commerce platforms. The platform ranked second last year after native Tokopedia and recorded 126 million monthly visits in the third quarter of 2021.

Shopee’s in-app BNPL service SPaylater is among the most popular of numerous BNPL options in the country, ranking as the most searched topic for deferred payments on Google between 2018 and 2021, according to DSInnovate’s Indonesia Paylater Ecosystem Report 2021. The service offers 2.95 percent fixed interest, with terms of one, two, three and six months.

Although there is no publicly available data on the socio-economic composition of SPaylater’s users, the service’s branding was firmly aimed at low- and middle-income Indonesians.

In February, Shopee Indonesia ran a series of ads featuring Nassar Sungkar, also known as King Nassar, a dangdut folk music superstar popular with the lower socioeconomic classes.

In one ad, a woman stands outside a family-owned diner that sells groceries and looks down at her phone with a worried expression on her face. “I want to shop, but I’m broke,” she says.

A split second later, Sungkar appears, wearing a bright, superhero-esque cloak, before bursting into song and dance. “Let’s use SPAylater. Buy now, pay later!”

Shopee declined to comment when contacted by Al Jazeera.

Shopee has used folk singer Nassar Sungkar or King Nassar to promote its BNPL service [Courtesy of Risyiana Muthia}

“I saw the commercial almost every day on television,”  Maisaroh, a Spaylater user, told Al Jazeera. “My 16-month-old likes it so much that she copies the dance whenever it is on.”

Like Putri, Maisaroh, who lives in Subang, West Java, is neck-deep in BNPL debt.

“I used the Shopee app very regularly,” Maisaroh, 30, said. “We live far away from the city, so online shopping makes it easier for me. I don’t even need to go outside to shop; the products will be delivered to my doorstep.”

Hoping to make extra money, Maisaroh then began using BNPL to purchase goods to resell to her neighbours.

“In the beginning, everything went well, and I could even make a little profit,” she said. “Then, a family member fell ill, and the money that was meant to pay for our monthly debt had to be used to pay for the medical treatment.”

When her husband’s monthly salary of about $200 proved inadequate to keep the family afloat and meet the BNPL repayments, Maisaroh purchased more items to resell in the hope of making enough money to pay back their debts, only to make the problem worse.

“We can’t even make ends meet,” Maisaroh said. “How could we pay for those? Then we downloaded many lending apps to try to borrow more money, to buy us some time. But it’s been almost six months since the whole thing started, and now I have more than 30 million Indonesian rupiah [$2,024] have debts.”

While Indonesia is expanding access to financial services, the majority of the population still suffers from low levels of financial literacy. A 2019 survey by the Financial Services Agency of Indonesia found that the country scored 38.03 percent on the financial literacy index and 76.19 percent on the financial inclusion index, indicating a noticeable gap in the public’s understanding of what is made available to them financial services.

Ligwina Hananto, founder and CEO of QM Financials, which offers financial literacy programs across the region, said the lack of knowledge is putting people at risk.

“Without proper financial education, financial inclusion can lead to predatory inclusion,” Hananto told Al Jazeera. “The lack of financial literacy among Indonesians, particularly those living in rural areas, can leave many in vulnerable situations. Especially when it comes to unsecured loans with high interest rates.”

“Now people can get loans from various fintech applications. Without understanding the actual risks and consequences, the cultural shame associated with debt can quickly dissipate,” Hananto added.

    Ligvina Hananto
Ligwina Hananto, founder and CEO of QM Financials, believes that lack of financial literacy puts Indonesians at risk [Courtesy of Ligwina Hananto]

Sekar Putih Djarot, a spokesman for Indonesia’s Financial Services Authority, said the country’s debt remains under control despite the small gap in financial literacy.

“The risk profile of financial services institutions was still relatively well maintained in April 2022, with banks’ gross non-performing loan ratio at 3 percent and financial firms’ gross non-performing financing rate at 2.7 percent,” Djarot Al Jazeera said.

“Nevertheless, people need to understand that BNPL is a form of debt, so they need to be able to measure their financial performance before deciding to use it.”

When asked if loan restructuring or other support is available for heavily indebted borrowers, Djarot said: “You can approach the lenders first and if there is a dispute in the process, they can report it to us and we can mediate.” enable.”

It’s hard for troubled borrowers like Maisaroh to see much hope.

“I often have suicidal thoughts,” she says. “They are upon us every day. Tell me, what happens to us if we don’t find a way to pay?”

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