Dino Setiawan has worked in a number of large banks covering, treasury risk management, commercial lending, investment banking, and more recently headed a Silicon Valley based fintech lender providing access to finance for the US underbanked. He blogs to democratize institutional lending issues for mainstream discussion. Afterall, if you knew what went into your bakso, you’d improve your eating habits. Same goes for loans, you become a healthier borrower.
I wrote earlier this month that banks only lend to people who they think will pay them back. Unfortunately (or some may think fortunately), Indonesian banks have a hard time getting the right information about you. Especially if you have never borrowed from a bank, never had a credit card, never had a post-paid cellular account, etc. Salary slips can be fake, identification can be fake, so the bank have to work hard to get to the truth.
In my last blog, I wrote about technology playing a part in helping lenders get to a truthful picture of the borrower. This will benefit all the people of good character out there. There are some information that even technology has trouble obtaining or verifying. And that’s income.
This is where the employer can be a powerful partner to help bring down the cost of loans (so lower interest rates) and opening up access to finance that their employees would not normally have access to. Income data is valuable to lenders, and by providing it via a partnership, lenders should provide lower than market interest rate products to those employees.
The partnership can be a win-win for all parties:
the lender, who gets data to lower the risk (and hence lower losses) on loans made to employees;
the employee, who would get access to loans they normally wouldn’t and at lower interest; and
the employer, who can provide their workforce with a financial safety net.
Indonesian employers already recognise the value of providing access to finance for their employees through the numerous cooperatives sponsored by employers.
How a partnership between employers and fintech can benefit all is the same efficiency gain fintech brings to the lending market. Small cooperatives are typically less efficient than banks in managing a lending operation. A good fintech product can place world class lending technology in the hands of employer based cooperatives, or for employers without cooperatives, fill that financing gap with an efficient and accessible lending program.