Investment Peer-to-Peer Lending

- Not long ago, the Financial Services Authority (OJK) was monitoring companies providing peer to peer lending (P2P lending) services. According to the latest information, out of 102 licensed P2P lenders, 41 have made profits while 61 others are still making losses, and there are three with negative equity.

It was also stated that there were 22 P2P lending companies with default rates above 5%.

As is known, there are not a few P2P lending that offer funding in the form of investments to lenders. The returns offered by P2P lending are also quite high, even beating deposits or government bonds, not to mention that the tenor of the funding is short, some even in a matter of days.

  So is investment diversification into P2P lending still attractive at this time? Here are the things you should pay attention to before becoming a P2P lending lender.

1. P2P lending is a debt-based instrument

The nature of P2P lending funding is actually similar to investing in debt-based fixed income instruments. Therefore, the risk of this funding is default.

This funding is similar to bonds, sukuk or other debt securities. However, debentures such as bonds certainly have a rating that indicates the feasibility of the investment from external parties, while the P2P lending risk assessment is carried out by the company itself.

Therefore, the risk of this investment is actually quite high and investors must be aware of this.

2. P2P lending funding is lump sum

P2P lending funding is carried out by means of a lump sum or one time payment, the same is the case with deposits or debentures. This funding will generate cash that can be used to supplement the lender's regular income, not capital gains such as mutual funds or stocks.

In terms of its advantages, lump sums are more practical because they are paid once, but the drawback is that there is a temptation to use large funds to generate greater profits.

Lenders should be aware that the greater the funds placed, the greater the risk. Therefore, it is very important to use cold money if we want to make funding.

3. Can credit insurance guarantee security of funding?

The existence of credit insurance is intended to mitigate the risk of default on P2P lending funding.

However, the insurer generally will not guarantee 100% of the funds disbursed by the lender if there is a default.

Not long ago, OJK announced that there was an increase in the rate of increase in annual claims by 33.33% to IDR 187.47 trillion. Meanwhile, the accumulated premiums from January to October 2022 reached IDR 225 trillion.

OJK is of the opinion that the liquidity and solvency conditions of this insurance product are expected to experience a constraint, especially taking into account the potential for credit and financing risks.

4. Yields are subject to PPh

Referring to article 3 paragraph (2) Minister of Finance Regulation no. 69 of 2022 concerning Income Tax and Value Added Tax on the Implementation of Financial Technology, interest received by lenders becomes the object of PPh.

If the lender is a resident taxpayer and has a permanent establishment, the interest received by the lender will be deducted by 15% PPh.

Meanwhile, if the lender is a foreign taxpayer, the interest income will be deducted from PPh 26 at a rate of 20%.

Lenders are also required to report interest income in the Annual Tax Return for other categories of domestic net income.