Vichaara written by: Anjan Babu.S. 

Vichaara edited by: Sanjana Sudarshan 

Source: https://the-ken.com/story/while-indonesia-looked-away-its-people-fell-into-a-bnpl-debt-trap/  

Author of Source Article: Prima Wirayani  

 
Buy-Now-Pay-Later (BNPL) has, effectively, been made illegal by the RBI in September of 2022. 

This led to many startups focusing on BNPL, to pivot their business model or shut shop altogether. The major benefits for consumers were that BNPL facilitated in establishing their credit rating profiles and allowed the breaking down of large consumer purchases into small digestible chunks of EMI payments. 

Foreseeing a credit default pandemic, the Reserve Bank of India (RBI) curbed BNPL completely. With Indonesia recently following suit. Other emerging economies were not as agile in doing this.   

An anecdote from an Indonesian citizen, illustrating its impact, 

“I was afraid, so I borrowed some money from a fintech lending platform to pay for the instalments. But then, I had another debt to be paid, so I borrowed more from other platforms. I did that over and over again,” Nisa told The Ken. 

Nisa’s outstanding debt now totals about 20 million rupiah (US$1,272), spread across over a dozen BNPL and lending platforms that impose similar penalties on borrowers for late payments. 

With a devastated credit score, Nisa now can’t secure loans from banks. Even seeking new employment is a challenge, as credit checks are a normal part of the vetting process for some companies. “I’m afraid that my family will find out that I have this much debt,” she said. Her full name has been withheld to protect her privacy. 

Nisa is among millions of Indonesians facing a similar predicament caused by easy access to credit from BNPL services. 

BNPL, first introduced in the archipelago in 2016, truly took off in 2019. Its convenience, coupled with low financial literacy, led to a tinderbox of financial grievances. 

The oversight of this sector was minimal until recently. It was only in October that Indonesia’s Financial Services Authority (OJK) suspended Akulaku’s BNPL services in the country, and sought satisfactory improvements." 

Agraga's Take

RBI's approach, though conservative has a long term view of the welfare of Bharatiyas. A credit default made on a purchase of a sports shoe at a young age may hinder future potential credit access for building a house or a business, on account of impacted credit scores.