Leveraging Private Credit Bureau to Enhance Efficiency in Indonesia’s Credit Industry

While the adoption rate of financial services in Indonesia is relatively high, with about 85% of the population using these services, access to credit is still largely limited to those with bank accounts. This leaves 97.74 million adults in the unbanked population without access to financial opportunities, showing that while financial penetration is extensive, it remains quite superficial. This underscores the urgent need for a more comprehensive credit assessment system.
On the other hand, Indonesian financial institutions (FIs), such as banks, are not fully utilizing credit data effectively due to their dependence on legacy technology. This results in a limited scope of credit data, limiting the banks’ ability to accurately assess borrowers’ creditworthiness and increasing the risk of non-performing loans (NPLs). In contrast, new technologies and services introduced by Lembaga Pengelola Informasi Kredit (LPIP) or known as Private Credit Bureau (PCB) have driven rapid growth in peer-to-peer (P2P) lending, which achieved a compound annual growth rate (CAGR) of 65% from 2019 to 2023 by providing an alternative to traditional, collateral-based loans.

Chief Commercial Officer PT CRIF Lembaga Informasi Keuangan (CLIK) Riza Kristanto emphasized that banks need to consider the benefits of credit bureau services if they want to maintain their competitive advantage. “Banks face the risk of falling behind digital financial service providers that offer fast and easily accessible funding to the unbanked. Moreover, the unbanked population continues to be excluded from credit facilities due to a lack of a reliable credit reporting infrastructure,” he noted.

As Indonesia’s leading credit bureau, CLIK is committed to enhancing the credit infrastructure. By aggregating and consolidating credit data from multiple sources, CLIK creates detailed credit profiles that offer a comprehensive picture of a borrower’s financial history. “Combining data from both PCB and SLIK can enhance their effectiveness. CLIK’s technology streamlines the analysis and reporting of credit data, helping FIs in identifying potential risks and taking proactive measures to reduce NPLs. This collaboration can build a reliable credit reporting infrastructure, delivering accurate, inclusive, and efficient credit information to lenders, regulators, and consumers,” Riza concluded.

Case Study: India

The Reserve Bank of India (RBI) has recently issued a new regulation of credit information reporting. Credit providers are required to report information to credit information companies/private credit bureaus every two weeks. As a result, faster credit information updates will benefit borrowers, especially when repaying their loans. It also helps credit providers get up-to-date information on borrowers, enabling them to make more informed credit decisions. This regulation will be effective on January 1, 2025.

Unlike India, Indonesia still faces challenges in data collection and privacy regulations to improve its credit industry. To effectively leverage PCBs, Indonesia should prioritize data quality and consistency through the establishment of clear data standards and governance frameworks. Additionally, incentives for credit providers to share data regularly should be explored, considering the potential benefits of improved risk assessment and financial inclusion. Implementing a tiered approach, along with robust consumer protection measures, can mitigate risks and maximize the positive impact of PCBs on the Indonesian credit ecosystem.