JAKARTA: Indie, a 28-year-old healthcare worker, was head over heels in debt. “Every piece of clothing, from my head to my feet, I bought on instalments,” said Indie, who wanted to be identified only by her nickname.
Recounting how she got herself into a debt spiral in 2025, she said she could not resist the discounts offered to customers who used buy now, pay later (BNPL) services on a popular online marketplace.
At first, the instalment payments were manageable, but she soon had to borrow from a peer-to-peer lending application to make payment on the original BNPL instalments. Then she borrowed from another app, and another, and another.
Within two months, she had accumulated 50 million rupiah (S$3,700) in loans – 10 times her monthly pay.
“I feel so stupid, because I didn’t think about the interest and fees accumulating,” she told The Straits Times.
Online peer-to-peer lending – commonly known in Indonesian as pinjol, short for pinjaman (loan) online – is a booming industry, but the ubiquity and ease of use of such services have sparked concerns about young Indonesians, including professionals, falling into debt.
Peer-to-peer lending companies are meant to be intermediaries between lenders and borrowers, and are not allowed to fund the loans themselves. When peer-to-peer lending first emerged in Indonesia, the business model of most start-ups focused on matching individual lenders to borrowers.
However, according to the Financial Services Authority (OJK), over 60 per cent of funding for peer-to-peer lending these days comes from institutional lenders such as banks. As at April, there are 94 peer-to-peer lenders registered with OJK, and hundreds more unlicensed lenders.
According to OJK, outstanding loans from online peer-to-peer lending reached 100.69 trillion rupiah in February, a 25.75 per cent year-on-year increase.
Most pinjol users are young people. According to a 2025 survey by the Indonesian Internet Providers Association, millennials and Gen Zs make up 86.6 per cent of online borrowers. According to the same survey, most of these borrowers do not take up loans for urgent needs.
Debt treadmill
The story of how Indie got entangled in debt is not an unusual one.
A 26-year-old administrative worker, who asked to be referred to as Mawar, also got into debt by using a BNPL service on a popular online marketplace in 2024 as she was attracted by the discounts on offer.
Like Indie, Mawar started out making small purchases on instalments, for products such as lipstick and other make-up items, without understanding the interest that would be charged.
As the months went by, and her borrowing limits were raised, she started making bigger purchases, including a five million rupiah laptop.
The payments started stacking up, taking up a large chunk of her 2.5 million rupiah monthly salary, and she turned to borrowing using a peer-to-peer lending app so as to have some money on hand.
As she kept up with her monthly payments, her borrowing limit was soon automatically extended to over 20 million rupiah – nearly 10 times her monthly income.
Around September 2025, she turned to the app for another loan of 1.8 million rupiah so as to have some extra cash, but accidentally added an extra zero, borrowing 18 million rupiah instead.
Instead of returning the money immediately, Mawar, not realising how easily the interest would compound, used some of the money to pay off some of her earlier instalments, and returned only 10 million rupiah of the 18 million rupiah disbursed.
“For a while, my monthly payments went down because I had paid off a lot of the smaller ones,” she said.
But in January, the monthly payment on the large loan was due and she was surprised to find that she had to pay four million rupiah. It was only then that she started tallying her remaining outstanding balances and realised that she now owed nearly 30 million rupiah to four lenders.
Dr Prani Sastiono, a researcher at the University of Indonesia’s Institute of Economics and Social Research, said the “debt treadmill” that many Indonesians fall into was due to several factors, including the psychology of the borrowers.
“There’s a dimension of present bias, where borrowers feel like the benefits of having the money today outweigh the debt that they accumulate and will have to pay back in the future,” Dr Prani told ST.
She added that there is also an element of overconfidence about being able to repay the debt.
Use of lending apps is ‘frictionless’
Dr Prani also pointed out that the design of the lending apps makes it relatively “frictionless” for users to take out loans with only an identity card and a declaration of their income.
“The design is very attractive from a behavioural standpoint. The requirements are minimal and the information about the fees and the interest is not always entirely clear,” she said. “For example, 0.3 per cent interest rate per day looks small, but over a year that adds up to (an interest rate of) more than 100 per cent.”
It was this lack of friction that made Mr Krisna Bagus, 33, turn to online lending apps to help finance his small business. The native of Salatiga, Central Java, had started a laundry business there in 2021.
By 2023, he had expanded his business to include seven drop-off outlets.
When he started having cash flow issues, he did not want to close any outlet, out of pride.
“I could have applied for a bank loan (which would have charged lower interest), but the process would have taken time,” he said.
“And every day when I came home from work, there was this big billboard advertising pinjol, so I thought ‘Here’s the solution’,” he added.
When he registered for his first peer-to-peer lending app, AdaKami, in March 2023, he found that he could withdraw up to 16 million rupiah. The income from his laundry business and his office job added up to only around 12 million rupiah a month.
“I wasn’t planning to withdraw that much, but when I saw that I could, I thought, ‘Why not?’,” he said. “It took less than a minute for the money to be sent to my account.”
Regulatory enforcement gaps
Nailul Huda, director for digital economy at the Center of Economic and Law Studies, said regulation of online lending apps has tightened since they started booming around 2016.
“In the past, some apps would just say that their interest rates range from 0.6 per cent to 0.8 per cent, without mentioning that those were daily interest rates,” he added.
These days, lending apps are much more constrained. In 2023, OJK instituted phased maximums on daily interest rates, capping it at 0.3 per cent for 2024, 0.2 per cent for 2025, and 0.1 per cent for 2026 and beyond.
The financial authority also established a ceiling on the total cost of borrowing – all interest, administrative fees and late payment penalties cannot exceed 100 per cent of the principal amount.
Lenders are also prohibited from disbursing loans to borrowers who already have outstanding loans with three lending apps.
Lenders that violate OJK regulations risk administrative sanctions, including warnings, fines, and – for repeat offenders – getting their licences revoked.
Since 2020, OJK has revoked the licences of at least 70 peer-to-peer lenders for various offences, including failure to meet equity requirements and extremely high default rates.
However, in practice, not all of the rules have been consistently followed. All of the six borrowers who spoke to ST had, at some point, owed money to more than three online lenders concurrently. Four of them had loans with more than a dozen lenders.
Dr Prani said that strict and consistent enforcement was key to reducing the number of people stuck on the debt treadmill. “If it’s (treated as if it was) just an advisory, then there’s little incentive for individual lenders to comply because they risk losing out to their competitors,” she added.
Stopping the cycle
As online lending continues to grow, so have default rates.
OJK announced on April 6 that the ratio of loans that are at least 90 days past due, known as TWP90, had reached 4.54 per cent in February, a significant increase from 2.78 per cent the previous year.
The borrowers who spoke to ST had all failed to make payments at one point or another. A few have even deliberately defaulted on their loans. Such borrowers have formed online communities where they share their experiences, calling themselves “pinjol survivors” or “debt-free warriors”.
Borrowers who default risk getting hounded by debt collectors, being unable to apply for mortgages or other forms of credit, and even getting sued for breach of contract.
One of these loan defaulters is a 31-year-old freelance social media manager who asked to be referred to only as Cocoa.
She said she decided to default in February after starting to post about her pinjol experience on a social media platform.
“At first I was worried about the debt collectors, but other people on X who went through it (facing debt collectors) said it wasn’t as scary as it seemed,” she said.
Cocoa had accumulated loans and interest of over 100 million rupiah with eight lenders. She decided to focus on paying off the smaller balances, and stopped paying instalments on the others.
“I had to put my phone on airplane mode because in 15 minutes, I could get up to 70 phone calls from debt collectors,” she said.
She added that her plan is to save up enough money to pay the principal amounts of the large loans, and then request a debt restructuring agreement with the lenders.
A similar strategy helped Krisna, the laundry business owner, get out of his debt, which had gone past 150 million rupiah. He stopped making payments in early 2024.
“I saved up the money (for the principal and interest) and then asked the lenders to waive the late fees,” he said. “I ended up paying them all off by the end of 2024.”
For a while, Krisna did not tell anyone outside his immediate family about his debt problems. But in 2025, two of his close friends confided in him after they, too, got caught in their own debt treadmills.
“Because of that, I started talking about how I paid off my debts on Threads,” he said.
He ended up writing a short e-book about his strategy to clear debt, offering it for a nominal fee of 39,000 rupiah. The e-book comes with access to a WhatsApp community, where members share tips on how to become debt-free.
“I want to help because I know how bad it feels to be in so much debt,” he said. “I hope that it helps at least some people get out of debt faster.” - The Straits Times/ANN
