TOKYO -- Itochu will invest roughly $50 million in an Indonesia peer-to-peer lending business that sees the Southeast Asian country's underdeveloped financial infrastructure as an opportunity to spread a new generation of credit services.
The transaction, which the Japanese trading house looks to complete this summer, is expected to give Itochu at least a 30% stake in PDP, a Jakarta-based subsidiary of local conglomerate Sinar Mas Group.
PDP became the country's first licensed peer-to-peer lending business in April under a newly established regulatory framework. The company aims to start a full-fledged mobile lending platform next year.
Prospective borrowers will post their desired terms on the platform, which connects them to people willing to lend at their own risk. For borrowers, the service eliminates the tedious paperwork associated with applying for a bank loan. Lenders can expect to earn higher interest rates than they can with bank deposits.
Many Indonesians lack bank accounts. But new electronic-money credit services geared toward the unbanked are cropping up as smartphones become widespread. Itochu reckons that outstanding peer-to-peer loans could rise to around $9 billion in a few years from an estimated $18 million to $27 million now.
An experimental small-business lending service run by PDP over the past two years has grown to about $7 million in outstanding e-money loans. The company hopes to reach $3.6 billion or so in a few years' time, profiting from service fees as it grows. Itochu will provide know-how, personnel and support for building the necessary information technology systems and call centers.
The Japanese trading house is also involved in consumer finance businesses in Thailand and Hong Kong with Japanese credit company Acom and other partners. Itochu's overseas financial operations bring in several billion yen (1 billion yen equals $8.9 million) in annual net profit for the Tokyo-based group.
Peer-to-peer lending is also growing in China, where some 800 billion yuan ($117 billion) of such loans were outstanding as of last year, according to portal site WDZJ.com. That is eight times as much as in 2014. Such services attract people with money to lend but few options for investing it.
Chinese regulators have not fully kept pace with this emerging field of finance. Fraud and other abuses have become increasingly common. Stronger oversight is needed to ensure the industry develops.