Fintech lending for education

In this 4.0 industrial era, one of the innovation results in finance is easiness in getting a loan. Presently, debt is inclusively offered to everyone, both the affluent and the needy ones, including college students. In May 2019, there were 113 fintech lending firms registered in Financial Service Authority (OJK) of Indonesia, and some of them are targeting college students as their customers. These fintech firms understand that the huge number of college students is promising, and fulling their needs can result in ample revenues. Several fintech firms explicitly targeting college students are danacita.co.id, danadidik.com, koinworks.com, cicil.co.id, and pintek.id. These firms operate conventionally, in a sense that they charge interest to the borrowers. While Islamic fintech frim such as angsur.id charges no interest, in fact it employs Islamic contract, i.e., murabaha contract.

Having a loan is basically ‘normal’ because sometimes we, no matter what our profession is, need cash to cover a particular need. In the US, university students can take a student loan for paying their tuitions and then pay it back after graduating and getting a job. This mechanism is helpful as those who do not have sufficient fund can actually go to college. On the other hand, people may have a loan from the early stage of their lives; being college students with debt. However, this approach is currently less prevalent in Indonesia as the government has not granted the permit to any commercial bank to provide students loan as in the US. In fact, some fintech lending firms as outlined in the previous paragraph, have taken an early action by giving credit to college students in Indonesia.

Some fintech firms in Indonesia provide a small amount of money in a relatively short duration. Besides, to be used for paying tuition, the money from the fintech firms can also be used by students for purchasing things needed for the study, such as laptop, cellular phone, shoes, and other study equipment. Again, this solution might be helpful because not every student in Indonesia has money to make a pretty big purchase such as low-to-mid range laptop with price ranging from three to five million rupiahs. For the students to make a wiser decision, they need to at least consider the following things.

First, before getting a loan, they need to know how to pay it later. The students should identify the sources of income which will be used to repay the loan. In addition to relying on a monthly or weekly allowance from their parents, the students are also encouraged to work part-time to earn more income. There are actually a lot of ways which can be done by the students to make more money, one of them is by being the research assistant of the lecturers who usually have a research project in a semester basis. Lecturers need students to be surveyors or enumerators, and this is indeed a worthy paid-job for college students.

Second, college students should increase their financial literacy so they can decide any financial transaction wisely. At least, they should be familiar with how to calculate interest rates or margin charged by the lenders. In short, they should know which one is cheaper and which one is more expensive in terms of cost of fund that they will pay. Knowing the difference between nominal interest rate and effective interest rate is a must because fintech firms usually display interest rate on a monthly basis. The shown (nominal) interest rate is definitely not informative because the borrowers pay back the loan in a longer duration of more than one month. Thus, the students should know how to calculate effective annual rate. In the case of Islamic fintech, the payment is fixed from the beginning until the end because the contract is a buy-and-sell contract where the borrowers pay the loan in installment.  

Third, college students should purchase only the essential things. For instance, if someone is currently in need of a laptop but cannot afford it, then he may go for a loan. Having a loan must not be a habit as it may be a lifestyle in the years to come when he has gotten a job. Finally, being able to differentiate wants and needs is a fundamental skill so the decision to make a purchase, regardless by cash or by getting loan, will be appropriate with the financial condition and stage of life.  

Will fintech revolutionize everything?

The title above seems exaggerated, doesn’t it? But one thing for sure that we are living in a world where technology alters many practices of doing something. I am concerned that the revolution in finance is inevitable and we are now the part of this revolution. As people who make financial transactions in our daily activities, we will have to adjust ourselves to many things as they have somewhat changed.

In the past, money transfer technology at a bank was remarkable. As an example, for supporting my study in Bandung around 2005 to 2009, my parents in Garut transferred some money using bank transfer (wire) to my account. This was somewhat progressive because previously, our parents had to go to the post office to take some money wired by someone at somewhere. However, bank transfer practice seems to be passé or maybe too traditional for some people because I now witness that money transfer can be done using an app in our smartphone. Yes, you might have ever done this before where you sent some money using OVO or GoPay to your friend’s account. Well, this is a new thing for my parents, they may not have imagined it before. Besides, you also may have encountered where several sellers at Instagram now accept or prefer payment using OVO. This is indeed a result of technology which changes our way in transferring money or making payment.

In addition to changing our way of transferring money, technology also changes our way in obtaining loan for our consumptive or productive activities. In the past (and of course today), people went to the bank for applying for a loan. This money can be used either for capital in doing business or for buying anything we wish. But today, we just tap on our cellular phone, installing apps of fintech firms. They can give us a loan or facilitate us to buy the products we want at an online market place. As an example, you can buy a new laptop from bhinneka.com, shopee, or jd.id by registering yourself as a user of Angsur. Angsur is a company which allows us to purchase a particular product available online using an Islamic contract. This business model is so lucrative that making hundreds of fintech firms operating in Indonesia. Some of them are illegal though since they have not complied with the rules of financial services authority (OJK).

Another thing that may change our financial transaction is when we want to invest our idle cash. Some people might have confused about how to invest their money. But the wise people may go to the capital market as the stocks may give higher potential returns (with higher risk level as well). Nevertheless, in today's life, I again witness that people can invest their fund in fintech firms such as EthisCrowd or InvesProperti. These two Islamic fintech firms allow anyone who has money to invest his or her money for purchasing or developing a house or building. These two firms are categorized as crowdfunding which collects fund from many people for funding a project or something. They argue that this business model allows investors to have averagely higher returns as the property price keeps increasing day by day, especially in big cities in Indonesia.

I am grateful as I am the part of a generation who witnessed several transitions in technology and many aspects of this life. I am happy that now I can use a PC or laptop to write this writing, but I am also more joyful because I realized that this is a powerful movement from using typewriter years back ago. In financial transactions, I also see that several things have changed. I recognize that any remarkable change or revolution may have a side effect or even a destructive effect for particular parties or people. But I hope that these changes can bring betterment for human’s lives in the year or so to come. Admittedly, it has also been a part of mine as an academician to do it.    

(Written on Argo Parahyangan Train, May 7, 2019) 

Today’s Business

Business is now changing. Presently, some people do not have to be business graduates to be successful businessmen or businesswomen. I am somewhat amazed by a fact where many of my friends now prefer doing business to working for a company. Why do I say many? Yes, because there are a lot of friends of ours doing it. Tata, Fisa, Raca, and Dava are several friends of mine (not the real names) who dedicate themselves in building their own businesses.

Tata is a master degree graduate, he obtained the same master scholarship as mine. At university, he learned psychology at undergraduate and physical education at postgraduate. But, he and his wife decided to run their business of Islamic clothing. Tata once became a lecturer at a private university, but he then quitted, focusing on their startup instead. He told me that he already has three employees and is now looking for a skillful fashion designer.  

Fisa is actually my wife’s friend. She and her husband were among the pioneers in online business. Her husband sometimes delivers public training on how to maximize the online shop using SEO and Facebook ads. What I heard, their main problem always relates to human resources. They found that it is not easy to hire a loyal and competent employee. Nonetheless, their business in selling clothing and books is quite progressive.

Raca is my junior at undergraduate. Since she got married and moved to a new town, she decided to focus on her business, selling Islamic female clothing (hijab) through website and online flat form. She gets abundant help from her husband who is an IT expert.

Dava is my classmate at a master degree. She had been doing her scarf business for almost, I think, seven years. When a few days ago I met her, she said that she still runs her business. Instead of being a lecturer, she also decides to expand her business, both online and offline. Besides selling on Instagram, she currently also supplies her products to the three large offline stores in Jakarta.

Based on my personal observation, their decisions in running a business is highly influenced by the advancement in digital technology. Though Facebook is perhaps the pioneer, Instagram has changed the way people doing business and it has got a significant effect on my friends’ businesses. People do no longer look for the product on Google, but they start to search it on Instagram. My wife is a real example. She buys clothing, frozen foods, and others via Instagram. Instagram is more impressive because it provides gorgeous pictures, instead of texts. Surely, nice looking photos often appeal to many Indonesian customers. In addition to Instagram, online marketplaces also become the booster of online sellers and buyers. The number of online seller increases days by days. The competition among online marketplaces themselves is also tight since they want to collect more sellers in their database. Often, they provide free shipping feature so the customers will need not to pay it when purchasing an item. Yes, several online marketplaces get financing from evangelic investors so what they are doing for the moment is burning the cash.

This relatively new business model has several consequences. For example, large department stores are now not a single choice anymore for Indonesian customers. In fact, I heard that some of them had gone bankrupt since they could not follow the trend. Another consequence is the thriving brand ambassador on a platform such as Instagram. The good-looking persons who have many followers have now an opportunity to be celebrities on Instagram, known as Selebgram. Therefore, they prefer to be self-employed instead of being employees at the company.

Indeed, the business model in our society will keep changing in the future. As a lecturer at a business school, I agree that we need to be more adaptive to the changing environment. The curriculum at university should accommodate those who want to be, let’s say, Selebrgam and online business owners.  If people also see a tiny role of the university for their success, then this puts a threat to our higher education system. Thus, one question remains, are we universities going in the right direction?