How Credit Insurance Works for Customers Who Default on Online Loans (PINDAR)

Abstract

The phenomenon of online lending (PINDAR - formerly known as PINJOL) has emerged as a highly popular financial solution among the public over the past 5 years, often considered as a convenient option when emergency funds are needed. However, risks arise when irresponsible consumers default on payments for various reasons, leading to non-performing loans. In such situations, the role of debt collectors comes into play. Ironically, many people—particularly the younger generation—lack the psychological resilience to withstand the pressure exerted by debt collectors, who often seem to terrorize and humiliate them over late payments; in some tragic instances, this has led to suicide. Data from the founder of the Centre for Financial and Digital Literacy (CFDL) indicates that between 2020 and 2024, a total of 61 people committed suicide due to online lending debt. These figures do not account for other extreme actions taken to settle debts, such as homicide, the sale of one's own child, robbery, or corruption. A primary driver of this phenomenon is the public's low level of financial literacy regarding how to select reputable and safe P2P lending providers. Many are unaware that P2P lending providers are legally required to offer risk mitigation facilities—specifically, the transfer of funding risks through partnerships with insurance or guarantee companies licensed by the Financial Services Authority (OJK). Furthermore, borrowers who default or struggle to repay their loans incur a poor credit score. For university students, this can have repercussions when applying for jobs, as HR departments often conduct credit checks—using the OJK’s Financial Information Service System (SLIK), formerly known as BI Checking—to assess a candidate's integrity, sense of responsibility, and financial stability. A poor credit score (categorized as KOL 3–5) can lead to a candidate's rejection, particularly for finance-related roles, as they may be perceived as high-risk, irresponsible regarding their personal affairs, and incapable of managing their finances effectively. Based on the aforementioned facts, we deemed it necessary to conduct financial literacy outreach through a Community Service (PKM) initiative in the form of a webinar (via Zoom). The webinar proceeded smoothly and successfully, attended by 102 students. Participant evaluations following the session were excellent; of the 78 participants who completed the evaluation questionnaire, over 90% rated the content and topics as highly relevant to their needs, and there was a marked improvement in their understanding of credit insurance and its relationship to borrower default of Pindar. Participants recommended that similar material be shared with other community groups.