Ubud, Indonesia – Nadhea Putri’s growing debt started with a single cell phone purchase.
Putri, who lives in Kuala Kapuas, Central Kalimantan, about 1,000 miles from Jakarta, had dreamed for months of upgrading to a newer model but didn’t have enough money.
Then, earlier this year, the 21-year-old university student noticed a buy now, pay later (BNPL) option offered on the checkout page of her favorite online shopping app. It took him less than 24 hours to activate the payment method, and the phone – which cost nearly five times his monthly income – was finally his in February.
More than four months later, Putri is still struggling to repay the balance, with mounting interest.
“I’m even too scared to even use my new phone now,” Putri told Al Jazeera, asking to use a pseudonym to protect his anonymity. “Every day, debt collectors call me more than 20 times. I feel terrified, but I can’t tell my parents. I don’t want to overwhelm them.
BNPL, which allows customers to pay for goods in installments at variable interest rates, has helped fill a large lending gap in Indonesia. Credit card penetration in the country is notoriously low, standing at a meager 6% in 2021, with nearly 65% of Indonesia’s 275 million people still unbanked.
As the country’s population has increasingly gone online in recent years, digital payment methods like BNPL have seen an increase in usage. Indonesia’s mobile internet penetration, at 68% in 2021, is now among the highest in the region and is expected to reach 79% by 2025.
Smartphone users like Putri were drawn to BNPL as a quick and easy way to buy items they otherwise couldn’t afford.
“I took a photo of my ID card and uploaded it to Shopee to activate my SPAylater,” Putri said, referring to the BNPL service offered by e-commerce platform Shopee.
“It’s very simple. Once verified, I could use the credit to make payments on the platform.”
Credit card applicants in Indonesia are generally required to provide proof of monthly income as well as a good credit score, excluding many low earners such as Putri, who between his studies earns between 95 and 300 dollars a month writing for a content provider website.
Shopee, headquartered in Singapore, where Putri regularly shops, is one of the most visited e-commerce platforms in Indonesia. The platform ranked second after Tokopedia last year, with 126 million monthly visits in Q3 2021.
Shopee’s in-app BNPL service, SPAylater, is one of the many most popular BNPL options in the country, ranking as the most searched deferred payment-related query subject on Google between 2018 and 2021, according to DSInnovate’s 2021 Indonesia Paylater Ecosystem Report. a fixed interest rate of 2.95%, with loan periods of one, two, three and six months.
Although there is no publicly available data on the socioeconomic makeup of SPaylater users, the service’s branding has been firmly targeted at low- and middle-income Indonesians.
In February, Shopee Indonesia released a series of advertisements featuring Nassar Sungkar, also known as King Nassar, a superstar of the dangdut folk music genre that is particularly popular among lower socioeconomic classes.
In one advertisement, a woman is seen standing in front of a family food stall selling food, looking at her phone with a worried expression on her face. “I want to shop, but I’m broke,” she says.
A split second later, Sungkar, dressed in a shiny superhero-like cape, appears, before breaking into song and dance. “Let’s use SPaylater. Buy now, pay later!
Shopee declined to comment when contacted by Al Jazeera.
“I saw the commercial almost every day on television,” Maisaroh, a Spaylater user, told Al Jazeera. “My 16-month-old likes it so much that she copies the dance whenever it is on.”
Like Putri, Maisaroh, who lives in Subang, West Java, is neck-deep in BNPL debt.
“I used the Shopee app very regularly,” Maisaroh, 30, said. “We live far away from the city, so online shopping makes it easier for me. I don’t even need to go outside to shop; the products will be delivered to my doorstep.”
Hoping to make extra money, Maisaroh then began using BNPL to purchase goods to resell to her neighbours.
“In the beginning, everything went well, and I could even make a little profit,” she said. “Then, a family member fell ill, and the money that was meant to pay for our monthly debt had to be used to pay for the medical treatment.”
When her husband’s monthly salary of about $200 proved inadequate to keep the family afloat and meet the BNPL repayments, Maisaroh purchased more items to resell in the hope of making enough money to pay back their debts, only to make the problem worse.
“We can’t even make ends meet,” Maisaroh said. “How could we pay for those? Then we downloaded many lending apps to try to borrow more money, to buy us some time. But it’s been almost six months since the whole thing started, and now I have more than 30 million Indonesian rupiah [$2,024] indebted.”
While Indonesia is expanding access to financial services, the majority of the population still suffers from low financial literacy. A 2019 survey by the Indonesian Financial Services Authority found that the country scored 38.03% on the Financial Literacy Index and 76.19% on the Financial Inclusion Index, highlighting a noticeable gap in the public’s understanding of the financial services available to them.
Ligwina Hananto, founder and CEO of QM Financials, which offers financial education programs across the region, said lack of knowledge puts people at risk.
“When not accompanied by proper financial education, financial inclusion can lead to predatory inclusion,” Hananto told Al Jazeera. “Lack of financial literacy among Indonesians, especially those living in rural areas, can put many of them in vulnerable positions. Especially when it comes to unsecured loans with high interest rates.
“Now people can get loans from various fintech apps. Without understanding the real risks and consequences, the cultural shame associated with debt can quickly fade,” Hananto added.
Sekar Putih Djarot, spokesman for the Indonesian Financial Services Authority, said that although lack of financial literacy is a problem, the country’s debt remains under control.
“The risk profile of financial services institutions in April 2022 was still relatively well maintained, with the gross non-performing loan ratio of banks recorded at 3% and the gross non-performing financing of financial companies at 2.7%,” said said Djarot. AlJazeera.
“Having said that, people need to understand that BNPL is a form of debt, so they need to be able to measure their financial capacity before deciding to use it.”
When asked if loan restructuring or other assistance was available for heavily indebted borrowers, Djarot said: “They can contact the lenders first, and if there is a dispute in the process, they can report it to us, and we can facilitate a mediation”.
For struggling borrowers like Maisaroh, it’s hard to see much hope.
“I often have suicidal thoughts,” she said. “They are on us every day. Tell me, what will happen to us if we don’t find a way to pay? »