Peer-To-Peer Lending vs. Commercial Bank’s Credit System: Financing Solutions for Msmes in Indonesia

Abstract

Innovation brings advantages and disadvantages which results in acceptance and rejection from people. Technological innovations have affected all sectors of life, particularly, the financial sector with the emergence of financial technology. One of them is marked by the emergence of Peer-to-Peer lending ("P2P lending"), an information technology-based lending service, which provides loans to those who need funds with a faster process, yet without having to collateralize any assets. The easier and faster process of P2P lending accommodates the needs of Micro, Small, and Medium-sized Enterprises (“MSMEs”), specifically non-bankable MSMEs, to obtain loans. However, P2P lending has not replaced banks because their existence has earned the people's trust with the quality of its services. This paper aims to provide an explanation of the differences between commercial bank's credit systems and P2P lending in Indonesia to give understanding to the public regarding loans through both systems. The results of this paper shows that the two systems have their respective advantages and disadvantages, so that hopefully the people can be considerate in choosing them to meet their needs.