Pintek Puts Hope on Growth in Indonesia's Online Education Loan Market: Startup Stories

The online education loan segment in Indonesia may not be as large and productive as consumer lending, with only a few fintech players targeting this segment. However, with millions of students needing help to finance their education, companies are starting to penetrate this segment.

Indonesian President Joko Widodo in 2018 also urged local banks to provide more loans related to education, in an effort to improve the quality of human resources in the country. Among several banks that followed the president's instructions were the state-owned Bank Tabungan Negara (BTN), which disbursed IDR 33,83 billion (USD 2,4 million) to 470 students as of July 2019, and Bank Mandiri, which disbursed student loans of IDR 773. million (USD) 56.512) as of August 2019.

There are several fintech startups that have also entered this segment, namely Dana Cita, Dana Didik, and KoinWorks, but as exposed in the local media The Jakarta Post, education fund loans have not won the hearts of the public.

This is what prompted French investment executive Ioann Fainsilber and Indonesian entrepreneur Tommy Yuwono to set up the Fintek Pintek lending company in 2018, with the aim of providing easy access to education in Indonesia through affordable and flexible credit.

“The education sector is something we are very concerned about. Indonesia has a very large market for this segment and we believe that education is very important to boost the quality of the middle class. However, education loans are relatively untouched by financial services and technology, and therefore we thought it was the right time for us to dive into this [education] segment,” Ioann Fainsilber told KrASIA in a recent interview.

The company launched a pre-Series A funding round in November 2019, led by Global Founders Capital with participation from previous investors, Finch Capital and Amand Ventures. Fainsilber said that Pintek will use this fresh fund with two focuses: increasing awareness about Pintek's products and connect with as many institutions as possible, while also increasing the company's technology capacity to deliver products that are easy to use without a hitch.

Pintek provides loans to students ranging from kindergarten to postgraduate education, as well as to those in informal education programs, especially vocational courses aimed at preparing them for the world of work. Borrowers can apply for loans ranging from IDR 3 million (USD 218) to IDR 500 million (USD 36,439) with maturities of up to two years. To date, the company has disbursed more than IDR 27 billion (USD 1,9 million) in loans to 1.700 students in 25 provinces in Indonesia.

Loans submitted to Pintek must be made by parents, although students who already have a fixed income are also eligible to apply. The company charges between 0 and 1,5% interest per month, Ioann said.

According to him, cooperation with educational institutions is an important strategy in business. This startup has collaborated with at least 100 educational institutions, of which 40% are universities or high schools, such as the London School of Public Relations (LSPR), LaSalle College, and the Telkom Surabaya Institute of Technology.

"Collaboration is essential for us. Our partners will effectively introduce this product to their customers. For example, if you are a student at LSPR, you can choose to pay in person, or in cash, and you can also pay your tuition with installments through Pintek," he added.

Educating the market about the benefits of loan funding for education is Pintek's biggest challenge in this segment, said Ioann. "Indonesians generally like to borrow anything for consumption. However, although education is definitely a great investment, there are doubts from customers whether they really need it or not, so there's a lot of effort we put into educating the market," he said.

Introduce education outcomes loans

Indonesia has a low gross enrollment ratio for higher education at 31%, far below other Southeast Asian countries such as Malaysia (38%), Thailand (54%), or Singapore (78%), according to a report published by Global Business Guide Indonesia. Financial problems are the main reason.

"The low enrollment ratio is one of the problems we are trying to solve. However, we not only provide financial support, but also want to better prepare students for the job market by working with various institutions and companies," said Ioann.

Going forward, Pintek will expand the scope of its products and partnerships. The company will launch a new product called education outcomes loans this month, in collaboration with several foundations. The idea is that students will earn more at a lower interest rate if they get good grades.

"For this project, we set several targets for specific borrowers. The higher the value they get, the lower the interest rate they will have to pay, and that could even be negative interest," explains Ioann.

Projects  will be launched this month in collaboration with several partner schools, and its scope will gradually expand over time. Pintek targets to reach at least a thousand students in the pilot stage.

"I personally want to include all of my borrowers in this scheme, but it will depend on how much capital commitment we can get. We are in discussions with several large international organizations who are very interested in this program, so we are very optimistic about this product, " said Ioann, continuing with his hope that students will be more motivated and can produce a more educated community.

The new funding mechanism can also benefit Pintek's industry partners who direct their corporate social responsibility funding through education outcomes loans. These partners can better measure the impact of their CSR programs because their funds are only rewarded for proven educational outcomes, Ioann added.

In addition, Pintek will also explore more collaborations with vocational schools to support students with applicable skills to match industry needs. From a business perspective, Fainsilber said that Pintek wants to expand its business by increasing the number of borrowers and loans disbursed by at least ten times by the end of this year.

- This article was first released by KRASIA. Re-released as part of a collaboration with DailySocial