Ubud, Indonesia – Nadhea Putri’s mounting debt began with a single mobile phone purchase.
Putri, who lives in Kuala Kapuas, Central Kalimantan, about 1,600km from Jakarta, had dreamed of upgrading to a newer model for months but did not have enough cash.
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Then, earlier this year, the 21-year-old university student noticed an option to buy now, pay later (BNPL) offered on the checkout page of her favourite online shopping app. It took her less than 24 hours to activate the payment method, and the phone – which cost nearly five times her monthly earnings – was finally hers in February.
More than four months later, Putri is still struggling to pay back the balance, along with mounting interest.
“I’m too scared to even use my new phone now,” Putri told Al Jazeera, asking to use a pseudonym to protect her anonymity. “Every day, debt collectors call me more than 20 times. I feel terrorised, but I can’t tell my parents. I don’t want to burden them.”
BNPL, which lets customers pay for goods in instalments at varying rates of interest, has helped to plug a significant lending gap in Indonesia. Credit card penetration in the country is notoriously low, sitting at a meagre 6 percent in 2021, with nearly 65 percent of Indonesia’s 275 million population remaining unbanked.
As the country’s population has moved increasingly online in recent years, digital payment methods like BNPL have experienced a surge in usage. Indonesia’s mobile internet penetration, at 68 percent in 2021, is now among the highest in the region and is projected to hit 79 percent by 2025.
Smartphone users like Putri have been drawn to BNPL as a quick and easy way to purchase items they might otherwise not be able to afford.
“I took a picture of my identity card and uploaded it on Shopee to activate my SPaylater,” Putri said, referring to the BNPL service offered by e-commerce platform Shopee.
“It’s very simple. After it got verified, I could use the credit to make payments on the platform.”
Barriers to credit
Credit card applicants in Indonesia are typically required to provide proof of monthly earnings along with a healthy credit score, excluding many low-earners such as Putri, who, in between studying, earns $95-$300 a month writing for a content provider website.
Singapore-headquartered Shopee, where Putri shops regularly, is one of Indonesia’s most visited e-commerce platforms. The platform placed second after homegrown Tokopedia last year, clocking in 126 million monthly visits in the third quarter of 2021.
Shopee’s in-app BNPL service SPaylater is among the most popular of numerous BNPL options in the country, ranking as the most searched deferred payment-related query topic on Google between 2018-2021, according to DSInnovate’s Indonesia Paylater Ecosystem Report 2021. The service offers a 2.95 percent fixed interest rate, with loan periods of one, two, three and six months.
While there’s no publicly available data on the socioeconomic makeup of SPaylater’s users, the service’s branding has been firmly aimed at lower and middle-income Indonesians.
In February, Shopee Indonesia released a series of advertisements featuring Nassar Sungkar, also known as King Nassar, a superstar in the dangdut folk music genre who is especially popular among lower socioeconomic classes.
In one advertisement, a woman is seen standing in front of a family-owned 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, wearing a bright, 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] in debt.”
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 percent on the financial literacy index and 76.19 percent on the financial inclusion index, highlighting a noticeable gap in the public’s understanding of the financial services made available to them.
Ligwina Hananto, founder and CEO of QM Financials, which provides financial literacy programs across the region, said the lack of knowledge is putting people at risk.
“When not accompanied by proper financial education, financial inclusion can result in predatory inclusion,” Hananto told Al Jazeera. “The lack of financial literacy among Indonesians, especially those living in rural areas, may put many in vulnerable positions. Particularly when it comes to unsecured loans with high interest rates.”
“Now, people can get loans from various fintech applications. Without understanding the actual risks and consequences, the cultural shame associated with having debts can quickly wear off,” Hananto added.
Sekar Putih Djarot, a spokesperson for the Indonesian Financial Services Authority, said that although the poor financial literacy gap is a problem, debt in the country remains under control.
“The risk profile of financial service institutions in April 2022 was still relatively well-maintained, with the gross non-performing loan ratio of banks recorded at 3 percent, and the gross non-performing financing of financial companies at 2.7 percent,” Djarot told Al Jazeera.
“That said, people need to understand that BNPL is a form of debt, so they must be able to measure their financial ability before deciding to use it.”
Asked if loan restructuring or other assistance is available for heavily indebted borrowers, Djarot said: “They can contact the lenders first, and if there’s a dispute in the process, they can report it to us, and we can facilitate a mediation.”
For struggling borrowers like Maisaroh, it is difficult to see much hope.
“I often have suicidal thoughts,” she said. “They’re on us every day. Tell me, what will happen to us if we can’t find a way to pay?”