Evaluating the Regulatory Scheme on Mitigation Default Risk through Insurance in Peer-to-Peer Lending

Abstract

Peer-to-peer lending (P2PL) can be a source for Small and Medium Enterprises (SMEs) to obtain capital. As the public highly demands this method of capital obtainment, P2PL transactions have increased. The increase in transactions impacts the increase in existing risks, including the default status of borrowers. This risk is very detrimental to the lender as the owner of capital. The high risk will ultimately reduce the lenders’ trust in transacting through the P2PL platform. The article aims to examine the causes and consequences of the risks challenged by lenders, and provide solutions by implementing the appropriate risk management. This research used the descriptive qualitative method. The result shows that the primary causes of the occurring problems are the lack of government roles in supervising, regulating, and being responsible for these activities. An offered solution is protecting funds distributed by lenders with insurance to manage the default risk challenged by lenders.