Indonesia has increased oversight in its peer-to-peer lending sector through OJK Regulation No. 10/POJK.05/2022. The regulation increases the minimum capital and equity requirements for P2P lenders and sets out a more efficient licensing procedure.
The rapid growth of Indonesia’s peer-to-peer (P2P) lending industry has led to a rise in illegal online lenders and concerns over their intimidatory debt-collecting practices and the collection of personal data. In response, Indonesia’s Financial Services Authority, or OJK, issued OJK Regulation No. 10/POJK.05/2022 (POJK 10/2022) in July 2022, which aims to crack down on illegal and financially unhealthy fintech players by introducing new capital requirements, revamping the licensing regime, and introducing minimum equity requirements.
Indonesia’s P2P industry disbursed an estimated 250 trillion rupiah (US$17 billion) in loans in 2022, an increase from the estimated 155 trillion rupiah (US$10.2 billion) disbursed throughout 2021.
How much are Indonesia's minimum capital and equity requirements for P2P lenders?
A P2P lender must have a minimum paid-up capital of 25 billion rupiah (US$1.6 million), a significant increase from the 2.5 billion rupiah (US$165,000) stipulated in previous regulations.
The OJK has also mandated P2P lenders to maintain equity of at least 12.5 billion rupiah (US$828,000). The fulfillment of this requirement must be done in the following tranches:
- At least 2.5 billion rupiah (US$165,000) within one year after the enactment of POJK 10/2022;
- At least 7.5 billion rupiah (US$497,000) within two years after the enactment of POJK 10/2022; and
- At least 12.5 billion rupiah (US$828,000) within three two years after the enactment of POJK 10/2022.
P2P operators that obtained or were in the process of obtaining their license from the OJK before the issuance of POJK 10/2022 would be grandfathered and not be subject to the changes under POJK 10/2022.
Previously, a P2P operator seeking to establish in Indonesia had to register their business with the OJK. They then had to apply for a business license to the OJK within one year of registration. POJK 10/2022 has revamped the licensing procedure by removing the registration phase; thus, P2P lenders only need to obtain a license from the OJK.
However, a new requirement now is that the P2P lender must be registered as an Electronic System Operator (ESO) with the Ministry of Communication and Informatics. The ESO registration must be completed within 30 calendar days from the issuance of the business license from the OJK.
POJK 10/2022 recognizes the concept of a controlling shareholder and must appoint at least one controlling shareholder. The regulation defines a controlling shareholder as any legal entity, individual, or business group that:
- Owns 25 percent or more of a P2P lender’s issued shares or voting rights; or
- Owns less than 25 percent of a P2P lender’s issued shares or voting rights but where it is proven the shareholder exercises control either directly or indirectly of the P2P lender.
P2P operators that have obtained a license from the OJK prior to POJK 10/2022 were given six months to notify the OJK of their controlling shareholder(s) after enactment of the regulation.
After obtaining a license from the OJK, the P2P operator is barred from having new shareholders or changing its controlling shareholder for a period of three years.
Fit and proper test
Members of the board of directors, controlling shareholders, and members of the board of commissioners must undergo the OJK’s ‘fit and proper’ test. The mentioned primary parties are barred from carrying out their responsibilities before passing the test.
Executives, directors, and commissioners must be certified by a financial technology certification agency registered with the OJK.
OJK expands the list of corporate actions that require approvals
The OJK has expanded the list of corporate actions that require prior approval. These are:
- Conducting mergers and consolidations;
- Change in ownership;
- Increase in paid-up capital; and
- Changes in the board of directors and commissioners.
Legal lending limit
The maximum loan amount a borrower can receive is 2 billion rupiah (US$132,000).
Further, POJK 10/2022 has also set a maximum lending limit for a P2P operator and its affiliates to 25 percent of the P2P operator’s final lending position at the end of each month.
For example, if a P2P lender grants a total of 50 billion rupiah (US$3.3 million) to borrowers by the end of the month, then it can only grant 12.5 billion rupiah (US$828,000). This will apply in stages.
6 months after any given month
80 percent of the total loan disbursed by the P2P operator and its affiliates by the end of the sixth month (commencing from July 4, 2022)
12 months after any given month
50 percent of the total loan disbursed by the P2P operator and its affiliates by the end of the 12th month (commencing from July 4, 2022)
18 months after any given month
25 percent of the total loan disbursed by the P2P operator and its affiliates by the end of the 18th month (commencing from July 4, 2022)
Sharia-based P2P lending
POJK 10/2022 acknowledges the concept of Sharia-based P2P lending, which is based on the provisions of Islamic law. POJK 10/2022 provides the possibility for a conventional P2P lender to convert to a Sharia-based P2P lender.
Conventional P2P lenders that currently provide Sharia-based services must cease to do so unless they convert into a Sharia-based P2P lender.