23 Feb 2021
Indonesias FSA Tightens Up Its Supervision of Finance Companies


1. Introduction


The Financial Services Authority (“OJK”) issued Regulation No. 47/POJK.05/2020 of 2020 on Business Licensing and Institutional Aspects of Finance Companies and Sharia Financing Companies (the “New Regulation”)[1] in November 2020. This seeks to increase industry competitiveness and support the development of conventional and sharia finance companies (“Finance Companies”) in order to boost their role and contribution to the domestic economy and to the country’s development. The New Regulation revokes and supersedes OJK Regulation No. 28/POJK.05/2014 of 2014 (“Reg. 28/2014”).[2]


2. Guidelines for Establishment and Capitalization Requirements


Unlike Reg. 28/2014, which allowed finance companies to be established as cooperatives rather than limited liability companies, the New Regulation requires Finance Companies to be incorporated as limited liability companies. Further, a Finance Company must register as a member of the relevant industry association in Indonesia no later than 6 (six) months after the date of the issuing of its business license.


With regard to capitalization, a Finance Company is now required to have minimum paid-up capital of IDR 250 billion (USD 18 million)[3] at the time of its establishment (as opposed to IDR 100 billion previously under Reg.28/2014).


Although the New Regulation grandfathers the status of an existing Finance Company with a paid-up capital of less than the IDR 250 billion at the time of issuance of the New Regulation, this does not apply to one that is acquired by a new investor subsequent to the New Regulation’s issuance.


3. Foreign Ownership


As with Reg. 28/2014, foreign ownership (direct or indirect) is limited to 85% of the company’s paid-up capital. However, there are exemptions in the following circumstances:


  1. A public company whose shares are traded on the Indonesia Stock Exchange;
  2. A company that requires additional capital from foreign shareholders due to the minimum capital and equity ratio requirements or liquidity problems that may interfere with its business continuity; or
  3. A company holding a business license at the time when the New Regulation came into force and which is not a public company whose shares are traded on the Indonesia Stock Exchange or which previously exceeded the foreign ownership limitation, provided that ownership of the company has not changed.


The New Regulation also stipulates that if the foreign ownership limitation is breached, the Finance Company must make the necessary adjustments so as to bring it into line with what has been approved by the OJK within 3 years from the date of reporting the change of ownership to the OJK.


Further, The New Regulation requires that every change of ownership through acquisition must be approved by the Finance Company’s General Meeting of Shareholders (“GMS”) after receiving OJK approval.


4. Mergers and Consolidations


Finance Companies may conduct mergers or consolidations, but these must be approved by the OJK. In order to obtain such approval, the proposal must be included in the company’s business plan, must not diminish the rights of creditors and must not impinge on the Finance Company’s financial health. Post merger or consolidation, the Finance Company must have a minimum assessed composite rating of 2.


5. Sharia Business Units


The New Regulation increases the working capital requirement for a sharia business unit to at least IDR 100 billion (USD 7.2 million)[4] from IDR 25 billion previously. The working capital must be set aside in a time deposit in the name of the Finance Company with a sharia commercial bank or business unit of an Indonesian commercial bank.


6. Expatriate Employees


New provisions on the employing of expatriates under the New Regulation include:


  • A Finance Company whose shares are at least 25% owned by foreign citizens or foreign legal entities, whether directly or indirectly,  may employ expatriates;
  • A Finance Company that employs an expatriate as a director or commissioner is required to ensure that Indonesian citizens occupy at least 50% of the seats on the boards of directors or commissioners;
  • An expatriate may only be employed as an expert or consultant in the fields of information technology, risk management, and certain others subject to OJK approval.


7. Termination of Business Activities, Suspension of Debt Payment Obligations,      Bankruptcy, and Dissolution


A Finance Company that plans to cease business activities must obtain OJK approval by submitting:


  1. reasons for the termination of the business activities;
  2. a draft of the deed of the articles of association containing the new business activity plan;
  3. a description of the financial state of the Finance Company, including data on the amount of financing, number of debtors, and total liabilities of the Company or debtors;
  4. plan to settle rights and obligations related to the Company's financing operations; and
  5. proof of settlement of OJK levies and administrative fines.


If a Finance Company is in the process of a voluntary or involuntary suspension of debt payment obligations (moratorium), it must report to the OJK following the application for the moratorium. The report must be submitted by the board of directors, and contain, at a minimum, the name of the party filing the application for moratorium, a summary of the application for moratorium, and a company action plan to be applied in respect of the moratorium.


If a Finance Company is involved in a voluntary or involuntary bankruptcy process, it is required to submit a report to the OJK within 5 business days of the filing of the application for bankruptcy. The report must be submitted by the board of directors, and contain, at a minimum, the name of the party filing the application for bankruptcy, a summary of the application for bankruptcy, and a company action plan to be applied in respect of the bankruptcy process.


8. ABNR Commentary


The New Regulation helps to tighten the OJK’s supervisory grip over Finance Companies, especially as regards changes of ownership: Not only acquisitions, but also changes in shareholding structure and paid-up capital, and the entry of new shareholders, all now require OJK approval.


In a positive move, the New Regulation offers greater flexibility in a number of areas, e.g., the removal of (i) the requirement that 15% of a Finance Company’s shares be non-tradable; and (ii) the mandatory requirements for the spinning off of a shariah business unit.


While not discussed above, it is also worth mentioning in passing that the New Regulation contains more detailed provisions as to what the OJK expects as regards (i) anti-money laundering and terrorism financing, (ii) information management systems, (iii) customer complaints, (iv) fraud control, and (v) financial literacy and inclusion.


Amid the current Covid-induced stagnation of the Indonesian economy, the New Regulation aims to promote growth in the financing sector while at the same time providing greater legal certainty to Finance Companies, borrowers and investors. Although not all the changes it introduces will be welcomed by everyone, overall we see it as a step forward.


By partners Ms. Rita Tyastuti Taufik ( and Mr. Freddy Karyadi ( and senior associates Mr. Rully Hidayat ( and Mr. Novario Asca Hutagalung ( 


[1] Peraturan Otoritas Jasa Keuangan No. 47 /Pojk.05/2020 Tentang Perizinan Usaha dan Kelembagaan Perusahaan Pembiayaan Dan Perusahaan Pembiayaan Syariah

[2] Peraturan Otoritas Jasa Keuangan No. 28/Pojk.05/2014 Tentang Perizinan Usaha dan Kelembagaan Perusahaan Pembiayaan

[3] Per median exchange rate on 15 February 2021

[4] Per median exchange rate on 15 February 2021


This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.