27 Jul 2022
Indonesia’s Financial Services Regulator Moves to Tighten up Rules on P2P Lending
Following more than a year and a half of consultations, the Indonesian Financial Services Authority (“OJK”) has issued a much-anticipated new regulation on P2P lending in Indonesia. The new regulation (OJK Regulation No. 10 /POJK.05/2022 - “POJK 10/2022”) makes substantial changes to the regime established by its antecedent, OJK Regulation No. 77 /POJK.01/2016 (“POJK 77/2016”), and raises the regulatory bar for P2P lenders to a similar level as that applied to other financial services providers.
Note on Terminology: POJK 10/2022 makes a number of changes to the terminology employed by POJK 77/2016 in order to accommodate Sharia principles. However, these do not make substantial changes to the overall P2P regime and so are not dealt with in detail in this ABNR Legal Update.
B. Key Changes
1. Licensing and Lock-Up Period
Unlike POJK 77/2016, which established a two-step licensing process that consisted of registration and the obtaining of a business license, POJK 10/2022 only requires the obtaining of a business license.
POJK 10/2022 also stipulates a 3-year lock-up period counting from the date of issuance of a P2P operator’s business license, in which the operator is prohibited from making any changes to its shareholding structure that would result in (i) the addition of new shareholder(s) and /or (ii) a change in controlling shareholder.
2. Significantly Higher Minimum Paid-up Capital Requirement and New Minimum Equity Requirement
As regards minimum paid-up capital, POJK 10/2022 makes a distinction between existing P2P operators (i.e., those registered and licensed under POJK 77/2016), and new operators to be licensed under POJK 10/2022.
The minimum paid-up capital requirement for a new operator has increased tenfold from IDR 2.5 billion (approx. 167,000) to IDR 25 billion (approx. USD 1,670,000), which sum should be lodged in full as a time deposit in the name of the operator at an Indonesian bank. This new requirement obviously implies that an operator will need to have access to sufficient working capital, in addition to its minimum paid-up capital, so as to be able to cover the day-to-day needs of the business. Meanwhile, an existing operator that has obtained a business license, or is in the process of obtaining a business license, is permitted to maintain its current paid-up capital.
POJK 10/2022 also introduces a new minimum equity requirement of IDR 12.5 billion (approx. USD 835,000) for both existing operators and new operators. The said requirement may be fulfilled gradually, with a minimum equity level of IDR 7.5 billion (approx. USD 501,000) required by 4 July 2024, and IDR 12.5 billion (approx. USD 835,000) by 4 July 2025.
3. Lending Restrictions
The maximum amount of loan funding that may be provided to one borrower remains fixed at IDR 2 billion (USD 134,000). However, POJK 10/2022 imposes a new requirement, under which the loan funding that can be provided by a single lender and/or its affiliate is capped at no more than 25% of the total funding provided through a particular operator as per the end of each month. Existing operators are given a grace period of 18 months from the date of issuance of POJK 10/2022 to comply, meaning that they have until 4 January 2024 to do so. The new restriction does not apply to financial institutions that act as fund lenders, provided that they are duly licensed and supervised by the OJK.
4. Controlling Shareholders
As with other financial-services segments, POJK 10/2022 incorporates the concept of the controlling shareholder (“CS”), which is defined as a legal entity, individual or business group that holds (i) 25% or more of voting shares; or (ii) less than 25% of voting shares but has proven control over a P2P operator, whether direct or indirect. An operator must identify at least one CS, which may not simultaneously be a CS in another operator. In other words, a person or business may be a CS in no more than one operator at the same time.
5. Foreign Shareholding Restrictions
The limit on foreign shareholding in a P2P operator remains pegged at 85% of paid-up capital. This, however, does not apply in the case of a listed P2P operator. In addition, POJK 10/2022 introduces a new restriction on foreign ownership by private individuals, under which a non-Indonesian individual can only acquire an interest in a P2P operator through an acquisition of its shares on the stock exchange. This restriction does not, however, apply to an acquisition of shares by a foreign corporation.
6. Tighter Rules on Operational Financing
POJK 10/2022 is significantly more restrictive POJK 77/2016 when it comes to the operational business financing of operators: they are now barred from taking out loans and issuing bonds, implying that conventional financing via shareholder loans or similar mechanisms will no longer be possible for P2P operators. Likewise, the issuance of convertible loans or other alternative financing instruments, including medium-term notes or other forms of debenture by an operator, appear to no longer be an option.
7. Fit and Proper Tests
Under POJK 10/2022, an operator’s principals (pihak utama), that is, controlling shareholders, directors and commissioners, or Sharia supervisory board members, must pass a fit and proper test. This is a new requirement that was not imposed by POJK 77/2016. Such tests are to be conducted in accordance with the rules applicable to principals in other types of financial services provider.
8. Competency Certification
Directors, commissioners and executives must be certified by a financial technology certification agency registered with the OJK. While this requirement was implied by POJK 77/2016, it was not expressly stated as such. However, it is now mandatory under POJK 10/2022. It should be noted that the certification requirement does not apply to members of Sharia supervisory boards.
9. Avoidance of Conflicts of Interests
A P2P operator may not provide lending access to its directors, commissioners / Sharia supervisory board members, and employees, including their affiliates. Further, it may not provide borrowing access to its directors, commissioners / Sharia supervisory board members, and shareholders, including their affiliates. These restrictions are intended to prevent conflicts of interests.
10. Additional Protections for Consumers
The government’s concerns about predatory lending in the P2P sector are also expressly addressed in POJK 10/2022, which includes a specific prohibition on the provision of false or fictitious information by operators, thus reinforcing the safeguards provided separately by the OJK’s consumer protection rules, which apply equally to P2P operators as well as other financial-services providers. Further, POJK 10/2022 prohibits operators from directly or indirectly marketing their products or services to users or members of the public at large using various means of personal communication without their prior consent. In addition, operators must not impose any charges for handling customer complaints.
C. ABNR Commentary
POJK 10/2022 is the latest installment in a series of recent OJK regulations designed to tighten up standards in the country’s financial-services sector by strengthening financial safeguards and boosting consumer protection. This gradual tightening process is also clearly evident in other financial-services segments, such as consumer finance, insurance, and stock broking. Given the ever-present potential for abuses that is inherent to the P2P industry, the OJK is anxious to reduce the number of players in the field so as to arrive at a core group of strong operators that have the credibility and capacity to provide P2P services in a scrupulous and conscientious manner. Consequently, the tighter rules established by POJK 10/2022 are broadly to be welcomed, although the tenfold increase in the minimum capitalization requirement from IDR 2.5 billion to IDR 25 billion may be viewed as onerous by some in the industry.
As regards the additional foreign-ownership restrictions imposed by POJK 10/2022, the objective here would seem to be to harmonize the foreign ownership rules applicable to P2P operators with those governing other financial-services segments, where such restrictions already apply.
By partner Ms. Elsie Hakim (firstname.lastname@example.org) and senior associate Ms. Meitiara Bakrie (email@example.com).
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.
 OJK Regulation No. 10/Pojk.05/2022 on IT-based P2P Funding / Peraturan Otoritas Jasa Keuangan No. 10/Pojk.05/2022 tentang Layanan Pendanaan Bersama Berbasis Teknologi Informasi
 OJK Regulation No. 77/POJK.01/2016 on IT-based P2P Lending / Peraturan Otoritas Jasa Keuangan No. 77/POJK.01/2016 tentang Layanan Pinjam Meminjam Uang Berbasis Teknologi Informasi.
 All USD figures are based on exchange rate per date of publication
 OJK Regulation No. 6/POJK.07/2022 on Consumer and General Public Protection in the Financial Services Sector / Peraturan Otoritas Jasa Keuangan Nomor 6/Pojk.07/2022 Tentang Perlindungan Konsumen Dan Masyarakat Di Sektor Jasa Keuangan