Indonesian government has actively encouraged the growth of Micro, Small, and Medium Enterprises (Unit Usaha Menengah, Kecil dan Mikro or “UMKM”), as well as start-up businesses that generate new business ideas in the community. These business ideas are expected to become the main drivers of economic stimulus to ultimately generate the nation's economy. However, UMKM business owners encounter difficulties in finding capital financing facilities because banks and other financial institutions are usually more conservative in granting loan facilities. Consequently, UMKM businesses with small capitalization and mostly no assets may not be successful in obtaining funds from banks or financial institutions through the conventional means.

With the raise of UMKM in Indonesia, there is a growing need to further regulate Peer-to-Peer ("P2P”) lending to ensure adequate mechanism in conducting collective funding to create new business opportunities for UMKMs and start-up businesses. The Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) previously enacted OJK Regulation No. 77/POJK.01/2016 on Information Technology Based Peer-to-Peer Lending Services ("POJK 77/2016”). Given the development, OJK issued Regulation No. 10/POJK.05/2022 on Information Technology Based Collective Funding Services ("POJK 10/2022”), which introduced several regulatory changes towards the previous POJK 77/2016.

In this article, we provide a high-level overview of POJK 10/2022 in terms of the: (i) applicable capitalization, equity, and financing scheme requirements, (ii) provisions on the controlling shareholder and organizational structure of P2P providers, (iii) licensing and reporting obligations, (iv) provisions on the required OJK approval, and (v) applicable administrative sanctions.

Capitalization, Equity, and Financing Scheme Requirements

Under POJK 10/2022, the permitted business entity of a P2P loan provider is limited liability company ("Provider”). At the establishment stage, a Provider shall have a minimum paid-up capital of IDR 25 billion. In the event that the Provider is a foreign investment (Penanaman Modal Asing or “PMA”) company, the foreign shareholder is permitted to hold not more than 85% (eighty five percent) of the Provider's total paid-up capital (Articles 2 (2), 3, and 4 of POJK 10/2022).

Furthermore, the Provider is required to have a minimum equity of IDR 12 billion, processed in several stages:

  1. Minimum of IDR 2.5 billion must be provided, valid for 1 (one) year since POJK 10/2022 takes effect;
  2. Minimum IDR 7.5 billion, valid for 2 years since POJK 10/2022 takes effect; and
  3. Minimum IDR 12.5 billion must be provided within 3 (three) years of the effective enactment of POJK 10/2022.

(Article 50 paragraph (1) and (2)

In addition, the Provider is obligated to conform to the maximum allowed funding of IDR 2 billion for each recipient or customer. The Provider is also required to ensure that the maximum fund provided to each lender is a maximum of 25% (twenty five percent) from the final funding position at the end of the month (Article 26 paragraphs (3) and (4) of POJK 10/2022).

Controlling Shareholder and Organizational Structure of P2P Provider

Controlling Shareholder

Based on POJK 10/2022, a Provider is required to appoint 1 (one) Controlling Shareholder (Pemegang Saham Pengendali or “PSP”). The PSP can be an individual, a legal entity, and/or a business organization having, at least, 25% (twenty five percent) shares of the Provider (Article 1 and 5 of POJK 10/2022).

Under POJK 10/2022, a PSP shall be individually liable for the Provider's loss, if:

  1. The PSP directly or indirectly manipulates the Provider in bad faith for its own interest;
  2. The PSP, with the Provider, is involved in an illegal act; or
  3. The PSP illegally utilizes the wealth of the Provider, causing the Provider not being able to fulfil its monetary obligations.

(Article 7 POJK 10/2022)

Organizational Structure Requirement

POJK 10/2022 obligates the Provider to meet the minimum organizational structure:

  1. A minimum of 2 (two) members from the Board of Directors (“BoD”);
  2. of having, at least, one member of the Board of Commissioners (“BoC”), and not more than one appointed director in BoD;
  3. of having, at least, one member of the Sharia Supervisory Board who is recommended by the National Sharia Board; and
  4. at least, one member of the Internal Audit.

(Article 55-58 of POJK 10/2022)

 In addition to meeting the minimum organizational structure of the Provider, the members of BoC and BoD and officers 1 (one) level below BoD are required to obtain the work competency certificate issued by an OJK-registered professional certification board in the fintech sector (Article 16 (1) of POJK 10/2022).

Licensing and Reporting Obligation

With regard to the business licensing requirement, a Provider is required to obtain the P2P business license issued by OJK ("P2P License”), then Provider is also required to register as an Electronic System Operator (“ESO”) to the Ministry of Communication and Informatics in no later than 30 (thirty) days after obtaining the license. Afterwards, the Provider must notify OJK no later than 7 (seven) days after its ESO registration, by submitting the ESO registration letter. Upon obtaining the necessary licenses, the Provider should start its operation in no later than 30 (thirty) days (Article 8 of POJK 10/2022).

The Provider is required to fulfil several reporting obligations to OJK such as:

  1. Regular and Incidental Report, consisting of monthly and annual financial reports audited by public accountants registered in OJK. Additionally, OJK may request other documentations, as required, from time to time (Article 65 of POJK 10/2022);
  2. Conversion Implementation Report (for converted Sharia P2P Providers) must be submitted to OJK in no later than 15 (fifteen) days since the approval date of the amendment of the Provider's articles of association or notification to the relevant institutions. This report applies to a Provider that conducts its lending activities based on Sharia Principles (Article 14 of POJK 10/2022);
  3. General Meeting of Shareholders Report ("GMS Report”) of the Provider must be submitted to OJK in no later than 15 (fifteen) days since the date of GMS (Article 13 of POJK 10/2022).

Provision on Required Approval from OJK

Please be informed that a Provider is required to obtain an OJK approval in the event of any change of shareholding composition, merger, and/or acquisition. Additionally, the Provider is also required to obtain the OJK approval in the event of capital increase. (Articles 68-70 of POJK 10/2022)

Applicable Administrative Sanctions

Violations of POJK 10/2022 are subject to administrative sanctions. The OJK sanctions range from warning letters, fines, and limitation to conduct business activities, and/or the revocation of P2P License.

Concluding Remarks

Given that POJK 10/2022 has revoked the previous POJK 77/2016 in regulating the P2P lending schemes in Indonesia, we note that OJK has set new standards for the Providers in carrying out their P2P lending business. Although these changes seem substantial and provide stricter control on the Providers. As a result, POJK 10/2022 may complement a better regulatory framework for the implementation of P2P business operations in Indonesia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.