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Indonesia’s Financial Services Authority has issued a new regulation on peer-to-peer lending platforms. As the sector matures, more stringent regulatory requirements have been introduced, applying concepts similar to those found in other financial services sub-sectors.
Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) has finally issued the long-awaited revised regulation on peer-to-peer lending platforms (P2P Platforms). The revised regulation, OJK Regulation No. 10/POJK.05/2022 (POJK 10/2022), took effect on 4 July 2022 and has since replaced OJK Regulation No. 77/POJK.01/2016 (POJK 77/2016).
In general, POJK 10/2022 has introduced more stringent requirements to the sector, indicating that OJK has, as expected, increasingly moved away from its initial light-touch approach as the sector becomes more mature and sophisticated. A number of the new requirements and regulatory concepts are increasingly similar to those seen in more established financial services or payment sectors. It is also noteworthy that POJK 10/2022 departed on several points from the draft regulation published by OJK in late 2020. In this bulletin, we cover some of the notable changes introduced by POJK 10/2022.
Licensing and Minimum Capital
POJK 10/2022 no longer provides for a two-step registration and licensing regime as previously set out in POJK 77/2016. Under the new regulatory framework, any party that intends to operate as a P2P Platform shall only be in the form of a limited liability company and is required to obtain a license from OJK. It is worth noting that, under the new regulatory framework, P2P Platforms can no longer be in the form of a cooperative or “koperasi”. POJK 10/2022 also emphasises that obtaining an electronic system operator registration from the Ministry of Communication and Informatics (MOCI) is a pre-requisite to carrying out any funding. For more information on the MOCI registration, please see our recent publication here.
The minimum paid-up capital of P2P Platforms at the time of establishment is now set at IDR25 billion (around USD1.7 million), which is ten times the minimum paid-up capital required under POJK 77/2016 at the time of license application. The new minimum paid-up capital is also higher than the IDR15 billion (around USD1 million) previously proposed under the 2020 draft regulation. That said, compared to banks or multi-finance companies, which provide on-balance sheet lending, the capital requirements for P2P Platforms remain relatively modest, reflecting the off-balance sheet nature of these platforms, which is a consistent principle applied by OJK over several years now.
POJK 10/2022 provides that the source of funding for capital participation in P2P Platforms cannot originate from loans. OJK is increasingly applying this principle consistently across the various financial services sub-sectors it regulates.
There is also now an additional requirement for P2P Platforms to maintain minimum equity of:
- IDR2.5 billion (around USD170,000 by 4 July 2023;
- IDR7.5 billion (around USD510,000 by 4 July 2024; and
- IDR12.5 billion (around USD850,000) by 4 July 2025.
POJK 10/2022 provides that P2P Platforms should obtain OJK’s approval for any increase of paid-up capital.
The maximum foreign ownership limit in P2P Platforms remains at 85 per cent, and this is to be calculated on a look-through basis, i.e. OJK will consider the indirect ownership in the P2P Platforms as well when determining whether the 85 per cent limit has been complied with. But POJK 10/2022 provides that this foreign ownership limit does not apply to publicly listed P2P Platforms. This exception is similar to that found in the insurance sector, although the foreign ownership limit in the insurance sector is 80 per cent.
P2P Platforms are required to have at least one controlling shareholder (pemegang saham pengendali or PSP), which will be subject to OJK’s fit-and-proper test and a lock-up period of three years from the date of the relevant P2P Platform’s license. A party is prohibited from being a PSP in more than one conventional P2P Platform or one sharia-based P2P Platform, except in cases where the PSP is the Government of Indonesia. However, POJK 10/2022 does allow a party to concurrently become a PSP in one conventional P2P Platform and one sharia-based P2P Platform. POJK 10/2022 requires a PSP to be responsible for certain losses suffered by the P2P Platform.
An existing licensed P2P Platform is required by POJK 10/2022 to report its PSPs by 4 January 2023 (i.e. within six months after POJK 10/2022 came into effect).
Under the new regime, OJK intends to continue to closely monitor the shareholding ownership of P2P Platforms. Any change to the shareholding ownership of a P2P Platform, whether at the direct or indirect level, is subject to OJK’s prior approval.
The requirement for approval for changes of indirect shareholding ownership was not expressly provided for in the now-revoked POJK 77/2016. However, the new regulatory regime also acknowledges, to some extent, the impracticalities of having to obtain OJK’s prior approval in the case of publicly listed P2P Platforms and publicly listed shareholders of P2P Platforms. As such, when it comes to these publicly listed companies, OJK’s approval is only required for: (i) any changes to the PSP of a publicly listed P2P Platform; and (ii) any changes to the controlling shareholder of a P2P Platform’s publicly listed shareholder.
It remains to be seen how this new approval requirement will be applied in practice.
Each P2P Platform is required to have at least two directors and one commissioner. All directors and commissioners must pass OJK’s fit-and-proper test. POJK 10/2022 sets out requirements for minimum levels of experience and competence as well as restrictions on double hatting. If the P2P Platform has at least 25 per cent foreign ownership, then up to half of its board of directors and board of commissioners, respectively, may be foreigners, provided that all of the directors and at least half of the commissioners are domiciled in Indonesia. There are also requirements for engaging foreign employees and outsourcing. For example, P2P Platforms are not allowed to outsource their IT functions or the assessment of funding eligibility (kelayakan pendanaan).
Types of Funding and Funding Limits
Similar to the position taken under POJK 77/2016, POJK 10/2022 also prohibits a P2P Platform from acting as a lender or borrower on its platform. The fact that P2P Platforms in Indonesia may only act as an intermediary, unlike in certain other jurisdictions, underscores the significance of collaboration between P2P Platforms and entities such as banks and multi-finance companies that can carry out on-balance sheet lending.
POJK 10/2022 recognises two types of funding: (a) productive funding; and (b) multi-purpose or consumptive funding. P2P Platforms may facilitate factoring of productive funding, but not multi-purpose funding.
POJK 10/2022 also introduces funding limits, which will have an impact on “super lenders” on the P2P Platforms. The funding limit for each lender (and its affiliates) will be capped at:
- 80 per cent of the relevant P2P Platform’s outstanding funding at month-end, by 4 January 2023;
- 50 per cent of the relevant P2P Platform’s outstanding funding at month-end, by 4 July 2023; and
- 25 per cent of the relevant P2P Platform’s outstanding funding at month-end, by 4 January 2024.
The above funding limits are not applicable to lenders which are financial services institutions supervised by OJK, such as Indonesian banks. These institutions are subject to a different limit of 75 per cent of the relevant P2P Platform’s outstanding funding at month-end.
The maximum amount of loan per borrower is maintained at IDR2 billion, similar to the limit provided in POJK 77/2016.
Separation of Conventional and Sharia Activities
Even though POJK 10/2022 allows a party to concurrently become a PSP in one conventional P2P Platform and one sharia-based P2P Platform, the regulation is clearly intended to separate conventional and sharia business activities. POJK 10/2022 prohibits P2P Platforms that conduct conventional business activities from simultaneously carrying out sharia-based business activities, and vice versa. This prohibition includes having a sharia-based unit or division under a conventional P2P Platform. Consequently, any conventional P2P Platform which has a sharia unit or offers a sharia-based product was required to (a) cease offering the sharia-based product by 4 July 2022, when POJK 10/2022 came into effect, and (b) settle its rights and obligations arising from such product by 4 January 2023.
The issuance of POJK 10/2022 is a significant development in the online lending sector in Indonesia. This will be of interest to both market participants seeking to gain entry into the sector, and existing P2P Platforms.
Although existing P2P Platforms are grandfathered in relation to certain requirements, they have to ensure compliance with some other requirements within the prescribed timelines. POJK 10/2022 also envisions the issuance of additional OJK regulations in this sector, so this area should be watched closely.
What is clear is the increasing sophistication of the regulatory framework for P2P Platforms in Indonesia over the last few years. We expect that trend to continue in the future.