In the last days of 2016, Indonesia’s Financial Services Authority (OJK) issues its first regulation on Fintech, regulating the services most commonly known as Peer-to-Peer (P2P) Lending Platforms. Read more regarding what the regulation entails and how Fintech players move forward to run their business in Indonesia.
Financial technology, commonly shortened as Fintech, is a line of business combines software and technology to deliver financial services and has become a niche industry today in Indonesia. This is further amplified by Indonesia’s Financial Services Authority known as OJK (Otoritas Jasa Keuangan) finally issuing its first regulation on Fintech through OJK Regulation No. 77/POJK.01/2016 regarding IT-based lending services (“Fintech Regulation”) on December 28, 2016.
Currently, Peer-to-Peer (P2P) Lending Platforms is the new things in the financial industry, especially in Indonesia. In which P2P Lending Platforms is defined as an IT-based lending services provider who provides, manages, and operates online financial services which connect lenders and borrowers through a direct electronic loan agreement and easy ways.
Previously, P2P Lending Platforms in Indonesia is only regulated through the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata), Law No. 8 of 1999 concerning Consumer Protection, Law No. 11 of 2008 concerning Electronic Information and Transaction, and their various implementing regulations.
However, since the issuance of Fintech Regulation and also to comply in order to operate their business in Indonesia, the P2P Lending Platforms now have a centralized regulation and required to obtain any particular license and registration process at the OJK.
Several key issues regarding P2P Lending Platforms are now regulated in detail:
- WHO CAN RUN P2P LENDING PLATFORMS
- HOW MUCH CAPITAL IS NEEDED
- ALLOWED FOREIGN OWNERSHIP
- TERMS AND CONDITIONS OF LENDING THE LOAN
- ROLE OF THE P2P LENDING PLATFORM
- USE OF BANK ACCOUNTS
P2P Lending Platforms are now specified to be in the form of either a Limited Liability Company (Perseroan Terbatas or “PT”) or a Cooperative (Koperasi). PT can be owned by local shareholders and also with foreign shareholders, with a specific amount of foreign shareholding percentage that can be owned.
At the registration stage, the P2P Lending Platform in the form of PT have to deposit a paid-up capital of IDR1,000,000,000 (one billion Rupiah). After it is registered, it has no longer than 1 (one) year to fulfill the paid-up capital required to obtain the P2P Lending Platform license, which is IDR2,500,000,000 (two billion five hundred million Rupiah).
Like most of the financial services, foreign shareholders are allowed to own up until 85% (eighty five percent) of the P2P Lending Platform in the form of PT. This applies for both direct ownership, such as with subscription of Company shares through paid-up capital, and indirect ownership, by purchasing investment instruments issued by the Company.
Only Indonesian citizens and/or entities can become Borrowers on the P2P Lending Platform. On the other hand, foreign citizens and entities, as well as international institutions, are allowed to be Lenders on the platform.
OJK also determines a limit on P2P Lending Platform in distributing and/or granting loans to a single Borrower. The maximum total loan amount is IDR2,000,000,000 (two billion Rupiah) for each Borrower.
The main role of the P2P Lending Platform is in a loan relationship, which is to facilitate and/or connect the Borrower and Lender. This is why P2P Lending Platforms are not allowed to do any other business activities outside the platform and are also strictly forbidden to use their own P2P Lending Platforms to act as Lenders.
The P2P Lending Platform must open both an escrow account and virtual account to perform its services. Each Lender using the platform shall have a virtual account for repayment purposes. Meanwhile, the Borrowers pay their installment/settlement through the escrow account of the platform, to be settled to the Lender. Each installment paid by the Borrower will be remitted to the Lender’s virtual account.
Fintech Regulation is a big step for Indonesia to start regulating Fintech. The regulatory sandbox approach similar to Singapore seems to aim to nurture the Fintech startups instead of suffocating them with too many limitations applicable in the financial services industry, which is evident from a 1-year registration period stipulated in it, which gives Fintech players time to breathe and restructure their companies to meet the requirements.
Therefore, Fintech industry is not risk-free. Risk mitigation is needed in every function applied through Fintech, including to follow the Fintech Regulation is importantly.
HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on establishing your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with employment laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. Our experience and dynamic firm value assist Clients in staying up-to-date with the newest Indonesian laws and regulations, including for Fintech Players looking to secure or establish their businesses in Indonesia. SMART also assists Clients looking for clarification with the relevant Government Authorities in the financial technology business sector, including Bank Indonesia and OJK.
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