Peer-to-peer lending (P2P) in Indonesia was previously regulated under Financial Services Authority (OJK) Regulation Number 77/POJK.01/2016 on information technology-based lending (POJK 77). This regulation had been the underlying regulation for P2P business in Indonesia since 2016. Due to the high interest of the public in the P2P business and the development of the business in the market, the government has been planning to issue a new regulation to replace the POJK 77 since last year. The highly anticipated amendment was finally issued on 29 June 2022 and promulgated into regulation on 4 July 2022 through the issuance of OJK Regulation Number 10/POJK.05/2022 (POJK 10/2022) which revokes the POJK 77 1 . The services of a P2P business are now recognized as Layanan Pendanaan Bersama Berbasis Teknologi Informasi or the P2P Online Lending Platform (LPBBTI) according to the POJK 10/2022.
This article will discuss several key items that POJK 10/2022:
A. The Syariah Principle
- The POJK 10/2022 introduces a syariah principle to P2P business and therefore opens a possibility for a P2P Operator Company to operate its business under the Syariah Principle. However, a P2P Operator Company may not operate both as a conventional and syariah P2P Operator Company.
- If a conventional P2P Operator Company would like to convert its status to become a Syariah P2P Operator Company, such P2P Operator Company needs to obtain a conversion approval from OJK. To convert its business, the P2P Operator Company needs to (a) comply with the minimum required equity as regulated under the POJK 10/2022 (as elaborated below) and (b) ensure that the conversion will not cause any harm to their existing users.
- Similar to other financial institutions who apply a syariah principle, the Syariah P2P Operator Company must also have a Syariah Supervisory Board (Dewan Pengawas Syariah or DPS). The DPS has a supervisory function to provide advisory to the Board of Directors of the P2P Operator Company with regard to the Syariah Principle P2P activities. POJK 10/22 requires the Syariah P2P Operator to have at least one member of DPS who has obtained a recommendation from Dewan Syariah Nasional or the National Syariah Board in Indonesia. The member of the DPS is prohibited to hold a dual position as another DPS member in more than three other syariah financial institutions.
B. Capital, Shares, Shareholders, Equity, and Funding Quality
- The P2P Operator Company shall have at least IDR25billion (approx. USD 1.67 million) of issued capital on the establishment. The capital shall be (a) injected in full and cash and (ii) deposited under a time deposit account in the name of the P2P Operator Company in an Indonesian bank 2 .
- The shares of the P2P Operator Company can only be owned by an (i) Indonesian citizen and/or Indonesian legal entity; or Indonesian citizen and/or Indonesian legal entity in a joint venture with a foreign legal entity and/or foreign citizen (note that (a) foreign citizen can only hold the shares through a transaction on the stock exchange and (b) Indonesian legal entity shall exclude cooperatives). The maximum foreign shareholding ownership of a P2P Operator Company, directly or indirectly, shall not be more than 85% of the issued capital of the P2P Operator Company 3 . This 85% shares ownership limitation, however, is not applicable if the P2P Operator Company is a public company that trades its shares on the stock exchange.
- The source of funds of the capital shall not be from money laundering, terrorism funding, other financial crimes, or any loan.
- The P2P Operator Company shall have at least 1 Controlling Shareholder (Pemegang Saham Pengendali or PSP). A PSP can only act as a PSP in only one P2P Operator Company (either the conventional P2P Operator Company or the Syariah P2P Operator Company). Under POJK 10/2022 a PSP is defined as a legal entity, individual and/or business group that (a) owns shares or capital of the P2P Operator Company of 25% or more from the issued shares with voting rights, or (b) owns shares or capital of the P2P Operator Company less than 25% from the issued shares with voting rights but has control over the P2P Operator Company directly or indirectly. According to the POJK
10/2022, the PSP will be liable to the loss of the P2P Operator Company if it fulfils certain criteria as set out under Article 7 of the POJK 10/2022.
5.The P2P Operator Company shall have at least IDR12.5billion (approx. USD 833k) equity. The term equity used under this regulation shall follow the definition of equity under the applicable accounting standard in Indonesia. This equity obligation can be fulfilled in stages within three years. By 3 July 2023 (a year after the promulgation date of the POJK 10/22), the minimum equity shall be IDR2.5billion (approx. USD 166k), By 3 July 2024 (the second anniversary of the regulation), it shall be IDR7.5billion (approx. USD 500k), and it shall reach the full amount (IDR12.5billion – approx. USD 833k) by 3 July 2025 (the third anniversary of the regulation).
- The POJK 10/22 introduces a lock-up mechanism for the shareholders of the company. The P2P Operator Company may not change its shareholding composition and/or change its Controlling Shareholder for 3 years as it obtains a business license from OJK.
- The P2P Operator Company must submit information on its funding quality to the OJK. POJK 10/22 differentiates the level of funding quality into several categories, i.e., smooth, within specific supervision, not smooth, doubtful, and non-performing.
C. The Business Activities
- The P2P Operator Company’s business activities are (i) provision; (ii) management; and (iii) operation of LPBBTI. The LPBBTI is carried out through productive funding (funding for businesses that produce goods/services) or multipurpose funding (funding for goods/services for consumptive purposes).
- The P2P Operator Company is prohibited from facilitating factoring unless (i) a factoring with the provision of securities from the receivable seller, or (ii) in the form of productive funding.
- The maximum provision of the loan to the borrower is IDR2billion (approx. USD 133k) per borrower.
- The portion of exposure of every Lender and its affiliated entities is no higher than 25% of the end of the month’s outstanding funding position. Such maximum threshold of each Lender and its affiliated entities will be applied gradually. The threshold shall first become 80% of the end of the month outstanding funding position at the latest 6 months after this POJK 10/2022. At the latest 12 months as of POJK 10/2022, it shall become 50% and at the latest 18 months as of POJK 10/2022, the threshold eventually shall become 25%. In the event that the Lender is a financial services business entity supervised by OJK, it can provide funding maximum of 75% of the end of the month outstanding funding position.
5. An Indonesian citizen, foreign citizen, Indonesian legal entity, foreign legal entity, Indonesian business entity, foreign business entity and/or international institution can become a Lender. However, only an Indonesian citizen, Indonesian legal entity and/or Indonesian business entity can be a borrower in the LPBBTI transaction. The borrower must be domiciled in Indonesia.
6. The agreement of the LPBBTI transaction consists of at least: (i) an agreement between the P2P Operator Company and the lender; and (ii) an agreement between the borrower and lender. The document will be made as an electronic document and use the e-signature (in compliance with the e-signature regulation under the Indonesian laws).
7. The P2P Operator Company shall comply with risk management in an effective way and shall also cover the active supervision of BOD, BOC, and DPS.
8. The P2P Operator Company must use the (i) escrow account; and (ii) virtual account or payment gateway for the LPBBTI transaction.
9. The P2P Operator Company must utilize the electronic system for their business activities and a certain level of protection and facilities to secure the system. The P2P Operator Company must submit transaction funding data in complete and correct to the data center of fintech lending of OJK.
10. The P2P Operator Company must also provide a record of audit for each activity in the electronic system.
11. As the LPBBTI transaction will be carried out through an electronic system, the P2P Operator Company must comply with the personal data protection that is used in an electronic system. This requirement is also specifically regulated in POJK 10/2022, among others: the operator must (i) obtain approval from the data owner for the collection and use of their personal data, and (ii) keep the personal data information within the electronic system for at least 5 years as of the end of the relationship with the data owner.
12. The P2P Operator Company shall have an internal audit unit which is led by at least one
individual with expertise and/or background in the field of audit. The internal audit unit will have a direct responsibility to the president director of the P2P Operator Company. The P2P Operator Company must conduct an internal audit at least 1 time every year. The internal audit can be conducted by a third party.
13. The P2P Operator Companies may exchange data with one another to increase the LPBBTI
quality based on a non-disclosure agreement. The P2P Operator Companies must ensure that the recipient of the information/data able to comply with a non-disclosure agreement. If the P2P Operator Companies conduct data exchange, it shall be reported to OJK by using the form as stipulated in Article 40 of POJK 10/2022.
D. Business License
1.The P2P Operator Company must obtain a business license from the OJK 4 . After obtaining the business license, the P2P Operator Company must register itself as an electronic system provider with the Ministry of Communication and Information Technology within 30 calendar days of the issuance of the license.
2. The P2P Operator Company shall start the funding by at the latest 30 calendar days as it is
registered as an Electronic System operator.
E. Human Resources
- The member of the Board of Directors (BOD), Board of Commissioners (BOC), and officers one
level below the BOD must have a working competence certificate from the profession certification institution in the field of financial technology registered in OJK 5 .
2. If the member of the BOD is a foreigner, he/she shall have Indonesian language proficiency, as evidenced by the Bahasa Indonesia certification, by at the latest 1 year as of the issuance of his/her approval to become the director by the OJK.
3. The P2P Operator Company must have at least an expert in the Electronic System with 3 years’ experience in the field of information technology.
4.The P2P Operator Company can only hire expatriates for one time with the longest 3 years
working period. Such expatriate can only be in the position of the field of information technology as an expert with one level below BOD or as consultant. The P2P Operator Company that utilizes expatriate as employee in its company must report to the OJK based on the format regulated in article 18 of POJK 10/2022. The P2P Operator Company must also ensure that there is a transfer knowledge in the form of educational programme and annual training for all employees of P2P Operator Company.
5. The P2P Operator Company can outsource its work to third party, except for the work relating to the funding feasibility assessment and/or the information technology. For other work, the P2P Operator Company can only outsource its work to legal entity(ies) in Indonesia.
F. BOD and BOC
- The P2P Operator Company shall have at least 2 members of BOD. Half of the BOD shall at least have 2 years of managerial experience in the industry of financial services. For the Syariah P2P Operator Company, half of the BOD shall have the operational experience at least 1 year in the industry of financial services with Syariah principle.
2.The BOD member cannot have any dual position at other companies except holding a position as a member of BOC at a maximum of three other companies aside from the P2P Operator Company.
- In the event that the P2P Operator Company is established by foreign legal entity (with at least 25% shareholding ownership), the P2P Operator Company can have foreigner as director maximum half of the members of BOD.
- All members of BOD must reside / have domicile in Indonesia.
- The P2P Operator Company shall have at least 1 member of BOC and maximum the same numbers of the BOD. Half of the BOC shall at least have 2 years of managerial experience in the industry of financial services.
- The member of the BOC can only hold a dual position in three other companies aside from the P2P Operator Company.
- Half member of the BOC must reside in Indonesia.
G. Fit and Proper Test Requirement
The PSP, member of BOD, member of BOC, and member of DPS must obtain approval from OJK prior to perform his duty and function.
The following requires reporting to the OJK, among others:
i. The opening of other office other than the main office;
ii. Changes of name and electronic system;
iii. Changes of address of the P2P Operator Company; and
iv. Changes in the business model.
The P2P Operator company must submit periodical report and incidental report to OJK. Periodical report consists of monthly report and audited annual financial report. The P2P Operator Company shall publish its annual audited financial statement to the public no later than 31 May in the following year on the electronic system used by the P2P Operator Company.
The P2P Operator Company must be registered as member of Association of the P2P. The P2P
Operator Company must comply with the guidance issued by Association in the field of LPBBTI. The Association shall provide annual report to OJK at the latest 4 months as of the accounting year ends.
J. Approval of OJK and Corporate Action
The following requires approval from the OJK, among others:
i. The changes of the shares ownership of the P2P Operator Company;
ii. The paid-up capital increase;
iii. The changes of the members of BOD, BOC, and DPS;
iv. The merger, bankruptcy and consolidation of the P2P Operator Companies;
The POJK 10/2022 also provides and regulates certain requirements for corporate actions that the P2P Operator Company needs to complied with.
Any breach or violation to POJK 10/2022 is subject to the sanctions which are detailed in the
regulation as per section. Most of the sanction will be in the form of written warning, limitation of the business and/or the revocation of the license, including it can be combined with electronic system blocking. However, the POJK 10/2022 also introduces a new sanction in the form of fines to pay certain amount of money in the case of certain violation of clause of POJK 10/2022.
POJK 10/2022 prohibits P2P Operator Company from certain actions such as, conducting business outside of the P2P activities permitted under the regulation; act as a lender or borrower; on behalf lender to conduct provide lending or provides feature of automatic lending in the system; provide access to BOD, BOC, DPS, and employees and its affiliation to become a lender; issue any bond; have any loan; provide guarantee to secure third party obligation, give certain recommendation to the user; publish wrong and misled information; provide offer in the personal communication without any approval from the user.
M. Exemption and Transitional Provisions
The POJK 10/2022 has certain grandfather rules applicable to the existing P2P Company Operator. The exemptions are among others relating to the capital and shareholding composition:
- The adjustment to the new minimum standard of issued capital is not applicable to the P2P Operator Company that prior to POJK 10/2022:
a) Has obtained license;
b) In the process of license application (within 6 months as of the POJK 10/2022 is
c) Has returned the registration certificate and in the process of re-applying the
registration (within 6 months as of the POJK 10/2022 is effective and as long as there
is no changes in PSP and has equity at least IDR2.5billion).
- The P2P Operator Company that has obtained business license on or before the issuance of POJK 10/2022 and was owned by foreign shareholder (directly or indirectly) of more than 85%, was exempted from the limitation of foreign shares ownership as regulated in Article 3 paragraph (4) of POJK 10/2022, as long as there are no changes of the shares ownership in P2P Operator Company.
- Other than the exempted requirements, the P2P Company Operator that has been established prior to the issuance of the POJK 10/2022 must adjust their operation to comply with the requirement as set out under the POJK 10/2022.
The regulation in POJK 10/2022 is definitely more complex and detailed compared to the regulation in POJK 77. One of the reasons behind these changes, we believe, is due to the popularity of P2P business amongst Indonesian investors and borrowers. Thus, the government feels the urge to regulate the P2P business in a more complex manner, similar to the other heavily regulated financial institutions such as insurance companies, multi finance companies. The more heavily regulation is expected to give better protection to both the investors and the borrowers. As we may be aware, the operation of P2P businesses in the earlier era may have brought some controversies, among others due to the lack of data privacy of the borrower. Thus, we understand that the government tries to address this matter by the issuance of the POJK 10/2022.
It may bring better protection in one way; however, the new regulation may also cause issues from the P2P Operator Company’s point of view e.g. the threshold of exposures for a super lender (up to 25%). The new regulation requires ten times of the minimum issued and paid-up capital amount compared to the old regulation under POJK 77 and set minimum positive equity balance. Thus, it is expected to see many M&A transactions of an existing doorman P2P Operating Company since the existing P2P Operating Company is exempted from the new issued and paid-up capital regulation under the POJK 10/2022.
OJK also introduces certain new function of P2P Operating Company with syariah principle in which shall be in different entity with the conventional one through this POJK 10/2022. The prohibition upon the P2P Operating Company is widened.
It will be interesting in overseeing how the P2P Operator Company will adapt to the newly regulated provisions under the POJK 10/2022.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
1 Article 118 of POJK 10/2022.
2 Specific for a Syariah P2P Operator Company, the capital must be deposited in a syariah bank in Indonesia. 3 Article 3 paragraph (4) of POJK 10/22.
4 The requirement for the business license application is stipulated in article 9 of POJK 10/2022.
5 If the profession certification institution has not been established yet, the certification can be carried out by the Fintech association.