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 concerning IT-based lending services (“OJK Regulation No. 77/2016”) on December 28, 2016.
OJK Regulation No. 77/2016 regulates the Peer-to-Peer (P2P) Lending Platforms, now clearly defined by the regulation as an IT-based lending services provider who provides, manages, and operates an online financial services which connect lenders and borrowers through a direct electronic loan agreement.
Before OJK Regulation No. 77/2016 was issued and effectively commenced, P2P Lending Platforms in Indonesia were not required to obtain any particular license, nor complete any registration process at the OJK. The regulations applicable to the services provided include 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.
Under this new regulation, the P2P Lending Platforms in Indonesia now have a centralized regulation applicable to them, to which they must comply in order to operate their business in Indonesia. The platform operators now also have an official authorized supervising body, which is the OJK itself.
Several key issues regarding P2P Lending Platforms are now regulated in detail:
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 need to deposit a paid-up capital of IDR 1,000,000,00 (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 IDR 2,500,000,000 (two billion five hundred million Rupiah).
Like most of 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 IDR 2,000,000,000 (two billion Rupiah) for each Borrower.
The main role that the P2P Lending Platform plays in a loan relationship 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.
OJK Regulation No. 77/2016 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 OJK Regulation No. 77/2016 is importantly.
HOW CAN SMART CONSULTING HELP YOU?
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