Last month, the Indonesian Financial Services Authority or OJK (Otoritas Jasa Keuangan) introduced new peer-to-peer or P2P lending regulations aimed at both encouraging optimal and healthy growth of the lending industry. P2P and meet OJK’s needs for effective and efficient supervision.
Previously, P2P lending in Indonesia was mainly regulated by OJK Regulation No. 77/POJK.01/2016 (“Previous Regulation”). Many consider the previous regulation to be inadequate, especially in light of the rapid growth of P2P lending in Indonesia, which unfortunately has also led to an increase in the number of illegal P2P lenders. By October 2021, OJK had identified over 100 illegal digital P2P lenders.
The new regulation, OJK Regulation No. 10/POJK.05/2022 on Information Technology-Based Collective Funding Services (“New Regulation”), promulgated on July 4, 2022, introduced several new concepts into the P2P lending sector, strengthened the provisions on Supervision of OJK through market conduct and repealed several provisions of the previous regulation regarding loan limit, minimum requirements for paid-up capital and own funds and the licensing process. Despite the revocation of these provisions in the old regulation, customers should note that the implementing regulation of the old regulation, namely Circular Letter OJK No. 18/SEOJK.02/2017, remains valid.
While the OJK grants certain flexible measures in the new regulations, in particular with regard to the licensing of P2P lenders, it is also strengthening its supervision of these lenders, among other things, by requiring that the main parties of a lender P2Ps submit to a fit and proper test and impose the majority shareholder requirement.
When it comes to licensing, OJK now allows more flexibility. Previously, a party wishing to apply as a P2P lending operator had to register their business with the OJK first. Then, within one year of this registration, the P2P lender must apply for a business license from OJK to operate its P2P lending business.
Now, the new regulations allow a party to immediately apply for a P2P lending business license from OJK. However, while registration with OJK is no longer required, a P2P lender must now register as an electronic system operator with the Ministry of Communications and Information Technology within 30 calendar days. following issuance of its business license by OJK. Failure to do so will prevent the P2P lender from commencing business activities, such as fundraising.
Paid-up capital and equity requirements
A P2P lender must now have a minimum paid-up capital of IDR 25 billion, which is a significant increase from the minimum paid-up capital of IDR 2.5 billion under the previous regulation.
Existing P2P lenders who obtained their business licenses from OJK before July 2022 are exempt from the new capital requirement. Nevertheless, they must comply with the minimum capital requirement of IDR 12.5 billion at these stages:
Controlling shareholder, blocking and approval
Many sub-sectors of the financial industry in Indonesia recognize the concept of controlling shareholders. The new regulation introduces this concept to the P2P lending sub-sector. Like other controlling shareholder regulations, the new regulation considers any legal person, individual or corporate group to be a controlling shareholder if that party:
- owns 25% or more of the issued shares of a P2P lender with voting rights; Where
- owns less than 25% of the issued voting shares of a P2P lender, but has been shown to have the ability to control the P2P lender, directly or indirectly.
Additionally, the new regulations require a P2P lender to appoint at least one controlling shareholder if more than one party meets the controlling shareholder criteria.
With respect to existing P2P lenders, they must report their controlling shareholder as well as any subsequent change in the composition of its controlling shareholder to OJK within six months of July 4, 2022. In addition, the new regulations also require that a P2P lender obtains approval from OJK before a change of ownership (including with respect to majority shareholder) in that P2P lender occurs. It is important to note that this approval requirement applies to both public and private P2P lenders with respect to their direct and indirect participation.
The new regulations also introduce a blocking provision. It prohibits a P2P lender from changing the composition of its shareholding within three years from the date of issuance of its business license if such a change results in a new shareholder or a change in majority shareholder ((Pemegang Saham Pengendali or PSP).
We mentioned above that a P2P lender must obtain approval from OJK before changing their ownership composition. OJK’s approval must also be obtained before a P2P lender engages in certain corporate actions, namely:
- increase in paid-in capital;
- change of any administrator, commissioner and, if applicable, member of the Sharia supervisory board; and
- proceed with a merger or amalgamation.
Fit and proper testing for key parts
In addition to identifying controlling shareholders, the new regulations also require key parties to a P2P lender to pass a fit and proper test by OJK. The main parties in this case are the majority shareholders, directors, commissioners of a P2P lender and, for Shariah-based P2P lenders, members of its Shariah supervisory board.
The fit and proper test is carried out in accordance with OJK Regulation No. 27/POJK.03/2016 on the fit and proper test for key players in financial services institutions.
Again, major parties of an existing P2P lender are exempt from the fit and proper test requirement unless those parties have reached the end of their tenure and the P2P lender intends to rename them.
Super Lender Restriction
Under the old regulations, the maximum loan a borrower can receive is IDR 2 billion. However, the previous regulations did not regulate the maximum loan limit a lender can provide through their platform. As a result, digital finance was dominated by super-lenders, i.e. capital-intensive financial institutions or banks. This is contrary to the spirit of P2P lending, which emphasizes public participation.
Now, the new regulations limit the loan that a P2P lender and its affiliates can make to 25% of the total loan disbursed by that lender to borrowers by the end of the month.
The above loan limit will apply in stages, namely:
For example, if a P2P lender and its affiliates have granted a total loan of IDR 100 billion to borrowers at the end of the month, they can only grant IDR 80 billion, IDR 40 billion and IDR 25 billion. IDR, respectively, by the end of 6 -months, 12 months and 18 months after this first month.
P2P lenders in the form of financial services institutions and supervised by the OJK are exempt from the above provision. Their loan limit is 75% instead of 25%.
With digital lending, the only way is up; in our view, the new regulations could not have come at a better time. Undoubtedly, the new regulations will allow OJK to better supervise the sector and protect borrowers. Additionally, licensing and minimum paid-up capital requirements should weed out unqualified P2P lenders.