To support the development of technology-based financial industry in Indonesia, in December 2016, the Financial Services Authority (“OJK”) issued OJK Regulation No. 77/POJK.01/2016 regarding Technology-Based Fund-Lending Services (“POJK 77/2016”). In its press release, the OJK stated that the regulation was also designed to protect consumer and national interests while at the same time providing opportunities for local providers of financial technology (Fintech) to grow and expand and contribute to national economy.

OJK’s “LPMUBTI”, the acronym for Layanan Pinjam Meminjam Uang Berbasis Teknologi Informasi, or Financial Technology-Based Money Lending Services or Fintech Peer-to-Peer Lending (Fintech P2P) platforms are meant to facilitate the provision of cash funds on an expeditious, easy and efficient basis especially for micro, small, and medium scale business operators (UMKM) to boost their competitiveness.

POJK 77/2016 sets out a range of comprehensive guidelines for the organization of P2P Lending Services. It defines P2P lending services as financial services which are provided via online systems and which facilitate meetings between lenders and borrowers for the purpose of entering into loan agreements in the Indonesian Rupiah currency.

The P2P lending scheme involves three principal parties: (i) Providers, which are Indonesian legal entities which obtain funds from lenders and pass them on to borrowers; (ii) Borrowers, which are Indonesian citizens or legal entities; and (iii) Lenders, which are Indonesian and/or foreign citizens and/or entities, as well as international organizations. The lending transaction is to be effected by the parties’ entering into two types of agreement: (1) Agreement between Providers and Lenders; and (2) Agreement between Lenders and Borrowers. Both agreements must be drawn up in an electronic form. Providers are restricted by the following rules:

  • Providers must be established as a legal entity in the form of a limited-liability company as meant by Law No. 40 of 2007, or in the form of a cooperative as meant by Law No. 25 of 1992.
  • The maximum direct or indirect foreign share ownership in Providers in the form of a limited-liability company which are established and owned by foreign citizens and/or legal entities is 85% of the total issued capital.
  • Providers are required to have IDR 1 billion in capital (i.e. paid-up capital for a limited-liability company and self-capital for a cooperative) at the time they apply for registration and IDR 2.5 billion at the time they apply for the license. Limited-liability companies or cooperatives intending to engage in the P2P Lending Services business are required to register with and subsequently apply for a license to the OJK.
  • Providers are prohibited from conducting other businesses outside the P2P Lending Services, such as acting as lender or borrower, providing security or guarantee for other parties’ debt and issuing bonds.

It should be noted that parties which had been engaging in this type of lending services before the issuance of POJK 77/2016 are required to register with the OJK by June 2017 at the latest. (by: Miriam Andreta)