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    1. Background

    As set out in our previous client alert, on 4 July 2022, the Financial Services Authority of Indonesia (Otoritas Jasa Keuangan – "OJK") enacted a new regulation on peer-to-peer ("P2P") lending, i.e. OJK Regulation No. 10/POJK.05/2022 on the Information Technology-Based Co-Financing Services ("POJK 10/2022"), which is a long-awaited revitalisation of the 2016 P2P lending regulation (OJK Regulation No. 77/POJK.01/2016 or "POJK 77/2016").

    Since the beginning of the ongoing COVID-19 pandemic, the P2P lending business has not been getting much positive coverage in the mainstream media, and has had to deal with inconsistent KYC procedures, non-performing loans, as well as problems with collection and applicable interest rates causing certain extreme cases to go viral, which subsequently captured the attention of the current state administration. At one point, P2P lending was even dubbed "pinjol" by the media, which was originally a term ascribed exclusively to illegal lending businesses. Now these illegal businesses are called "pinjol illegal". Clearly, the two are fundamentally different, P2P lending has financial inclusion at its core and pinjol illegal are simply online loan sharks taking maximum advantage of the unavoidable gap between the law and its enforcement.

    Certain limited rules were imposed by the fintech lending association (Asosiasi Fintech Pendanaan Bersama Indonesia – AFPI), notably on maximum interest rates and fees, which was intended to create a healthier industry outlook; but, to ramp up the industry's reputation more holistically, some believed that more dramatic changes in the form of an OJK regulation (POJK) were needed.

    Through POJK 10/2022, OJK appears to aim for the democratisation of P2P lending to allow better participation by retail lenders in the business model as well as a broadening of the categories of eligible borrowers on P2P lending platforms. Additionally, POJK 10/2022 also provides more detailed and stringent provisions on the governance of P2P lending businesses, which was anticipated by industry players.

    This client alert will focus on several key changes introduced by the POJK 10/2022 and analyse its likely impact on the various P2P lending stakeholders, pending its implementation on the ground.

    2. Key Changes

    2.1 More restrictive provisions

    2.1.1 Expansion of lending restrictions

    Although POJK 77/2016 had already put a prohibition on any P2P lending operator acting as balance-sheet lender to borrowers on its platform, the new POJK 10/2022 further expands on this prohibition to include (i) granting access to its directors, commissioners, shareholders, and affiliates to act as borrower or lender, (ii) representing any lender providing a loan to any borrower on its platform, and (iii) providing an automated lending feature (where a lender hands-over the funds to the P2P lending operator without any interaction or involvement of the lender in the lending transaction).

    Moreover, although the maximum loan limit for each borrower on each P2P lending platform remains the same as the previous limit in POJK 77/2016 (IDR 2 billion),1 POJK 10/2022 introduced lending limits for two categories of lenders. The limits are benchmarked against the platform's aggregate outstanding credit in the preceding month ("monthly position"). Each lender in category 1, i.e. OJK-licensed lenders, can only extend loans of up to 75% of the total monthly position (together with its affiliates). In contrast, each lender in category 2, i.e. non-OJK-licensed lenders, can only extend up to 25% (together with its affiliates).

    OJK provides the following schedule for existing lenders (and their affiliates) to gradually reduce their lending volume:

    By 4 January 2023
    By 4 July 2023
    From 4 January 2024 onwards
    2.1.2 Change of indirect shareholding approval requirement

    Although shareholder changes of a P2P lending operator have always required prior approval from OJK (since POJK 77/2016), POJK 10/2022 expanded the scope of such changes to also include changes of indirect shareholders of private P2P lending companies and controlling shareholders of public P2P lending companies. Having a holding company structure is quite a common theme for P2P lending operators to, among others, simplify their fundraising process. Given this change, however, it seems that simplicity for fundraising is no longer a feature offered by having a holding company structure.

    2.1.3 (Much) higher paid-up capital requirements

    Under POJK 77/2016, the minimum paid-up capital for P2P lending operators was set at IDR 2.5 billionfor the licence application stage and IDR 1 billion3 at the registration stage (with a P2P lending foreign investment company having to have IDR 2.5 billion paid-up capital since its establishment, based on the foreign investment rule applicable at that time). Under POJK 10/2022, however, the minimum paid-up capital of a P2P lending operator is set much higher at IDR 25 billionand must be met since its establishment.5 The entire amount must be paid up in a time deposit under the name of the P2P lending operator and cannot be originated from loans. It is unclear whether this new requirement is meant to preclude any type of in-kind capital contribution.

    Further, P2P lending operators must at all times maintain a minimum equity (as defined under the Indonesian GAAP) of IDR 12.5 billion,in accordance with the following schedule:

    By 4 July 2023
    IDR 2.5 billion7
    By 4 July 2024
    IDR 7.5 billion8
    From 4 July 2025 onwards
    IDR 12.5 billion
    2.1.4 Single presence policy

    POJK 10/2022 requires all P2P lending operators to declare at least one controlling shareholder to OJK. Controlling shareholder in this context is defined as any legal entity or individual, including a business group, owning at least 25% or more of the total shares with voting rights in the relevant P2P lending operator or having less than 25% of the total shares with voting rights but who can be proven to have control over the P2P lending operator, either directly or indirectly.

    This raises some practical questions, such as how to identify a controlling shareholder of a P2P lending operator with a highly distributed ownership where none of the owners holds a substantial degree of control, which is a common situation in start-ups reaching their mid-stage funding rounds. Would a founder (or a group of founders) then qualify as a controlling shareholder of the P2P lending operator (regardless of their level of ownership and limited say)?

    Another question is how OJK would implement this look-through approach to identify the ultimate indirect controller of a P2P lending operator.

    The regulation further prohibits any party (save for the Government of the Republic of Indonesia) from becoming a controlling shareholder in more than 1 (one) conventional P2P lending operator or sharia-based P2P lending operator. This approach seems to be in line with the approach taken in other fintech sub-sectors (including those regulated by the Central Bank). However, the implementation, again, would largely depend on the ability to identify the ultimate indirect controllers of the operators.

    Investors that are controlling shareholders in more than one P2P lending operator would need to divest one of their shareholdings before 4 July 2023.

    2.1.5 Lock-up

    A P2P lending operator is restricted from introducing any new shareholder and changing its controlling shareholder for a 3-year period following the issuance of a P2P lending licence by OJK (again, this approach seems to be in line with the approach taken in other fintech sub-sectors (including those regulated by the Central Bank). It is unclear whether such lock-up requirement would apply only to P2P lending operators licensed under the new regime or apply also to those with licenses issued within 3 years prior to the enactment of this POJK 10/2022.

    2.1.6  Reporting obligations

    POJK 10/2022 introduces a myriad of new reporting obligations for P2P lending operators, which include reporting on (i) the opening of an office other than the head office, (ii) the closure of an office other than the head office, (iii) a change to the name of the P2P lending operator or its electronic systems, (iv) a change of address, (v) a change to its business model, (vi) any agreement to exchange data on information with third parties, and (vii) any partnership with informative, outsourcing, and risk-mitigation service providers.

    2.1.7   Human resources

    While POJK 77/2016 was silent on the employment or appointment of expatriate talents, POJK 10/2022 sets up the following non-exhaustive restrictions on the same:

    Board of Directors (BOD) and Board of Commissioners (BOC) related provisions:

    a.  A P2P lending operator must appoint at least 2 directors, half of whom must possess at least 2 years of managerial experience in financial services. P2P lending operators established prior to the enactment of POJK 10/2022 with fewer than 2 BOD members must comply with this requirement by 4 July 2023.

    b.  All members of the BOD must be domiciled in Indonesia.

    c.  A P2P lending operator must appoint at least 1 commissioner and the number of members of the BOC must not exceed that of the BOD. As in the case of the BOD, at least half of the BOC members must possess a minimum of 2 years of managerial experience in financial services.

    d.  In contrast to the domicile requirement for the BOD, only half of the BOC members are required to be domiciled in Indonesia.

    e.  A director of a P2P lending operator is not allowed to hold concurrent positions in any company, except as a commissioner in not more than 3 other companies. A commissioner of a P2P lending operator must not hold 3 other positions in other companies within the same P2P lending operator categories (conventional or sharia). Existing P2P lending operators must comply with these requirements by 4 January 2023.

    f.   All BOD and BOC members, as well as officers who are a level below directors must possess competence certificate issued by professional certification body in the fintech sector registered with the OJK.

    Use of expatriates:

    g.  Foreign BOD members must be proficient in Bahasa Indonesia as evidenced by language proficiency certification obtained within the prescribed period.

    h.  Employment of an expatriate shall not exceed a non-extendable 3 (three) year contract.

    i.  Expatriates can be employed in the information technology (IT) department as only experts, which is a level below directors, or as consultants and must fulfil the other requirements set out under POJK 10/2022.

    j.  Employment of expatriates must be reported to OJK and must be coupled with transfer of knowledge programs (which must also be reported to OJK). This has been the rule of thumb for employment of expatriates generally, but it is not clear what the implementation metrics are to ensure that the transfer of technology occurs effectively.

    k.  If the aggregate shareholding by foreign legal entities in the P2P lending operator is at least 25%, expatriates may be appointed to hold up to 50% of seats on each of the board of directors and board of commissioners.

    Internal audit unit:

    l.  POJK 10/2022 requires P2P lending operators to form an internal audit unit managed by at least 1 member of human resources (HR) personnel with an audit background, which unit must conduct an internal audit at least once a year. P2P lending operators established prior to the enactment of POJK 10/2022 must comply with this requirement by 4 January 2023.

    2.2 Less restrictive Provisions

    2.2.1 Broader pool of borrowers

    POJK 10/2022 allows business entities in Indonesia to become borrowers on a P2P lending platform where as previously, under POJK 77/2016, only Indonesian individuals and legal entities could become borrowers. Business entities include limited partnerships (persekutuan komanditer), a common form for micro and small businesses.

    2.2.2 One-step licensing process

    POJK 10/2022 removed the two-step licensing process (under POJK 77/2016) and adopted a more streamlined one-step licensing process. Candidates can now apply directly for a P2P lending licence without first going through a separate registration process. Although the previous two-step licensing regime may seem as a more prolonged process, the fact that a registered (and not yet licensed) P2P lending operator could commence its business (albeit in a limited manner), was an early market-inception feature which was appreciated by the operators.

    POJK 10/2022 also reiterates the obligation of a P2P lending operator to register itself as an electronic system provider with the Minister of Communication and Informatics and imposes a 30-day timeline to satisfy this obligation (after obtaining the licence from OJK).

    2.2.3 Other

    In addition to the two provisions above, several noteworthy changes were also introduced:

    a.  Mechanism for settlement of borrower's rights and obligations, which are to be completed within 6 months of the revocation of a P2P lending licence;

    b.  Mechanism for loan collection, including the use of third-party collection service providers. On this particular point, the involvement of AFPI (which has the authority to certify the collection service providers) is crucial to ensure that the rules are implemented effectively;

    c.  Transparency of the P2P lending operator's information to provide public comfort, including incorporating its office coordinates into the global positioning system (GPS). This seems to be an attempt to distinguish the P2P lending operators from the pinjol illegal which are known to be constantly moving offices from one location to another;

    d.  The obligations of P2P lending operators with respect to customer data protection (which will be further regulated by OJK); and

    e.  "Secularisation" between the conventional P2P lending operators and sharia-based P2P lending operators. POJK 10/2022 prohibits P2P lending operators from conducting both sharia and conventional business models. As such, it introduces the mechanism to convert a conventional P2P lending operator into a sharia P2P lending operator with prior approval from OJK.

    3. Some points to consider

    We set out below some high-level key takeaways from the changes brought about by POJK 10/2022.

    3.1  Given the newly introduced single presence policy, the "secularisation" and the expansion of lending restrictions (see 2.1.1), P2P lending operators and investors need to consider their ownership structures and business models to ensure compliance with POJK 10/2022.

    3.2  The higher capital requirements (including equity maintenance) and the lock-up mechanism seem to require investors to show a higher level of commitment to the business. If an investor is considering whether to go with the P2P lending business or a multi-finance business (which is quite common), and factoring in the restrictions applicable to the P2P lending business, we can see the appeal a multi-finance business has. While multi-finance business requires a higher minimum equity maintenance of IDR 100 billion,9  certain flexibility features, including the ability of multi-finance companies to disburse cash to their customers, could on balance be appealing for investors with deep pockets.

    3.3  Strict limits on the use of foreign talent can put some strain on the transfer of knowhow in areas other than IT, which may have taken a long time to develop in other parts of the globe. While it puts Indonesian talent first, this strict limitation on the use of foreign talent also has the potential to dampen the overall competitiveness of the fintech job market in Indonesia, which may eventually lead to lower quality products and services.

    3.4  It is too early for us to conclude whether the one-step licensing process will be beneficial for potential P2P lending operators. It will depend on how this process is implemented in practice, which involves a number of variables, including the capacity of OJK's resources. If this does indeed lead to a less protracted licensing process, it will surely help to attract prospective investors. It is also too early to conclude that this new regulation will immediately bring the industry's reputation back on track; and close scrutiny by OJK as well as AFPI in the implementation stage (including by issuing any necessary implementing regulations) remains a key element in navigating the industry through the existing problems.

    Authors: Dion Alfadya (Partner); Anggarara Hamami (Senior Associate); and Kevin Jhonson Simatupang (Associate)

    1. Equivalent to approx. USD 135,000. 
    2. Equivalent to approximately USD 168,000.
    3. Equivalent to approximately USD 37,000.
    4. Equivalent  to approximately USD 1.7 million.
    5. The new IDR 25 billion paid-up capital threshold does not apply to P2P lending operators that have obtained, is in the process of applying for, and in the process of re-applying for the P2P lending license from OJK. 
    6. Equivalent  to approximately USD 842,000.
    7. Equivalent to approximately USD 168,000.
    8. Equivalent to approximately USD 505,000.
    9. Equivalent  to approximately USD6.7 million.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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