Indonesia lays out regulations for booming peer-to-peer loan startups

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2017 starts with more clarity on peer-to-peer lending as Indonesia released new regulations for the booming sector.

It’s Indonesia’s first attempt at laying down rules to define how people may use the internet to connect money lenders with borrowers in efficient ways. Here are some key points from Indonesia’s financial services authority (OJK).

Foreign ownership is limited to 85 percent

Some sectors in Indonesia are off limits to foreign ownership, while others are open for investment with limitations. P2P lending belongs to the latter category. Foreigners can operate P2P lending platforms, but can only own 85 percent of the business. If you plan to incorporate a lending site in Indonesia, you’ll need to find a local partner.

Foreigners can only act as lenders

Indonesian nationals, by contrast, can be both lender and borrower.

Minimum capital of roughly US$200,000

As a loans startup boss, you must have access to at least US$186,300 in capital. For the first step of just registering your business, US$74,500 is enough, but when it’s time to apply for the operating licenses, you must prove you’ve got the full amount in the bank.

In the draft version of the regulation, required capital was initially pegged at twice the amount, roughly US$400,000.

Limits to lending amount and interest

OJK put a ceiling on the amount that can change hands in a P2P loan transaction, with loans capped at US$150,000.

In the final version of the regulation, there’s no mention of a cap on the interest rates put on top of the loans. A draft version suggested interest curbed at seven times the repo rate of the Indonesian Central Bank, which at this time is at about 4.75 percent.

Escrow account is a must

P2P platform owners are not allowed to access the capital intended to flow from the lender to the borrower, or vice versa. They receive commission only from transactions they’ve enabled.

They’re thus required to store the funds from lenders in a separate account to which they don’t have access. It’s the same for the reverse flow.