Indonesia’s OJK launches more stringent regulations for online lenders

Otoritas Jasa Keuangan (OJK), Indonesia’s Financial Services Authority, has finally issued a new regulation for online lenders after an uproar over a previous proposal.

Called POJK 10, the new rule requires newcomers to Indonesia’s fintech lending space to have 25 billion rupiah (US$1.6 million) in paid-up capital. That’s a 10x increase from the 2.5 billion rupiah (US$167,000) under the old POJK 77 regulation, and it is also higher than the 15 billion rupiah (US$1 million) that was originally proposed.

Industry players have reacted positively to POJK 10. For one thing, it was announced jointly by OJK and AFPI, the industry association for Indonesia’s online lenders.

Joel Shen, head of tech at the law firm Withers, says that he and his colleagues have been awaiting the new OJK policies, which are “broadly consistent” with their expectations.

OJK’s headquarters in Jakarta / Photo credit: Porto News

The previous regulatory framework has resulted in the proliferation of peer-to-peer (P2P) registrations and licences, according to Shen. At its peak in 2019, there were 167 licensed online lenders in Indonesia, but the number has gone down to 102 as of July this year. Some of them were removed for violating OJK’s policies or for their inability to continue operations.

But the quick increase proves that the POJK 77 was easily “exploited by on-balance sheet lenders who used creative corporate structures in order to take advantage of the relatively light regulations and operate in a lax regulatory environment,” Shen tells Tech in Asia.

POJK 10 will be “a good thing for the industry, which has been growing at a breakneck pace,” he adds.

What’s changed?

There are several apparent changes in the new regulation, which may affect new players and existing ones.

The upgraded minimum capital requirement will only apply to new players, who must now also secure a license from OJK to start their business. In the past, several lenders began operating after obtaining registered status but without holding a full license.

While the minimum capital requirement is substantially higher, it will not be particularly onerous for “serious” newcomers, Shen says. However, he also expects a reduced number of new entrants due to “the fit and proper criteria, single-presence policy, and moratorium on change of control to drive consolidation among existing P2P lenders.”

POJK 10, which took effect on July 4, states that a company must have at least one controlling shareholder and two directors, up from the previous requirement of one director. Directors and commissioners, along with officials at one level below directors, are required to have a work competency certificate from a professional fintech certification agency registered under OJK.

Another amendment involves limiting total outstanding loans for “super lenders.”

A stronger industry?