Uproar among Indonesian online lenders over draft OJK regulations

OJK, Indonesia’s financial services authority, is in the process of revising the POJK 77 regulations for online lenders, which were introduced in 2016.

But the draft regulations that were presented to the industry have caused concern.

Image credit: Wikimedia

Some policy proposals may make it harder for new players to enter the industry. Other measures may increase the amount of bureaucracy or make it more difficult for players to raise foreign investment.

As the CEO of an online lender puts it: “I think the intentions are right, but the way [OJK] is doing this will kill off innovation and make it hard for us to grow.”

The new regulations may be implemented as soon as the first quarter of 2021, according to a source close to AFPI, the industry association of fintech lending companies. Dialogues between AFPI and Riswinandi, OJK’s head of oversight for non-bank financial institutions, are ongoing.

OJK has not responded to Tech in Asia’s request for comment.

Concerns over proposed changes

There are several key proposed changes in the draft regulations, but perhaps the most significant is the minimum amount of paid-up capital. The requirement, which must be fulfilled by the time OJK grants the license, will increase by six times – from 2.5 billion rupiah (US$177,000) to 15 billion rupiah (US$1.06 million).

This amount would be prohibitive to those looking to join the online lending sector, sources say. But in this fundraising climate, even existing players might find it difficult to “top up.”

Other proposals may result in more red tape. For instance, one new policy requires the board of directors and board of commissioners to meet at least once a month. Rules around the frequency of board meetings were previously not set out in the regulations.

Partnerships with external parties will be allowed, they will also be subject to OJK’s written approval. Companies have to submit relevant documents, and OJK’s decision will be given within 20 days.

As a government entity, OJK is well staffed: The entire organization is said to have nearly 4,000 employees. However, there are still over 150 registered and licensed online lenders in Indonesia, says the source. It’s unclear how much bureaucracy would be involved if each company needs to get the green light for every single external partnership.

Certain measures may also make fundraising harder. Changes in ownership, for instance, will also require OJK approval and must include an additional capital injection.

Shareholders will also be subject to a three-year lock-up period after approval and won’t be allowed to sell their shares during this time. In comparison, large shareholders who invest via initial public offerings can typically divest their shares within 90 to 180 days.

Principles-based regulations