These are the Requirements for Becoming a Peer to Peer Lending Provider in Indonesia
Borrowing and lending money directly by either written or unwritten agreements is a longstanding practice amidst society. This practice certainly persists because it is one way to obtain funds quickly that cannot be provided by financial service institutions in the Banking, Capital Market, or Financing Companies.
In the digital era as it is today, the practice of lending and borrowing has experienced developments marked by the presence of peer to peer lending fintech. With the existence of peer to peer lending, fund borrowers can meet lenders on an online platform as if bringing together traders and buyers in a buying and selling application. This practice is rife in society because the process is far easier than borrowing funds from conventional banks and there are promising benefits for lenders. The rise of peer to peer lending lately makes the providers of peer to peer lending begin to mushroom in Indonesia, either registered and licensed or illegal. To avoid losses for peer to peer lending service users, Financial Services Authority (Otoritas Jasa Keuangan/OJK) as the supervisory and regulatory body in the financial services sector issued POJK No. 77/2016 to arrange information technology-based lending and borrowing service activities. The following is a review of the conditions that must be fulfilled by the providers before obtaining a peer to peer lending business license by applicable regulations.
- Definition of Peer to Peer Lending
Peer to Peer Lending or Information Technology-Based Money Lending and Borrowing Services is the financial service operation to bring together lenders and borrowers entering into loan agreements in rupiah directly through an electronic system using the internet network. Thus, peer to peer lending is a platform that brings together people who need loans with people who will provide loans. The parties that give and receive the loan are not financial service institutions but the fellow system or application users (peer to peer) managed by the providers.
- Parties Involved in Peer to Peer Lending Implementation
Based on the provisions of Article 1 Number 6-9 POJK No. 77/2016, parties involved in peer to peer lending implementation include:
- Information Technology-Based Lending and Borrowing Service Providers are Indonesian legal entities that provide, manage and operate peer to peer lending services.
- Service Users are Lenders and Borrowers who use peer to peer lending services.
- Borrowers are people and/or legal entities that have debts due to an Information Technology-Based Lending and Borrowing Service agreement.
- Lenders are people, legal entities, and/or business entities that have receivables due to an Information Technology-Based Lending and Borrowing Service agreement.
Requirements to Establish Peer to Peer Lending
Form of Legal Entity Providers
Based on the provisions of Article 2 POJK No. 77/2016, Peer to peer lending Provider is declared as Other Financial Services Institution and is a legal entity in the form of:
- Limited Liability Company (“Perseroan Terbatas/PT”). This PT can be established and owned by Indonesian citizens/Indonesian legal entities and/or foreign citizens/foreign legal entities.
- For legal entities in cooperative forms, POJK limits only cooperatives in the type of service sectors that can be providers.
Specifically for providers in the form of PT, Article 3 POJK No. 77/2016 requires that the Provider’s shareholding by foreign citizens and/or foreign legal entities directly or indirectly be at the most 85% (eighty-five percent).
Article 4, there are two capital requirements for Providers, including:
- Capital Requirements at the time of Registration
At the time of registration, either PT or cooperatives must have a paid-up capital or an owned capital of at least Rp1,000,000,000.00 (one billion rupiahs).
- Capital Requirements when Filing Permit Request
Applying for a permit, the paid-up capital or the owned capital that must be owned by PT and the Cooperative increased to at least Rp2,500,000,000.00 (two billion five hundred million rupiahs).
Recommendation Requirements from the Association
Besides having to meet those requirements, after the issuance of the OJK Appointment Letter No. S-5/D.05/IKNB/2019 to the Indonesian Joint Funding Fintech Association (Asosiasi Fintech Pendanaan Bersama Indonesia/AFPI) to become a partner in carrying out the regulatory and supervisory functions of the Peer to Peer Lending providers, each Fintech Lending provider candidate must obtain a recommendation from AFPI first to register as a provider in OJK. After the issuance of the letter of appointment, the conditions for fintech lending registration were updated by OJK with the requirement for the provider controllers to attend and obtain a seminar certificate from AFPI for the registration process as a provider in OJK.
Author: Kintan Ayunindya/ Frederik Yu